Market Talk
– The safe-haven yen and Swiss Franc gained on Tuesday, with risk appetite plummeting, as investors grew nervous about a suddenly hawkish Federal Reserve that could deliver aggressive rate hikes and derail a nascent economic recovery.
– Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee that the Fed will discuss whether to wrap up asset tapering a few months earlier than scheduled when it meets later in the month. In response, traders wound up interest rate hike expectations, with money markets now almost fully priced for tightening at the June meeting.
– Sterling traded not far from an 11-month low of 1.3194 reached overnight, last changing hands at 1.3295. Bank of England Monetary Policy Committee member Catherine Mann said on Tuesday that the new omicron COVID-19 variant could hurt consumer confidence, in turn weakening economic recovery.
– Aussie weakened to 0.7124 after dipping as low as 0.7063 on Tuesday for the first time since Nov. 3, 2020. The New Zealand dollar was largely flat at 0.6819 after also touching the lowest since early November of last year at 0.6773 in the previous session.
– Gold was up on Wednesday morning in Asia, but remained near a one-month low. Investors continued to digest signs from U.S. Federal Reserve Chairman Jerome Powell that the central bank would discuss wrapping up asset tapering quicker than planned.
Chart Focus USD/CAD
Key Points
1. Sell USD/CAD recommendation.
2. Sell USD/CAD at 1.2740. Stop at 1.2785 and profit target at 1.2650
3. An increase in crude oil price and perceived Fed aggressive hike policy could derail a nascent economic recovery.
4. A Double Top chart pattern with a divergence warning from the MACD indicator is a hint of a market top and a reversal.
Fundamental Comments
1. Crude oil price climbed 2% on Wednesday on OPEC+ plan to halt increasing production is aiding the Canadian dollar
2. Omicron and Fed aggressive rate hike have investors worried that a nascent economic recovery could be derailed.
Technical Comments
1. Price could have formed a Double Top chart pattern, which is a hint of a reversal.
2. A divergence warning from MACD is hinting at a price high and a reversal.
Key Levels
| Support | 1.2730 | 1.2695 | 1.2645 |
| Resistance | 1.2785 | 1.2810 | 1.2845 |
Technical Overview
USD/JPY – We think price may have hit a low last night at 112.52 and a rebound to 114.00 is likely within the next few days. The rally may extend to 114.50. MACD has a divergence and both of MACD’s lines are moving higher, hinting at a bullish price trend. Stochastic also has a bullish divergence warning and is hinting at a bullish price trend. 20EMA is neutral at the moment.
| Support | 113.30 | 112.95 | 112.50 |
| Resistance | 113.70 | 114.05 | 114.40 |
EUR/USD – Price rallied to a high of 1.1382 overnight but comments from Powell sent the price to a low of 1.1234. A possible Inverse Head and Shoulder chart pattern could be forming. A move above 1.1390 would confirm this chart pattern and hint at a price movement to 1.1578. However, if price fails to move above 1.1382, we are likely to see a decline back to test the low at 1.1185.
| Support | 1.1300 | 1.1255 | 1.1220 |
| Resistance | 1.1340 | 1.1385 | 1.1415 |
GBP/USD – Price made a new low at 1.3194 overnight but this low was accompanied by a divergence warning from the MACD indicator. The low is also the Fibonacci 161.8% price projection from the decline from 1.3607 to the low at 1.3352. Stochastic is also hinting of a price low but 20EMA is hinting of a strong bearish price trend. A move above 1.3370 would confirm the low and hint at a price movement to 1.3510.
| Support | 1.3295 | 1.3255 | 1.3195 |
| Resistance | 1.3340 | 1.3370 | 1.3410 |
XAU/USD – Last night, price tested Monday’s low at $1770.70. We saw a slight break to $1769.85 but price has bounced up to $1790 again. The ability to hold above the range low is a hint of a test to the top side of the range at $1815.47. Stochastic is near to the oversold zone and MACD is near to the zero line. Both indicators are neutral at the moment. 20EMA is also neutral.
| Support | 1778.10 | 1769.85 | 1758.65 |
| Resistance | 1790.25 | 1802.15 | 1815.65 |
AUD/USD – We had a buy order yesterday at 0.7105 with a stop order at 0.7080. A price decline overnight to a low of 0.7062 triggered our stop. We lost 25 pips on this trade. Our view remains unchanged from yesterday. We think price has probably hit a bottom last night and a rebound to 0.7230 is likely in the next few days. Both stochastic and MACD are rising from the extreme low position while 20EMA has turned bullish.
| Support | 0.7135 | 0.7090 | 0.7055 |
| Resistance | 0.7185 | 0.7230 | 0.7270 |