Market Talk
– The US dollar paused for breath on Thursday; having given up a brief rally made after the U.S Federal Reserve said it would end pandemic-era bond purchases in March and hike rate by 0.75% point in 2022, as investors awaited imminent decisions from ECB and Bank of England later on Thursday.
– The Federal Reserve said it will accelerate its asset tapering program to $30 billion per month in its policy decision meeting on Wednesday. The central bank kept its interest rate unchanged but will have three quarter-point interest-rate increases in 2022, another three in 2023, and two more in 2024 to tackle inflation.
– The euro advanced 0.25% on Wednesday after initially falling to a low of 1.1220 on FOMC announcement before recovering to 1.1280 ahead of ECB meeting today. ECB officials are set to call time on the central bank’s Pandemic Emergency Purchase Programme but rate rises are a likely far away.
– The Aussie dollar rose to 0.7177 after Aussie jobs data came in well above expectations, seemingly more significant for markets than Australia’s top central banker saying he thought it unlikely interest rates will need to rise in 2022.
– Gold shrugged off initial declines to move higher after the U.S. Federal Reserve announced it would end its pandemic-era stimulus measures in March, but flagged inflation could run hot next year helping gold to recover from its decline.
Chart Focus USD/CAD
Key Points
1. Sell USD/CAD recommendation
2. Sell USD/CAD at 1.2850. Stop at 1.2885 and profit target at 1.2770.
3. Interest rate differential and high crude oil prices are both likely to support the Canadian dollar.
4. A bearish Engulfing candlestick price pattern and Stochastic are both hinting of a price decline.
Fundamental Comments
1. Bank of Canada is likely to hike interest rate before the Federal Reserve, keeping current interest rate differential in the Canadian dollar.
2. High crude oil price is likely to aid the Canadian dollar.
Technical Comments
1. A bearish Engulfing candlestick price pattern is hinting of a price high.
2. Stochastic is hinting at a price decline.
Technical Overview
USD/JPY – Price broke above the 114.00 range high and we are expecting the rally to continue to 114.38 which is the Fibonacci 62% correction point of the decline from 115.52 to the low at 112.52. Stochastic is in the overbought zone. Stochastic and MACD are both possibly forming divergence warnings. 20EMA remains bullish and is hinting at a bullish price trend.
| Support | 113.95 | 113.60 | 113.20 |
| Resistance | 114.30 | 114.65 | 114.95 |
EUR/USD – Our view remains the same as yesterday. We think last week’s range of 1.1354 to 1.1227 is likely to contain trading for this week. Last night, there was a brief break of this lower end but price had bounced up inside the range and has stayed inside this range. Stochastic is rising after a bullish crossover but MACD remains bearish. 20EMA is flat and neutral at the moment.
| Support | 1.1255 | 1.1220 | 1.1185 |
| Resistance | 1.1300 | 1.1330 | 1.1380 |
GBP/USD – Price is likely to be trading within last week range of 1.3289 to 1.3165 ahead of Bank of England policy decision later this evening. Over the past 4 days, price has been trading within last week range and even after FOMC, price stayed within this range. Stochastic is in the middle of its range and MACD is flat and near to the zero line. Both are hinting at a sideways movement. 20EMA is also hinting of a sideways consolidation.
| Support | 1.3220 | 1.3190 | 1.3160 |
| Resistance | 1.3255 | 1.3290 | 1.3320 |
XAG/USD – We had a buy call on Silver yesterday at $21.85 but price declined to a low of $21.38 and our stop was triggered. We lost 25 cents on this trade. Our view remains unchanged from yesterday. Price has bounced up to 22.17 at the point of writing and we think price is likely to proceed higher to $22.40 or $22.70 over the next 48 hours. Stochastic is rising but MACD remains bearish.
| Support | 22.05 | 21.70 | 21.40 |
| Resistance | 22.40 | 22.60 | 23.00 |
AUD/USD – We had a sell call on this pair on Tuesday at 0.7130 and had left a stop and profit orders at 0.7145 and 0.7050 respectively. Our stop was triggered last night and we are out with a 15 pips loss. Stochastic is rising but MACD remains bearish. 20EMA is hinting at a bullish price trend. We think price is likely to test the recent high at 0.7186. A break will likely sent price higher to 0.7270. Inability to move above this resistance will result in a decline to 0.7090.
| Support | 0.7145 | 0.7115 | 0.7090 |
| Resistance | 0.7185 | 0.7210 | 0.7245 |