Market Talk
– The US dollar slid to its weakest since November against major peers on Wednesday, after Federal Reserve Chair Jerome Powell said that while the Fed will be normalizing policy, it has not made a decision on reducing its nearly $9 trillion balance sheet.
– In testimony at his re-nomination hearing, Powell said the U.S. economy was ready for higher interest rates and a runoff of its asset holdings to combat inflation, but said policymakers were still debating approaches to reducing the Fed’s balance sheet, and said it could take two, three or four meetings for them to make such decisions.
– Treasury yields dipped, pulling the US dollar lower, with short-dated yields pulling back from near two-year highs following comments from Federal Reserve Chair Jerome Powell on how the central bank plans to combat inflation.
– The Australian dollar, often considered a liquid proxy for risk appetite, touched it’s highest in almost a week at $0.7216. Sterling rose to $1.3641 for the first time since Nov. 4. The euro traded near the top of its range of the past two months at $1.1371. A climb above $1.1387 would take it to its highest since mid-November.
– Gold prices climbed over 1% as the dollar slipped after U.S. Federal Reserve Chair Jerome Powell’s testimony before Congress did not spring any surprises in terms of monetary tightening, while a retreat in bond yields also lent support to the yellow metal.
Chart Focus USD/JPY
Key Points
1. Sell USD/JPY recommendation.
2. Sell USD/JPY at 115.40. Stop at 115.70 and profit target at 114.70.
3. A delay in Fed balance sheet reduction and a decline in US Treasury yields are both likely to weigh on the US dollar.
4. Price could be doing a corrective decline with both Stochastic and 20EMA, hinting at a bearish price trend.
Fundamental Comments
1. A decline in US Treasury yields is likely to weigh on the US dollar.
2. A delay in reducing the Fed $9 trillion balance sheet, which is likely to cap the rise in Treasury yields, is also likely to weigh on the US dollar
Technical Comments
1. Price could be doing a correction after the rally from 113.30 low.
2. Stochastic and 20EMA are both hinting at a bearish price trend.
Key Levels
| Support | 115.00 | 114.65 | 114.20 |
| Resistance | 115.40 | 115.70 | 115.95 |
Technical Overview
AUD/USD – Price reached a low of 0.7129 on 7 Jan 2022 and we have seen a rally to 0.7220 currently. This is also the Fibonacci 62% of the decline from the high at 0.7277 on 31 Dec 2021 to the low on 7 Jan. Price will need to cross above the Fibonacci 62% correction point to be bullish. If price can move above this resistance, we are likely to see a move towards 0.7277; else we are likely to head back towards 0.7129 again.
| Support | 0.7195 | 0.7165 | 0.7130 |
| Resistance | 0.7225 | 0.7275 | 0.7305 |
EUR/USD – Price tested the bottom of the range on Monday and had moved up towards the topside of the range at 1.1385. A break of this resistance is likely to send price higher to 1.1500 in the next few days. Stochastic is rising towards the overbought zone and is able to support a price move to 1.15. MACD remains bullish and is hinting at a bullish price trend. 20EMA is also hinting at a bullish price trend.
| Support | 1.1355 | 1.1315 | 1.1275 |
| Resistance | 1.1385 | 1.1430 | 1.1465 |
GBP/USD – Price broke above the 1.3605 resistance overnight negating our bearish view. The next price resistance lies at 1.3700 before the previous high at 1.3830. Stochastic is rising on the 4-hourly chart but is already in the overbought zone. MACD remains bullish and both its lines are rising, hinting at a bullish price trend ahead. 20EMA is hinting at a strong bullish price trend with its steep slope.
| Support | 1.3605 | 1.3555 | 1.3515 |
| Resistance | 1.3665 | 1.3705 | 1.3760 |
XAU/USD – Price reached a low of $1783.15 last Friday and has rallied to the high at $1822.98 yesterday. We are expecting the rally to continue towards the previous high at $1830.17 on the last day of 2021. The next resistance will be at $1843. Stochastic is in the overbought zone but 20EMA is hinting at a bullish price trend with a steep slope. MACD is also bullish and hinting at bullish price trend.
| Support | 1810.05 | 1799.70 | 1783.15 |
| Resistance | 1822.95 | 1830.15 | 1843.00 |
USD/CAD – Yesterday, we had a buy call on this pair but our call was wrong. We lost 40 pips on this trade. Overnight, price declined to 1.2542. Stochastic may be in the oversold zone but MACD is hinting at a strong bearish price trend. 20EMA is also hinting at a strong bearish price trend with its steep slope. The next price support lies at 1.2490 and price could be heading towards this level in the next 1-2 days.
| Support | 1.2525 | 1.2490 | 1.2440 |
| Resistance | 1.2565 | 1.2605 | 1.2640 |