Market Talk
– The U.S. dollar is headed for its first down week in six versus major peers on Friday, as investors continued to assess the impact of the start of the Federal Reserve’s rate tightening cycle. Sentiment also improved after Russia avoided default on dollar-denominated debt.
– The continuation of peace talks even as fighting still rages in Ukraine has stalled demand for safe haven US dollar, while the euro has rebounded from last week’s nearly two-year trough. The single currency was slightly weaker at $1.1079 on Friday after reaching a high of 1.1137 overnight.
– The yen weakened to 118.77 per dollar, after the Bank of Japan left its ultra-accommodative policy settings unchanged on Friday morning, as widely expected, leaving it an outlier among developed-world central banks which are exiting pandemic emergency measures.
– Sterling ticked higher to $1.3152, overcoming the hiccup from the Bank of England’s dovish comments after raising interest rates for a third consecutive meeting on Thursday. The Bank of England hiked its interest rates to 0.75%.
– Gold was down on Friday morning in Asia, on hopes that progress in ceasefire talks between Ukraine and Russia could end the war in Ukraine, which dented the yellow metal’s safe-haven appeal.
Chart Focus USD/CNH
Key Points
1. Buy USD/CNH recommendation.
2. Buy USD/CNH at 6.3585. Stop at 6.3455 and profit target at 6.4070
3. COVID in China and the Fed’s tightening cycle are both likely to aid the U.S. dollar.
4. Price is supported by a strong support with Stochastic hinting at a bullish price trend.
Fundamental Comments
1. COVID and lockdown in China is likely to weigh on the yuan.
2. The Federal Reserve’s rate tightening cycle is likely to aid the U.S. dollar.
Technical Comments
1. Price is supported by the Fibonacci 50% correction point and the 20EMA.
2. Stochastic is turning up and hinting at a bullish price trend.
Key Levels
| Support | 6.3545 | 6.3435 | 6.3315 |
| Resistance | 6.3715 | 6.3900 | 6.4110 |
Technical Overview
USD/JPY – Price reached a high of 119.13 on Wednesday and has been declining since that high. That high was also accompanied by a bearish divergence warning from the MACD indicator, which is a hint of a possible price high. The 20EMA is currently supporting price at 118.35 but a break of this support is likely to send price lower to 116.90. Stochastic is declining from the overbought zone and is hinting at a bearish price trend ahead.
| Support | 118.35 | 117.95 | 117.50 |
| Resistance | 118.80 | 119.15 | 119.60 |
EUR/USD – Price reached a high of 1.1137 overnight but this high was accompanied by a divergence warning from the MACD indicator. Stochastic is also declining from the overbought zone. However, 20EMA remains bullish. We think price may have reached a high after a 5-day rally. We are looking for bearish trend to resume, if price is capped at 1.1137. Above 1.1137, the next price resistance lies at 1.1270.
| Support | 1.1050 | 1.1005 | 1.0960 |
| Resistance | 1.1095 | 1.1140 | 1.1180 |
GBP/USD – The rally was capped by a previous resistance high at 1.3210 but the decline was supported by the 20EMA at 1.3090. MACD remains bullish and 20EMA is also hinting at a bullish price trend. Stochastic is also hinting at a bullish price trend. We remain bullish and we think price is likely to move above 1.3210 to the next resistance at 1.3270. A decline below 1.3090 would negate our bullish view and call for a decline to 1.2991.
| Support | 1.3150 | 1.3090 | 1.3040 |
| Resistance | 1.3210 | 1.3250 | 1.3300 |
XAU/USD – The price rally reached a high of $1949.65 overnight but MACD remains bearish. Stochastic has a bearish crossover in the overbought zone and is hinting at a price decline. 20EMA has also turned bearish. We think price may have reached a high and we are likely to see a decline back to test the previous low of $1895.10 in the next 48 hours. A move above $1950 would negate our bullish view.
| Support | 1922.40 | 1906.85 | 1895.10 |
| Resistance | 1936.20 | 1949.65 | 1962.25 |
USD/CHF – Yesterday, we had a buy call on this pair but we call was wrong. We lost 30 pips on this trade. Stochastic continues to decline but is reaching the oversold zone. MACD remains bullish but is close to the zero line and could turn bearish. 20EMA has already turned bearish. We see this decline continuing lower to the next support level at 0.9290 in the next 24 hours.
| Support | 0.9335 | 0.9290 | 0.9250 |
| Resistance | 0.9375 | 0.9405 | 0.9460 |