FX Commentary – U.S. Dollar Rose To Its Highest In 3 Years

Market Talk
– The U.S. dollar rose to its highest level in more than three years on Tuesday, as Treasury yields spiked to a three year high ahead of U.S. inflation data which could foreshadow even more aggressive interest rate hikes from the Federal Reserve.

– The yield on benchmark 10 year notes rose to 2.836%, its highest since December 2018, supporting the dollar. The Japanese currency bore the brunt of the losses against the greenback, which rose to 125.77 yen overnight, its highest since June 2015.

– The euro was steady at $1.0870, buffeted by politics, but unable to hold onto gains from its mini-relief rally on Monday after French leader Emmanuel Macron beat far-right challenger Marine Le Pen in the first round of presidential voting.

– Investors now await the U.S CPI data due later in the day for clues as to how far and fast the Federal Reserve will tighten its monetary policy. A high reading is likely to reinforce expectations of aggressive Federal Reserve tightening.

– Gold was up on Tuesday morning in Asia as U.S. Treasury yields and the greenback gained ahead of the latest inflation figures. The data could provide clues as to how far the U.S. Federal Reserve will continue tightening monetary policy.

Chart Focus USD/CAD

Key Points

1. Sell USD/CAD recommendation.

2. Sell USD/CAD at 1.2650. Stop at 1.2680 and profit target at 1.2560.

3. A recovery in crude oil price and interest rate differential are both aiding the Canadian dollar.

4. Price may have hit a top and a correction is due with MACD warning of a possible price high.

Fundamental Comments

1. A recovery in crude oil price is aiding the Canadian dollar.

2. Interest rate differential is in the Canadian dollar favour.

Technical Comments

1. Price may have hit a top and a correction could be ahead.

2. MACD has a divergence warning of a possible price high

Key Levels


Technical Overview

USD/JPY – Price broke above the previous high at 125.10 yesterday and reached a high of 125.77, which was just short of our resistance at 125.85. Stochastic is in the overbought zone but both MACD and 20EMA are hinting at a strong bullish price trend. We are likely to see another attempt to test the high of 125.85 in the next 24 hours. A break of this resistance will sent price higher to 126.40 while failure will send price back to 124.00.


EUR/USD – Price was capped again below 1.0945 and we saw a decline to 1.0865 at the point of this writing. We are likely to see a test of last Friday’s low at 1.0835 again. However, with MACD warning with a divergence, we think the low could be either at 1.0835 or 1.0805. Stochastic is in the middle of its range.  20EMA is also starting to flatten, hinting at a trend exhaustion.


GBP/USD – The decline overnight managed to stay above last Friday low of 1.2982 and MACD could be developing a divergence. However, there is still no confirmation of a possible low in place at the moment. The decline could continue as 20EMA is still pointing lower and hinting at a bearish price trend. Stochastic is in the middle of its range. We think a medium term low could be near after a 3-week decline and we are waiting for confirmation.


XAU/USD – Our view remains the same as yesterday. Price moved above the high of $1949.40 to test $1970. However the inability to break above $1970 has sent price lower to $1940.65. We are likely to see another test of $1970 again in the next 24 hours. Watch the breakout at $1970. A break of this resistance is likely to send price higher to $2000 while failure will keep price within the range of the past few day.


CAD/JPY – We had a buy recommendation on this pair yesterday at 99.10 which was filled when price declined to a low of 98.97. The 20EMA is currently supporting the price and as long as price stays above the 20EMA, are likely to see another test of the high at 99.83 again. We remain bullish and would recommend shifting stop higher to 98.90 and profit order lower to 99.80.


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