FX Commentary – US Dollar At A 2-Year High

Market Talk

– The U.S. dollar rose to its highest in almost 2 years aided by the prospect of aggressive U.S. rate hikes and on safe-haven flows fanned by slowing growth in China due to COVID-19 lockdown and in Europe, due to the Russia-Ukraine war.

– The yen has also benefited from the flight to safety, and the Japanese currency pulled up from recent lows at 129.35 to a one-week high at 126.93 on concern about Chinese growth with the financial hub of Shanghai having been under strict lockdown to fight COVID-19 for around a month.

– The euro fell below its COVID-19 lows to $1.0635 in early trade, or a five-year low. Concerns are growing about energy security and economic growth in Europe after Russia said it would halt gas supplies to Poland and Bulgaria later in the day.

– The pound has dropped more than 2% against the dollar in the week to date after worse-than-expected retail sales data prompted a re-think of the U.K.’s interest rates outlook. It hit a fresh 21-month low on early Wednesday morning at 1.2559.

– Gold was up on Wednesday morning in Asia as investors sought cover from fears of stalling global economic growth and soaring inflation. However, gains were limited with the greenback at its strongest level in almost 2 years.

Chart Focus USD/JPY

Key Points

1. Buy USD/JPY recommendation.

2. Buy USD/JPY at 127.65. Stop at 127.20 and profit target at 129.10

3. Expectation of a US rate hike and interest rate differential are both in the US dollar favour.

4. Price is supported with stochastic and MACD indicator hinting at a bullish price trend.

Fundamental Comments

1. Expectation of a US hike rate is likely to aid the US dollar.

2. Interest rate differential and bond yields spread are both in the US dollar favour.

Technical Comments

1. Price is supported by a previous resistance turned support line.

2. Stochastic and MACD are both hinting at a bullish price trend with bullish crossovers.

Key Levels


Technical Overview

USD/SGD – Price broke above a 5-month high and is there is an important resistance at 1.3800. If price can breach this resistance, it could be heading to 1.40. However, there is a divergence warning by the MACD indicator, hinting at a possible price high. Stochastic is also in the overbought zone while 20EMA is bullish. We think price is likely to be capped below 1.3800 and we could see a decline back to 1.3690 in the next few days.


EUR/USD – The decline continues with price reaching a low of $1.0616 at the point of this writing. There is still no sign of a reversal as MACD is not showing any divergence. Stochastic is in the oversold zone but remains weak. 20EMA is pointing down with a steep slope hinting at a strong bearish price trend. The next price support lies at 1.0570. We see a decline to this level in the next 24 hours.


GBP/USD – Price declined to a fresh new low at $1.2569 this morning and we think price may have reached a temporary low. If price is halted by the 20EMA, we may see another decline to 1.2559 but this could be the buying opportunity. Stochastic is starting to turn up from the oversold zone and the decline of the 20EMA is also slowing down, hinting at a possible price low.


XAU/USD – After reaching a low of $1891.40 overnight, price managed to pull up to $1911.15 but the rally seems to be running out of gas. MACD is below the zero line and is turning down again, hinting at a price decline. 20EMA is also hinting at a bearish price trend. Stochastic is near to the oversold zone but a bearish crossover is hinting at a price decline. We think price is likely to make a marginal low below $1891.40 before a reversal.


USD/CAD – We had a buy call at 1.2655 yesterday but price only reached a low of 1.2683 overnight, missing our entry order. Price has moved higher to 1.2828 overnight and MACD is showing a divergence, hinting at a possible price high. Stochastic is also in the overbought zone, hinting at a price decline. However, 20EMA remains bullish. We think price may have reached a temporary high and a corrective decline to 1.2665 is likely in the next few days.


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