Market Talk
– The U.S. dollar was up on Wednesday morning in Asia amid stabilization in US Treasury yields as investors awaited minutes from the last U.S. Federal Reserve meeting. Investors are keeping an eye on the monetary policy outlook with worries of a potential recession caused by the tightening monetary policies.
– New home sales in the U.S. fell 16.6% month-on-month in April, its largest decline in nine years, and sending U.S. Treasuries yields down to one-month lows as investors turned once again to safety. The Japanese yen traded at a five-week high to 126.35 on the yield’s decline.
– The New Zealand dollar hit a three-week high of $0.65 after its central bank raised interest rates by 50 basis points to 2.0% on Wednesday, its fifth rate hike in a row as it seeks to get on top of inflation and signaled the cash rate would peak at a higher level than previously forecast.
– The euro retreated 0.22% to $1.0710, but remained near Tuesday’s high of $1.0748, a level not seen since April 25, after European Central Bank President Christine Lagarde said Eurozone interest rates will likely be in positive territory by the end of the third quarter.
– Gold prices were softer on Wednesday morning in Asia, after climbing to their highest level in two weeks in overnight trading with inflation’s uncertain path giving the yellow metal a boost. Bullion was also lifted by a weaker U.S. dollar and lower Treasury yields.
Chart Focus EUR/JPY
Key Points
1. Sell EUR/JPY recommendation.
2. Sell EUR/JPY at 135.90. Stop at 136.30 and profit target at 134.65.
3. Risk aversion and a decline in Treasury yield are both likely to aid the yen.
4. A Double Top chart pattern and a declining stochastic are both hinting at a price decline.
Fundamental Comments
1. As investors turned once again to safety, the safe haven Japanese yen is likely to strengthen.
2. A retreat in US Treasury yield is likely to aid the yen.
Technical Comments
1. Price may have formed a Double Top chart pattern, which is a hint of a possible price decline.
2. Stochastic is declining and is hinting at a price decline.
Key Levels
| Support | 135.60 | 135.15 | 134.65 |
| Resistance | 136.10 | 136.75 | 137.20 |
Technical Overview
USD/JPY – Price declined to a low of 126.35 overnight but this low was accompanied by a bullish divergence warning from the MACD indicator. This is a hint of a possible price low in the making. Stochastic also has a bullish crossover near to the oversold zone, which is also a hint of a possible price low. However, 20EMA is hinting at a bearish price trend. If price can move above the 20EMA resistance at 127.40, it would confirm 126.35 as the low and a likely price rally to 129.50 in the next few days.
| Support | 126.75 | 126.35 | 126.00 |
| Resistance | 127.20 | 127.55 | 128.05 |
EUR/USD – The price rally continued and we saw a high 1.0748 overnight. However, this high was accompanied by a divergence warning from the MACD indicator on the 4-hourly chart. This could be a hint of a possible price high and a reversal ahead. However, 20EMA is hinting at a strong bullish price trend. We think price is in need of a correction and a corrective decline to 1.0640 is likely in the next 1-2 days.
| Support | 1.0690 | 1.0640 | 1.0595 |
| Resistance | 1.0720 | 1.0750 | 1.0815 |
GBP/USD – Price reached a high of 1.2600 on Monday and that high was accompanied by a divergence warning from the MACD indicator, hinting at a possible price high. The decline over the past 2 days was supported by the 20EMA. If price stays above the 20EMA, we are likely to see another test of the previous high at 1.2600 again. However, a decline below the 20EMA is likely to hint at a decline to 1.2330 in the next few days.
| Support | 1.2510 | 1.2470 | 1.2435 |
| Resistance | 1.2550 | 1.2605 | 1.2640 |
XAU/USD – Price was supported by the 20EMA at $1845 and we saw a rally to a high of $1869.55. However, this high was accompanied by a divergence warning from the MACD indicator on the 4-hourly chart. This could be a hint that the rally from $1786.55 could have come to an end. Stochastic is also hinting at a price decline but 20EMA remains bullish. We favour a decline to $1849.30 initially and to $1836.90 in the next few days ahead.
| Support | 1856.30 | 1846.75 | 1832.15 |
| Resistance | 1869.55 | 1878.40 | 1885.70 |
NZD/USD – We had a buy call on this pair yesterday but our entry order was not filled. This morning price rose to a high of $0.6513 on the back of an interest rate hike by the RBNZ as well as the central bank’s forecast of higher interest rate by the end of the year. Stochastic is hinting at a price rally but MACD is starting to hint with a divergence of a possible price high. 20EMA remains bullish.
| Support | 0.6465 | 0.6415 | 0.6390 |
| Resistance | 0.6515 | 0.6565 | 0.6615 |