FX Commentary – US Dollar At A 20-Year High On Hot Inflation Data

Market Talk
– The U.S. dollar climbed to a near four-week high against a basket of currencies, after data on Friday showed U.S. consumer prices accelerated in May, strengthening expectations the Federal Reserve may have to continue with interest rate hikes through September to combat inflation.

– U.S. consumer price index increased by a bigger-than-expected 8.6% last month, the largest year-on-year increase since December 1981, Labour Department figures showed on Friday. This data dashed hopes that inflation had peaked, and instead put markets on alert that the Fed may tighten policy for too longer period of time.

– The yen fell to a fresh 20-year low against the dollar on Monday, as red hot U.S. inflation data drove up Treasury yields, diminishing the earlier boost from speculation Japanese authorities could intervene to support the currency.

– The euro was languishing at $1.0483 and sterling was lower at $1.2275, taking little support from expectations the BoE will raise rates on Thursday, which would be its fifth hike since December. The Australian dollar fell to a three and a half week low at 0.6998.

– Gold prices bounced back in volatile trading on Friday, climbing 1.25% to reach a high of $1875.60 as focus turned to economic risks after elevated U.S. inflation readings bolstered bets for aggressive interest rate hikes.

Chart Focus EUR/JPY

Key Points

1. Sell EUR/JPY recommendation.

2. Sell EUR/JPY at 141.50. Stop at 141.90 and profit target at 139.75

3. A euro rate hike expectation being priced in and worries of BOJ intervention help to bring this cross pair lower.

4. Price is likely to be capped by the 20EMA and MACD is hinting at a bearish price trend.

Fundamental Comments

1. The euro was languishing after investors had priced in a hike expectation in the coming months.

2. Worries that the BOJ could intervene to support the yen helped to keep the yen weakness in check

Technical Comments

1. A pullback to the 20EMA is likely to stop at the 20EMA.

2. MACD remains bearish and is hinting at a bearish price trend.

Key Levels


Technical Overview

USD/JPY – Price reached a fresh 20-year high of 135.20 this morning in Asian trading. This high was also accompanied by a divergence warning from the MACD indicator. This is a warning about a possible price high in the making.  Stochastic is in the overbought zone and is hinting at a possible price decline. 20EMA remains bullish and is hinting at a bullish price trend. A move below 133.20 would confirm a top and hint at a decline.


EUR/USD – Price has declined to a low of 1.0476 at the point of this writing and price looks like it will be moving lower to test the next support level at 1.0460. A break of this support could open the way to the previous low from 13 May 2022 at 1.0350. Stochastic is deep in the oversold zone but both MACD and 20EMA are hinting at a strong bearish price trend. We may see a technical rebound to 1.0570 before the decline resumes again.


GBP/USD – The decline continues to a low of 1.2237 and the decline looks like it will continues towards 1.2155 in the next few days. MACD and 20EMA are hinting at a strong bearish price trend. There is also a possibility of a technical correction as stochastic is deep in the oversold zone. This could offer a good opportunity to get into the bearish price trend. Above 1.2470 would indicate the end of the bearish price trend.


XAU/USD – Price rallied to a high of $1875.60 on the U.S. inflation data on Friday night. We have seen a decline to a low at $1865.85 this morning. Stochastic is hinting at a price rally and both 20EMA and MACD are also bullish and hinting at a bullish price trend. We think price is likely to test the previous week’s high of $1875.60 again in the next 24 hours. The next resistance point is at $1885.55.


AUD/USD – We have a sell call at last Friday at 0.7155 but our entry order was not filled as price only reached a high of 0.7137. Price has since declined to a low of 0.6998 this morning and we think price may have reached a bottom. We see a technical rebound to 0.7090 in the next 24 hours. Stochastic is in the oversold zone. However, both MACD and 20EMA are hinting at a strong bearish price trend.


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