Market Talk
– The U.S. dollar stood by a fresh 20-year peak on Tuesday, supported by fears of a global economic slowdown and bets on steep interest rate hikes by the U.S. Federal Reserve following unexpectedly hot inflation reading on Friday.
– Benchmark 10-year Treasury yields rose and a key part of the yield curve inverted for the first time since April as investors braced for the prospect that the Federal Reserve’s attempts to stem soaring inflation will dent the economy, keeping the yen near a 20-year low.
– Sterling sat by a two-year low at $1.2163 as the Fed is seen outpacing the Bank of England in hiking interest rate. The BoE is wildly expected to deliver a quarter percentage point hike in interest rate on Thursday after its monetary policy meeting.
– The greenback has hit one-month highs on the Australian dollar, New Zealand dollar, Swiss franc and Canadian dollar and it made a fresh one-month top of $1.0397 per euro on Tuesday.
– Gold was down on Tuesday morning in Asia and hovered near a four-week low at $1808, as investors are worried about a recession caused by more aggressive interest rate hikes from the U.S. Federal Reserve.
Chart Focus GBP/USD
Key Points
1. Buy GBP/USD recommendation.
2. Buy GBP/USD at 1.2150. Stop at 1.2110 and profit target at 1.2280
3. A 1-week decline may have run its course and interest rate differential is in the pound’s favour.
4. Price may have reached a temporary low with momentum indicators hinting at a price rally.
Fundamental Comments
1. A 1-week decline may have run its course and a rebound is ahead.
2. Interest rate differential is currently in the pound’s favour.
Technical Comments
1. Price may have hit a low as indicated by a Harami candlestick price pattern.
2. Stochastic and MACD are both hinting at a price rally ahead.
Key Levels
| Support | 1.2155 | 1.2105 | 1.2070 |
| Resistance | 1.2210 | 1.2260 | 1.2300 |
Technical Overview
USD/JPY – Price reached a fresh 20-year high of 135.20 on Monday morning and this high was accompanied by a divergence warning from the MACD indicator. However, a price correction was halted by the 20EMA and we are likely to see a test of the previous high at 135.20 again in the next 48 hours despite the divergence warning. 20EMA is hinting at a strong bullish price trend but a move below 133.15 would confirm a top and hint at a correction to Fibonacci 38% correction point at 131.80.
| Support | 134.10 | 133.60 | 133.15 |
| Resistance | 134.80 | 135.20 | 135.60 |
EUR/USD – The decline reached a low of 1.0396 overnight and we think price may have found a temporary low. Stochastic is hinting at a bounce. MACD has a bullish crossover and is also hinting at a bounce. However, 20EMA is hinting at a strong bearish price trend. We think price is likely to be capped by the 20EMA resistance line at 1.0510 and from this point; we see a decline back to test the low at 1.0396 in the next few days.
| Support | 1.0425 | 1.0395 | 1.0350 |
| Resistance | 1.0460 | 1.0510 | 1.0535 |
USD/CAD – Price has reached a high of 1.2900 this morning after a 4-day rally from the low of 1.2516. Stochastic is in the overbought zone and MACD is also hinting at a possible price decline. However, 20EMA is pointing up with a steep slope, hinting at a strong bullish price trend. We think there is likely to be a correction 1.2750 before the rally resumes again in the next few days.
| Support | 1.2860 | 1.2810 | 1.2775 |
| Resistance | 1.2900 | 1.2970 | 1.3035 |
XAU/USD – Price reached a low of $1808.45 overnight and this low was in the form a Hammer candlestick price pattern. This is a hint of a possible price low. Stochastic is also in the oversold zone and MACD is also hinting at a price rally. 20EMA is hinting at a bearish price trend. We think price is likely to see a technical bounce to $1840 before another decline to test the overnight low again in the next 48 hours.
| Support | 1824.10 | 1808.45 | 1786.90 |
| Resistance | 1832.90 | 1842.40 | 1854.65 |
EUR/JPY – We had a sell recommendation yesterday at 141.50 but price only reached a high of 140.90 and our entry order was not filled. Price has since moved lower to 139.38 overnight. Stochastic is inside the oversold zone and MACD is also hinting at a price rally after a bullish crossover. However, 20EMA is hinting at a bearish price trend. We think price is likely to be capped at 140.90 and we are likely to see another test of the low at 139.38 in the next couple of days.
| Support | 140.05 | 139.50 | 138.95 |
| Resistance | 140.70 | 141.25 | 141.80 |