Market Talk
– The U.S. dollar held near its overnight 20-year peak on Wednesday ahead of the outcome of the Federal Reserve policy meeting which is expected to announce aggressive interest rate hikes to rein in rampant inflation.
– Market pricing indicates a 99.7% chance of a 75 basis point rate hike at the Fed’s meeting which concludes later on Thursday morning 2am (Singapore), according to the CME’s Fedwatch tool, up from only 3.9% a week ago.
– Higher U.S. rates versus rock bottom Japanese yields have been weighing on the yen, which hit a fresh 24-year low of 135.58 per dollar in early trade on Wednesday morning, before recovering to 135.05.
– Sterling was at $1.2013 after slumping to a 15-month low versus the dollar at $1.1934 the previous day, not helped by the possibility of a new referendum on Scottish independence, while the euro was at $1.0428 just above its overnight one-month low.
– Gold was up on Wednesday morning in Asia from near one-month lows hit overnight as Treasury yields weakened ahead of the U.S. Federal Reserve meeting which is expected to announce aggressive interest rate hikes to tame high inflation.
Chart Focus AUD/JPY
Key Points
1. Buy AUD/JPY recommendation.
2. Buy AUD/JPY at 92.80. Stop at 92.40 and profit target at 94.70.
3. Divergent monetary policy between RBA and BOJ and interest rate differential are both favouring the Aussie dollar.
4. Price is supported above the Fibonacci 62% correction point and MACD is hinting at a bullish price trend.
Fundamental Comments
1. RBA is on a hike path while the BOJ is keeping interest rate low.
2. Interest rate differential is in the Aussie dollar favour.
Technical Comments
1. Price has stayed above the Fibonacci 62% correction point which is hinting at a resumption of the price rally.
2. MACD has a divergence and is hinting at a bullish price trend.
Key Levels
| Support | 92.80 | 92.40 | 92.15 |
| Resistance | 93.60 | 94.25 | 94.75 |
Technical Overview
USD/JPY – Price hit a fresh 24-year low of 135.58 per dollar in early trade on Wednesday morning despite bearish divergence warning from the MACD indicator. Price is likely to find support at the 20EMA line at 134.50 and with 20EMA pointing up, we are expecting price to continue higher to 137.40 in the next few days. Stochastic is close to the overbought zone but unless price moves below 133.60, the trend remains bullish.
| Support | 134.60 | 134.10 | 133.60 |
| Resistance | 135.05 | 135.60 | 136.00 |
EUR/USD – Price managed to hold above the Monday’s low and we are seeing a test to the 20EMA resistance at 1.0485. If price can move above the 20EMA line, we are likely to see a price movement to 1.0610. However, if price is unable to move above the 20EMA, it is likely to decline back to Monday’s low at 1.0395. Stochastic is hinting at a price rally but MACD is hinting at a price decline.
| Support | 1.0450 | 1.0395 | 1.0350 |
| Resistance | 1.0495 | 1.0535 | 1.0595 |
GBP/USD – We had a buy call yesterday but our call was wrong. We lost 40 pips on this trade. Price dipped to a 15-month low versus the dollar at $1.1934 the previous day in part due to possibility of a new referendum on Scottish independence. Stochastic is in the oversold zone. MACD is also moving up from its extreme position. However, 20EMA remains bearish and is hinting at a strong bearish price trend.
| Support | 1.1980 | 1.1935 | 1.1900 |
| Resistance | 1.2040 | 1.2080 | 1.2110 |
XAU/USD – Price reached a low of 1804.95 overnight and this could be a temporary bottom. Stochastic is hinting at a low and MACD is also hinting at a possible price low. However 20EMA is pointing lower with a steep slope, hinting at a bearish price trend. A move above $1831.15 would confirm the low in place and a possible movement higher to $1845. Failure at the $1831.15 resistance is likely to send price lower to $1804.95.
| Support | 1815.75 | 1804.95 | 1786.90 |
| Resistance | 1831.15 | 1844.45 | 1854.65 |
NZD/USD – Price reached a low of 0.6195 overnight and this low was accompanied by a bullish divergence warning from the MACD indicator. This could be a sign of a possible price bottom. A move above 0.6295 would confirm the bottom and a reversal in progress. Stochastic is in the oversold zone and is hinting at a price rally but 20EMA is hinting at a strong bearish price trend. The next direction is also likely to be determined by FOMC decision tomorrow morning.
| Support | 0.6195 | 0.6150 | 0.6115 |
| Resistance | 0.6240 | 0.6290 | 0.6335 |