Market Talk
– The U.S. dollar retreated from a 20-year high on Thursday after the Federal Reserve delivered its biggest rate hike in decades but then tempered its outlook by telling investors that further super-sized interest-rate hikes is rare.
– The yen last traded at 134.39 per dollar after finding a 24-year low of 135.60 on Wednesday after U.S. Treasury yields, which fell sharply on Wednesday following Powell’s comment. The Bank of Japan will also hand down its policy decisions on Friday.
– Sterling held overnight gains at $1.2178 ahead of a Bank of England meeting later in the global day that is expected to bring at least a 25 bp hike, with swaps pricing implying about an 80% chance of a 50bp hike.
– The Aussie was underpinned by data showing employment jumped 60,600 in May to blow away forecasts of a 25,000 gain after benefiting from a relief rally in global risk assets. The kiwi struggled to make further progress on Thursday after data showed an unexpected contraction in the economy.
– Gold was up on Thursday morning in Asia as investors digested the out-size rate hike and Powell’s comment. A decline in U.S. government bond yields and weak greenback overnight took gold as much as 1.9% higher in the previous session.
Chart Focus USD/CAD
Key Points
1. Buy USD/CAD recommendation.
2. Buy USD/CAD at 1.2880. Stop at 1.2845 and profit target at 1.2980
3. Expectation of more US rate hikes and interest rate differential are in the greenback’s favour.
4. Price is supported by the 20EMA with MACD hinting at a bullish price trend.
Fundamental Comments
1. Expectations of more interest rate hikes by the Fed is likely to keep the dollar strong.
2. Interest rate differential is in the US dollar interest after the Fed hike rate by 75 basis point overnight.
Technical Comments
1. Price is supported by the 20EMA which is hinting at a bullish price trend.
2. MACD remains bullish and is hinting at a bullish price trend.
Key Levels
| Support | 1.2885 | 1.2845 | 1.2795 |
| Resistance | 1.2915 | 1.2955 | 1.2995 |
Technical Overview
USD/JPY – Price hit a fresh 24-year low of 135.58 per dollar in early trade on Wednesday morning but has moved below the 20EMA on Thursday. As long as price stays below the 20EMA, we are likely to see a decline to the Fibonacci 38% correction point at 132.22 in the next few days. Stochastic is also declining and hinting at a bearish price trend. MACD is also above to turn bearish.
| Support | 134.00 | 133.60 | 133.10 |
| Resistance | 134.65 | 135.05 | 135.60 |
EUR/USD – Price made a fresh low at 1.0358 overnight but this low was accompanied by a bullish divergence warning from the MACD indicator. This is a warning about a potential price low. Stochastic is also moving higher and is hinting at a price rally. However, both MACD and 20EMA are hinting at a bearish price trend. We think price should be making a rally towards 1.0500 in the next couple of days.
| Support | 1.0400 | 1.0350 | 1.0300 |
| Resistance | 1.0450 | 1.0505 | 1.0555 |
GBP/USD – Price dipped to a 15-month low versus the dollar at $1.1934 Tuesday and price has rallied above the 20EMA and to a high of 1.2205. Stochastic is rising and hinting at a bullish price trend but both MACD and 20EMA are bearish and hinting at a bearish price trend. We are likely to see little movement ahead of Bank of England MPC meeting. Watch out for the price direction following the MPC meeting.
| Support | 1.2125 | 1.2065 | 1.1995 |
| Resistance | 1.2180 | 1.2220 | 1.2285 |
XAU/USD – Price reached a low of 1804.95 on Wednesday and this could be a temporary bottom. We have seen a rally to a high of $1841.60 and if price can stay above the 20EMA line, we can see a continuation of the rally to $1865 in the next 2-3 days. Stochastic is rising and hinting at a bullish price trend. 20EMA has turned bullish but MACD is still bearish. We prefer a price movement to $1865.
| Support | 1828.95 | 1815.75 | 1804.95 |
| Resistance | 1841.60 | 1854.65 | 1866.85 |
AUD/JPY – We had a buy recommendation at 92.80 yesterday but price fell to a low of 92.93, missing our entry order. Price has since moved higher to 94.52 this morning. Stochastic is rising and hinting at a continuation of the price rally but MACD is hinting at a bearish price trend. Price has also moved above the 20EMA. However, we are expecting a price correction first to the 20EMA at 93.80 in the next 24 hours.
| Support | 93.95 | 93.55 | 93.15 |
| Resistance | 94.25 | 94.75 | 95.05 |