Market Talk
– The U.S. dollar was on a firm footing on Monday, as traders brace for a sharp U.S. interest rate hike this week and look for safety as data points to a weakening global economy. Investors are expecting that the slower economic expansion could help to moderate high inflation and soften the monetary tightening.
– U.S. business activity contracted for the first time in nearly two years in July as a sharp slowdown in the service sector outweighed continued modest growth in manufacturing, painting a glum picture for an economy stunted by high inflation, rising interest rates and deteriorating consumer confidence.
– The Japanese yen strengthened 0.98% versus the greenback at 136.05 per dollar, while the euro was steady at 1.0195. The Australian dollar was lower at $0.6911, while the kiwi fell 0.17% to $0.6242.
– The British pound slipped 0.2% against the dollar to $1.1979 after data showed Britain’s businesses grew at their slowest pace in 17 months in July, fuelling concerns about a slowdown in a UK economy grappling with inflation at a four-decade high.
– Gold was little changed on Monday morning in Asia after a $27 dollar jump last Friday as U.S. Treasury yields declined to near eight-week lows. Upside could be capped as investors braced for a 75-basis-point interest rate hike by the U.S. Federal Reserve later in the week.
Chart Focus USD/CAD
Key Points
1. Buy USD/CAD recommendation.
2. Buy USD/CAD at 1.2910. Stop at 1.2880 and profit target at 1.3010
3. Expectation of a rate hike by the U.S. Fed and a decline in crude oil price are both weighing on the Canadian dollar.
4. A Hammer candlestick price pattern and a MACD divergence are hinting at a price low and a reversal.
Fundamental Comments
1. Expectation of a 75-basis-point interest rate hike by the U.S. Federal Reserve later in the week is likely to boost the greenback.
2. A decline in crude oil price is weighing on the Canadian dollar.
Technical Comments
1. A Hammer candlestick price pattern is hinting at a bottom and a reversal in trend.
2. A MACD divergence is hinting at a price low and a reversal.
Key Levels
| Support | 1.2915 | 1.2870 | 1.2820 |
| Resistance | 1.2950 | 1.2985 | 1.3020 |
Technical Overview
USD/JPY – We had a buy recommendation at 137.60 on Friday. Price had declined to a low of 135.55, taking out our stop loss as well. We lost 30 pips on this trade. Stochastic is close to the oversold zone and is hinting at a limited downside. However, both 20EMA and MACD are hinting at a strong bearish price trend. We prefer to follow both the 20EMA and MACD. We are looking at another decline to 135.20. A price move above 137.20 would negate our bearish view.
| Support | 136.00 | 135.55 | 135.15 |
| Resistance | 136.50 | 137.00 | 137.55 |
EUR/USD – We had a long position from last Thursday and on Friday, we had placed stop at 1.0150 and profit order at 1.0270. However, price declined to a low of 1.0129, taking out our stop. We lost 35 pips on this trade. Stochastic is turning up again, hinting at a price rally. Both MACD and 20EMA remain bullish and is hinting at a price rally. We think price may test the previous high of 1.0275 again in the next 24 hours.
| Support | 1.0175 | 1.0125 | 1.0070 |
| Resistance | 1.0230 | 1.0275 | 1.0305 |
GBP/USD – We saw a pullback in price to the Fibonacci 50% correction point of the rally from 1.1760 to 1.2045 at 1.1950 last Thursday and on Friday, price moved above the previous high of 1.2045 to a new high at 1.2064. We are now likely to see a correction that could bring price lower to 1.1870 in the next few days. Stochastic is about to turn bearish. MACD has turned bearish and 20EMA is flat and neutral at the moment.
| Support | 1.1950 | 1.1885 | 1.1845 |
| Resistance | 1.2005 | 1.2050 | 1.2100 |
XAU/USD – Price hit a one-year low at $1,680.70 last Thursday and staged a strong rebound to a high of $1739.05. Stochastic is in the overbought zone and is hinting at a limited upside. However both MACD and 20EMA are bullish and are hinting at a bullish price trend. As long as price stays above the 20EMA line at $1715.90, we are likely to test the previous high resistance point at $1745.10. The reaction at this resistance will determine the next price direction.
| Support | 1715.60 | 1697.35 | 1680.70 |
| Resistance | 1728.85 | 1739.70 | 1752.00 |
NZD/USD – Price reached a high of $0.6303 last Friday and this could be a temporary high. A Shooting Star candlestick price pattern is also hinting at a price high and a reversal. Stochastic has a divergence and is hinting at a bearish price trend. MACD is also hinting with divergence of a possible price high. We think price is likely to move lower to the Fibonacci 62% correction point of the rally from 0.6060 to 0.633 at 0.6152 in the next few days.
| Support | 0.6210 | 0.6180 | 0.6140 |
| Resistance | 0.6250 | 0.6300 | 0.6330 |