Market Talk
– The U.S. dollar languished near a three-week low to major peers on Thursday morning as investors scented a possible slowdown in the pace of U.S. rate hikes after Federal Reserve Chair Jerome Powell assuaged trader worries about continued aggressive monetary tightening.
– The U.S. Fed raised rates 75 basis points to 2.25-2.5% but did note some softening in recent data. Fed Chair Jerome Powell sounded suitably hawkish on curbing inflation in his news conference, but also dropped guidance on the size of the next rate rise and noted that “at some point” it would be appropriate to slow down.
– The euro was firm at 1.0210, following a 0.9% jump overnight but faces stiff resistance at $1.0278. The single currency still has an energy crisis to contend with and the IMF warned a complete cut-off of Russian gas to Europe by year-end may lead to virtually zero economic growth the next year.
– The U.S. currency sank as low as $135.10 yen for the first time since July 6 after the Fed raised benchmark rate. The Japanese yen, which is extremely sensitive to U.S. yields, continues to gain on Thursday morning to $135.32 yen.
– Spot gold was 0.3% firmer at $1,738 an ounce, having benefited from the dip in the dollar and bond yields. Gold had jumped more than 1% overnight as the greenback and Treasury yields retreated after the U.S. Fed hiked interest rates by 75 basis points as expected.
Chart Focus EUR/USD
Key Points
1. Buy EUR/USD recommendation.
2. Buy EUR/USD at 1.0205. Stop at 1.0185 and profit target at 1.0275.
3. A possible slowdown in the pace of U.S. rate hikes and an increase in risk appetite are both likely to weigh on the U.S. dollar.
4. Price has moved above the 20EMA with Stochastic also hinting at a price rally.
Fundamental Comments
1. A possible slowdown in the pace of U.S. rate hikes is likely to weigh on the U.S. dollar.
2. Powell’s opinion that the US economy is unlikely to go into a recession is likely to increase risk appetite and weigh on the safe haven U.S. dollar.
Technical Comments
1. Price has moved above the 20EMA which is hinting at a bullish price trend.
2. Stochastic is moving up from the oversold zone and is hint at a price rally.
Key Levels
| Support | 1.0185 | 1.0145 | 1.0100 |
| Resistance | 1.0235 | 1.0280 | 1.0310 |
Technical Overview
USD/JPY – Price declined to a low at $135.10 yen for the first time since July 6 after the Fed raised benchmark rate. Stochastic is still declining and is hinting at a price decline ahead. Both MACD and 20EMA are also hinting at a bearish price trend. We think price may decline to 134.70 or 134.20 in the next few days. MACD is in the process of forming a divergence, which could be the first sign of a possible price low and reversal.
| Support | 135.10 | 134.65 | 134.25 |
| Resistance | 135.55 | 135.85 | 136.15 |
AUD/USD – Price moved to a high of 0.7013 overnight despite the earlier MACD divergence warning of a possible price high. The momentum is strong and this could carry price higher to the previous price high at 0.7068 in the next 1-2 days. Stochastic is rising and is hinting at a price rally. Both MACD and 20EMA are hinting at a bullish price trend. Price also has a strong support currently at 0.6980. Only a price move below 0.6910 would negate the bullish price trend.
| Support | 0.6975 | 0.6945 | 0.6910 |
| Resistance | 0.7010 | 0.7045 | 0.7070 |
GBP/USD – Price rallied to a high of 1.2186 overnight after Powell hinted at a possible slowdown in U.S. interest rate in the near future. Stochastic is rising but is close to the overbought zone. MACD is rising and is hinting at a bullish price trend. 20EMA is pointing up with a steep slope, hinting at a strong bullish price trend. The next resistance level lies at 1.2325 and this could be the next price target.
| Support | 1.2140 | 1.2085 | 1.2035 |
| Resistance | 1.2185 | 1.2215 | 1.2270 |
XAU/USD – Price is trying to break above the previous week’s high at $1739.05. Stochastic is hinting that price should be able to move above the resistance and higher to $1752. MACD is bullish and is hinting at a bullish price trend. 20EMA is also hinting at a bullish price trend. We think price can move higher to $1752. However, a move below $1710.90 would negate our bullish view for the next few days.
| Support | 1733.20 | 1721.55 | 1711.15 |
| Resistance | 1745.10 | 1760.00 | 1772.75 |
NZD/USD – We had a sell call on this pair at 0.6240 which was filled. Price had moved to a low of 0.6190 overnight. However, after FOMC, price rallied to a high of 0.6277, taking out our stop at 0.6270. We lost 30 pips on this trade. We are likely to see a continuation of the rally to the previous week’s high at 0.6303 in the next couple of days ahead. Stochastic is rising and is hinting at a price rally. MACD and 20EMA are also hinting at a bullish price trend.
| Support | 0.6245 | 0.6215 | 0.6180 |
| Resistance | 0.6280 | 0.6305 | 0.6330 |