Market Talk
– The U.S. dollar languished near a six-week low to the yen amid a sharp retreat in Treasury yields after data showed the U.S. economy contracted again in the second quarter, fuelling speculation that the Federal Reserve will not raise rates as aggressively as previously expected.
– U.S. second-quarter gross domestic product (GDP) contracted at a 0.9% annualized rate, according to the Commerce Department’s advance estimate, released on Thursday. That followed a first-quarter contraction of 1.6%, sending the U.S. economy into a technical recession.
– The greenback traded at 134.39 yen after an overnight plunge of 1.74%, the most since March 2020. It touched a low of 134.2 on Thursday, the weakest since June 17. The euro was flat at $1.0194 after a see-saw session on Thursday that ultimately ended with it little changed.
– Sterling was off 0.09% at $1.2172, easing back from Thursday’s high of $1.2191, the strongest since June 29. The Australian dollar slipped to $0.6998, pulling away from the highest since June 17 at $0.7013, reached on Thursday.
– Gold prices were flat on Friday and is poised for a fourth consecutive monthly drop, as an elevated U.S. dollar and aggressive monetary policies from top central banks continued to erode demand for the yellow metal.
Chart Focus USD/CNH
Key Points
1. Sell USD/CNH recommendation.
2. Sell USD/CNH at 6.7500. Stop at 6.7715 and profit target at 6.7150.
3. A sharp retreat in Treasury yields and expectations of a less aggressive pace of rate hike by the Fed are both likely to weigh on the U.S. dollar.
4. Price is likely to be capped by the 20EMA line and MACD is hinting at a bearish price trend.
Fundamental Comments
1. A sharp retreat in Treasury yields after data showed the U.S. economy contracted is weighing on the greenback.
2. Expectations of a less aggressive pace of rate hike by the Fed are likely to weigh on the greenback.
Technical Comments
1. Price is likely to be capped by the 20EMA line.
2. MACD is bearish and is hinting at a bearish price trend.
Key Levels
| Support | 6.7340 | 6.7250 | 6.7150 |
| Resistance | 6.7525 | 6.7715 | 6.7880 |
Technical Overview
USD/JPY – Price declined to a low at $132.75 this morning which is just below the 161.8% of the decline from 139.35 to 135.55. Stochastic is in the oversold zone and is turning up but MACD does not have a divergence warning as yet. 20EMA is pointing down with a steep slope, hinting at a strong bearish price trend. The next strong support comes in at 131.70, which is also the Fibonacci 200% of the previous decline.
| Support | 132.70 | 132.30 | 131.70 |
| Resistance | 133.40 | 134.00 | 134.50 |
EUR/USD – We had a buy call yesterday but we got it wrong. We lost 30 pips on this trade. Price declined to a low of 1.0113 overnight but has rallied back above 1.0200 again this morning. We think price is likely to test the previous high at 1.0278 again in the next 1-2 days. Stochastic is rising and MACD is turning bullish. 20EMA is bullish and is hinting at a bullish price trend. Only a move below 1.0100 would negate our bullish view.
| Support | 1.0185 | 1.0145 | 1.0100 |
| Resistance | 1.0235 | 1.0280 | 1.0310 |
GBP/USD – Price rallied to a high of 1.2204 this morning and looks like it will continue higher to 1.2325 in the next few days. Stochastic is rising and is hinting at a price rally. However, stochastic is near to the overbought zone. MACD is bullish and is hinting at a bullish price trend. 20EMA is bullish and is also hinting at a bullish price trend. The next resistance lies at 1.2220 which is also the Fibonacci 161.8% of the previous rally.
| Support | 1.2160 | 1.2125 | 1.2090 |
| Resistance | 1.2215 | 1.2270 | 1.2325 |
XAU/USD – Price broke above the resistance at $1752 overnight and could be moving higher to the Fibonacci 161.8% price projection target at $1774.85 in the next couple of days. Stochastic is rising but is in the overbought zone. Stochastic is hinting at a limited upside. However both MACD and 20EMA are bullish and are hinting at a strong bullish price trend ahead. Only a price move below $1738 would negate this bullish view.
| Support | 1762.85 | 1749.85 | 1733.20 |
| Resistance | 1774.85 | 1785.90 | 1800.00 |
NZD/USD – Price broke above the previous high at 0.6303 this morning and we could be on the way 0.6450 in the next couple of days. Stochastic is in the overbought zone but MACD is hinting at a strong bullish price trend. 20EMA is also pointing up with a steep slope and hinting at a bullish price trend. Only a price move below 0.6180 would negate our bullish view for the next couple of days.
| Support | 0.6300 | 0.6265 | 0.6215 |
| Resistance | 0.6355 | 0.6395 | 0.6435 |