FX Commentary – Yen Advance On Taiwan Tensions

Market Talk
– The U.S. dollar continued its decline on Tuesday, falling to its lowest in two months against the recovering Japanese yen and losing ground on other peers, as investors continued to position for a less aggressive pace of Federal Reserve interest rate hikes.

– Jitters about the impact of an impending visit to Taiwan by U.S. House of Representatives Speaker Nancy Pelosi are driving some safe-haven flows to the yen. The greenback fell as low as 130.38 yen in Tuesday morning trade, its lowest since June 6.

– The Reserve Bank of Australia on Tuesday raised interest rates by 50 basis points for a fourth month running to 1.85% but tempered guidance on further hikes ahead as it forecast faster inflation but also a slowdown in the economy. The Aussie dollar weakened to 0.6950 from an morning high above 0.7000.

– The greenback was weaker against the British pound at $1.2256, just off a five-week peak hit overnight at 1.2293, ahead of a BOE monetary policy meeting this coming Thursday. The euro jumped as high as $1.0294, a level not seen since July 5.

– Gold prices notched a 1-month high at $1780.26 on Tuesday and extended their winning streak to a fifth session, as a dip in the U.S. dollar and Treasury yields boosted demand for the safe-haven metal amid heightened worries over a global economic slowdown.

Chart Focus USD/CHF

Key Points

1. Buy USD/CHF recommendation.

2. Buy USD/CHF at 0.9495. Stop at 0.9465 and profit target at 0.9590

3. A likely price correction and interest rate differential are both supportive of the US dollar.

4. A Spinning Top candlestick price pattern and MACD are both hinting at a price low and a reversal.

Fundamental Comments

1. After a 3-week decline, it could be time for a correction.

2. Interest rate differential is in the US dollar favour.

Technical Comments

1. A Spinning Top candlestick price pattern is hinting at a price bottom and a reversal.

2. MACD is also hinting at a price low and a reversal with a divergence warning.

Key Levels


Technical Overview

USD/JPY – Price continues its decline to a low of 130.38 this morning and may continue to move lower as both MACD and 20EMA are hinting at a strong bearish price trend. Tension in the Taiwan Straits is also contributing to the yen gains as well. MACD has no divergence warning as yet, hinting that price may not have hit a bottom. However, Stochastic is in the oversold zone and is hinting at a limited downside.


EUR/USD – Price reached a high of 1.0293 overnight but was unable to sustain at the high. We have seen price decline back into the range. If price can stay above the 20EMA, there is a chance that we might see a test of the high again. However, a move below the 20EMA is likely to send price back to the lower end of the range at 1.0100. Stochastic is hinting at a price decline. Both MACD and 20EMA remain bullish.


GBP/USD – Price reached a high of 1.2293 overnight but that high was accompanied by a divergence warning from the MACD indicator, hinting at a price high. Stochastic is in the overbought zone and a bearish stochastic crossover is hinting at a price decline. Both MACD and 20EMA remains bullish. A price move below the 20EMA line at 1.2190 would accelerate the decline for 1.2050.


XAU/USD – We had a buy call at $1753.40 yesterday but price only declined to a low of $1758.60 and our entry order was not filled. Price has advanced higher to $1780.25 overnight and MACD is hinting at a price high with a divergence warning. Stochastic is also in the overbought zone and is hinting at a price decline. However, 20EMA remains bullish. We think price may have reached a high and a correction to $1750 is likely in the next 2-3 days.


USD/CNH – We had a sell call at 6.7500 last Friday which was filled. Yesterday, we had recommended keeping stop at 6.7715 and profit target at 6.7150. Unfortunately, price moved higher and triggered our stop. We lost 215 pips on this trade. MACD and 20EMA have turned bullish. Stochastic is moving into the overbought zone. We think with the Taiwan tension, price is likely to continue higher to 6.83 in the next few days.


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