Market Talk
– The U.S. dollar surged after Federal Reserve officials spoke of the need for further rate hikes, and investors re-evaluated Wednesday’s minutes from the U.S. central bank’s July meeting as being more hawkish than originally thought. The threat of recession in Europe adds to the greenback safe haven status.
– The threat of higher borrowing costs hung over markets after no less than four U.S. Federal Reserve officials signalled there was more work to do on interest rates, with the only difference being on how fast and high to go, sending the U.S. dollar back near to its July 2022 high.
– After half a year of war in Europe’s east, natural gas prices hit a record closing high on Thursday, adding to an inflation pulse that is sure to drive more painful policy tightening, exacerbating the risk of recession in Europe, sending the euro to $1.0070 and near its July nadir at $0.9951.
– Sterling was another casualty, losing 1.8% for the week to $1.1917. Investors fear inflation in Britain at a stratospheric 10.1%, will lead the Bank of England to keep hiking and force a recession in the UK.
– Gold prices fell slightly on Friday, and were set to end the week lower as hawkish signals from the U.S. Federal Reserve on the path of U.S. interest rates drove up the greenback higher and depress the price of the yellow metal.
Chart Focus EUR/JPY
Key Points
1. Buy EUR/JPY recommendation.
2. Buy EUR/JPY at 137.30. Stop at 136.95 and profit target at 138.30
3. The BOJ ultra-easy monetary policy and interest rate differential are both likely to weigh on the yen.
4. Price is supported by the 20EMA with MACD and stochastic both hinting at a bullish price trend.
Fundamental Comments
1. The BOJ ultra-easy monetary policy is likely to weigh on the yen.
2. Interest rate differential is in the euro’s favour.
Technical Comments
1. Price is supported by the 20EMA, which is also hinting at a bullish price trend.
2. Stochastic and MACD are both hinting at a price rally.
Technical Overview
USD/JPY – Price reached a low of 133.90 on Wednesday, above the 20EMA line at 133.75. Since that low, price had rallied past previous high at 135.55 to reach a high of 136.37 this morning. Stochastic is in the overbought zone but both MACD and 20EMA are both hinting at a strong bullish price trend. The break above 135.55 is hinting at a rally to 139.40 based on the V-shaped price projection. This is also the previous multi-year high established on 14 July this year.
| Support | 135.85 | 135.30 | 134.80 |
| Resistance | 136.40 | 136.95 | 137.45 |
EUR/USD – We had a sell recommendation on Wednesday at 1.0195 which was filled when price reached a high of 1.0202. Yesterday we had recommended keeping stop at 1.0225 and profit target at 1.0105. Our profit target was reached and we made 90 pips on this trade. Price has since declined to a low of 1.0069 but MACD is hinting at a possible price low with divergence. Stochastic is also in the oversold zone. However, 20EMA is hinting at a strong bearish price trend.
| Support | 1.0070 | 1.0020 | 0.9950 |
| Resistance | 1.0105 | 1.0140 | 1.0185 |
GBP/USD – Since the high at 1.2140, we have seen a price decline that reached a low of 1.1894 this morning. Stochastic is in the oversold zone but MACD is hinting at a bearish price trend. 20EMA is also pointing lower with a steep slope, hinting at a strong bearish price trend. Price is likely to test the Fibonacci 150% price projection target at 1.1872 or the 161.8% target at 1.1840 in the next 24 hours.
| Support | 1.1895 | 1.1840 | 1.1800 |
| Resistance | 1.1935 | 1.1995 | 1.2045 |
XAU/USD – Price was capped by the 20EMA at $1782 on Wednesday and we saw a decline to the low at $1751.55 this morning. This low was also accompanied by a divergence warning from the MACD indicator, hinting a possible price low. Stochastic is also in the oversold zone and is hinting at a price rally. However, 20EMA remains bearish and is hinting at a bearish price trend. We see price declining further to $1745, which is the Fibonacci 50% of the previous rally from $1680 to $1807.
| Support | 1745.05 | 1732.95 | 1718.95 |
| Resistance | 1759.05 | 1772.55 | 1782.10 |
XAG/USD – We had a sell order yesterday at $19.95 but price only reached a high of $19.93, missing our entry order. Price has since decline lower to 19.35 and the decline looks like it will continue lower to $19.00 in the next 24 hours. Stochastic is in the oversold zone but both MACD and 20EMA are hinting at a strong bearish price trend. Only a price move above $19.95 would negate our bearish view.
| Support | 19.25 | 18.90 | 18.65 |
| Resistance | 19.55 | 19.80 | 20.05 |