Market Talk
– The U.S dollar extended its rally on Monday, hitting a five-week high on the yen after U.S. Federal Reserve Chair Jerome Powell signalled interest rates would be kept higher for longer to bring down soaring inflation.
– Federal Reserve Chair Jerome Powell’s promise of policy “pain” to contain inflation was echoed by ECB board member Isabel Schnabel who warned over the weekend that central banks must now act forcefully to combat inflation, even if that drags their economies into recession.
– Two year US Treasury yields popped up to their highest level since October 2007 sending the greenback to a five-week high on the yen at 138.34 in early Asia trade, its highest since July 21, with bulls looking to re-test its July top of 139.38.
– The euro was struggling at $0.9937, not far from last week’s two-decade trough of $0.99005, while sterling slipped to a one-month low of $1.1656 on the back of a strong US dollar and rising UK energy inflation.
– Gold continues its decline on Monday morning to $1723 after Federal Reserve Chair Jerome Powell in his speech at Jackson Hole on Friday said the U.S. economy needed a tight monetary policy until inflation was under control.
Chart Focus GBP/USD
Key Points
1. Sell GBP/USD recommendation.
2. Sell GBP/USD at 1.1710. Stop at 1.1740 and profit target at 1.1615.
3. Soaring UK energy prices and interest rate differential are both likely to weigh on the British pound
4. Price is likely to be capped by a strong support turned resistance line with MACD hinting at a bearish price trend.
Fundamental Comments
1. UK regulator warning about soaring UK energy prices is likely to weigh on the British Pound.
2. Expectations that U.S. interest rates would be kept higher for longer to bring down soaring inflation is likely to aid the greenback.
Technical Comments
1. Price is likely to be capped by a strong support turned resistance line.
2. MACD is bearish and hinting at a bearish price trend.
Key Levels
| Support | 1.1645 | 1.1595 | 1.1550 |
| Resistance | 1.1685 | 1.1720 | 1.1785 |
Technical Overview
USD/JPY – Price broke above the previous week’s high at 137.70 and moved to a high at 138.99 this morning. Price could be on the way to the previous high at 139.38 and it is possible we could see this high tested in the next 24 hours. Stochastic is rising and hinting at a price rally. Both MACD and 20EMA are bullish and hinting at a bullish price trend. Only a move below 137.70 would negate our bullish view.
| Support | 138.65 | 138.20 | 137.70 |
| Resistance | 139.00 | 139.40 | 139.90 |
EUR/USD – Price reached a high of 1.0090 on Friday before Powell’s speech went price tumbling lower. Price reached a low of 0.9913 this morning, which was above last week’s 20-year low at 0.9901. Stochastic is declining but MACD could be forming a bullish divergence warning. 20EMA is bearish and is hinting at a bearish price trend. We see price testing the previous week low in the next 48 hours.
| Support | 0.9900 | 0.9875 | 0.9820 |
| Resistance | 0.9945 | 0.9985 | 1.0020 |
AUD/JPY – We had a buy call last Friday at 95.25 which was filled but price went below our stop on Friday evening. We lost 30 pips on this trade. Price has moved up above the 20EMA again and MACD has remained above the zero line. Both trend indicators are hinting at a possible bullish price trend. Stochastic is moving lower and is hinting at a price decline. We think price can go back to last Friday’s high again at 95.75.
| Support | 94.95 | 94.60 | 94.25 |
| Resistance | 95.30 | 95.75 | 96.25 |
XAU/USD – Price broke below the previous week’s low at $1727.70 this morning to reach a fresh low at $1720.85. Stochastic is in the oversold zone but MACD is bearish. 20EMA is pointing lower with a steep slope, hinting at a strong bearish price trend. While we are bearish, we are wary of a price correction before the decline resumes again as stochastic is hinting at a limited downside.
| Support | 1720.85 | 1711.15 | 1696.75 |
| Resistance | 1727.70 | 1739.30 | 1749.50 |
XAG/USD – We had a sell call at $19.15 on Wednesday which was filled. Last Friday, we had recommended keeping stop at $19.45 and profit order at $18.65. Price reached a low of $18.50 this morning and we are out of this position with a $0.60 profit. A potential divergence could be forming. Stochastic is also moving into the oversold zone. However, 20EMA remains bearish and hinting at a bearish price trend.
| Support | 18.50 | 18.10 | 17.85 |
| Resistance | 18.70 | 19.00 | 19.40 |