Market Talk
– The U.S. dollar climbed close to a 24-year peak against the yen on Wednesday amid a jump in U.S. yields after hotter-than-expected inflation boosted bets for even more aggressive monetary tightening by the Federal Reserve in its FOMC next week.
– U.S. Labour Department data showed on Tuesday the headline Consumer Price Index gained 0.1% on a monthly basis versus expectations for a 0.1% decline. In particular, core inflation, stripping out volatile food and energy prices, doubled to 0.6%.
– The greenback rose as high as 144.96 yen in the Asian session, taking it close to last Wednesday’s high of 144.99, a level not seen since August 1998, as 10-year Treasury yields climbed to a three-month high following an unexpected rise in the U.S. consumer price index (CPI) for August.
– The euro edged up 0.11% to $0.9981 on Wednesday Asian trading, clawing back a little of Tuesday’s 1.52% tumble. Sterling rose 0.17% to $1.151, but after a 1.61% plunge overnight. The risk-sensitive Aussie dollar rose 0.25% to $0.6750, although that jump paled in comparison with its precipitous 2.26% slide overnight.
– Gold prices held just above the $1,700 mark on Wednesday, remaining under pressure after stronger-than-expected U.S. inflation data pointed to more dollar strength in the coming weeks and even more aggressive monetary tightening by the Federal Reserve next week.
Chart Focus EUR/JPY
Key Points
1. Sell EUR/JPY recommendation.
2. Sell EUR/JPY at 143.75. Stop at 144.05 and profit target at 142.00
3. Fear of a recession in Europe is weighing on the Euro and driving up the safe haven yen.
4. Price has formed a Head and Shoulder chart pattern MACD has also warning of a possible price high.
Fundamental Comments
1. Shut down of Russian pipe line is raising concern of recession in Europe.
2. The fear of a recession in Europe is driving investors into the safe haven yen
Technical Comments
1. Price may have formed a Head and Shoulder chart pattern and is hinting at a bearish price trend ahead.
2. MACD has formed a bearish divergence warning of a possible price high and a likely reversal.
Key Levels
| Support | 143.00 | 142.30 | 141.75 |
| Resistance | 143.75 | 144.45 | 145.00 |
Technical Overview
USD/JPY – We had a sell recommendation yesterday at 142.75 which was filled. Price moved higher than our stop to a high of 144.96 after the inflation report. We lost 30 pips on this trade. Stochastic is near to the overbought zone but both MACD and 20EMA are both hinting at a bullish price trend. MACD is also hinting at a divergence, hinting at a possible price high. If price declined below 142.85, we are likely to see a decline to 141.55 in the next 48 hours.
| Support | 143.35 | 142.75 | 142.20 |
| Resistance | 144.00 | 144.40 | 144.95 |
EUR/USD –
Price reached a high of 1.0197 on Monday and yesterday we saw a test of the high but a strong US inflation report has sent price lower. Stochastic is near to the oversold zone but both MACD and 20EMA are hinting at a strong bearish price trend. We are likely to see a price decline back to the previous low at 0.9875 in the next 48 hours. Only a price move above 1.0090 would negate our bearish view.
| Support | 0.9945 | 0.9905 | 0.9865 |
| Resistance | 1.0000 | 1.0055 | 1.0085 |
GBP/USD – Price reached a high of 1.1738 but a strong U.S. inflation report has send price lower to 1.1480 at the point of this writing. Stochastic is in the oversold zone and is hinting at a limited downside but 20EMA is pointing lower with a steep slope, hinting at a strong bearish price trend. MACD is also hinting at a bearish price trend. We think price is likely to continue lower to the previous low at 1.0405 in the next few days.
| Support | 1.1475 | 1.1405 | 1.1350 |
| Resistance | 1.1530 | 1.1575 | 1.1620 |
XAU/USD – Price broke above the resistance at $1727.25 twice but on both occasions, failed to hold above the breakout. Price has since declined lower to $1697.20. We are likely to see a continuation of this decline lower to $1688.50 in the next 24 hours. Stochastic is in the oversold zone but 20EMA is hinting at a strong bearish price trend. MACD is also hinting at a bearish price trend. Only a move above $1715 would negate our bearish view.
| Support | 1697.10 | 1688.50 | 1680.70 |
| Resistance | 1708.25 | 1719.95 | 1734.85 |
NZD/USD – Price reached a high at 0.6160 overnight before the US inflation data. Price suffered a sharp decline after the data and has moved below the previous week’s low of 0.5995. We are likely to see a continuation of the decline to 0.5920 in the next couple of days. Stochastic is in the oversold zone but both 20EMA and MACD are both hinting at a strong bearish price trend ahead.
| Support | 0.5980 | 0.5945 | 0.5915 |
| Resistance | 0.6020 | 0.6060 | 0.6100 |