Market Talk
– The greenback remained firm near a two-decade high versus major peers on Tuesday as investors braced for another aggressive rate hike by the Federal Reserve as it battles to rein in overheated inflation. A rise in US Treasury yields also helped the US dollar.
– The two-year U.S. Treasury yield, which is extremely sensitive to policy expectations, rose as high as 3.970% overnight for the first time since November 2007. The 10-year yield reached a high of 3.518%, a level not seen since April 2011.
– The US dollar added 0.07% to 143.29 yen, continuing a week-long consolidation following two attempts at 145 this month that took it as high as 144.99 on Sept. 7 for the first time in 24 years. The dollar-yen currency pair tends to track the long-term yield spread between U.S. and Japanese government bonds.
– The euro was little changed at $1.0023, after grinding slowly higher over the past week and strengthening its position above parity. It dropped as low as $0.9864 on Sept. 6 for the first time in two decades. Sterling was slightly lower at $1.1424, finding its feet after a drop to a 37-year low of $1.1351 at the end of last week.
– Gold prices rose slightly to $1,679.14 an ounce, on Tuesday but kept to a tight range seen this week as investors held off from making big bets ahead of a U.S. Federal Reserve meeting that is expected to result in an interest rate hike.
Chart Focus XAU/USD – Gold
Key Points
1. Sell Gold recommendation.
2. Sell Gold at $1679.60. Stop at $1688.95 and profit target at $1654.
3. The greenback is aided by expectations of an aggressive rate hike and rising US Treasury yields
4. Price is likely to be capped by the 20EMA, with MACD hinting at a bearish price trend.
Fundamental Comments
1. As investors braced for another aggressive rate hike by the Federal Reserve, the greenback is likely to benefit from this aggressive rate hike.
2. Rise in benchmark US Treasury yields is likely to aid the greenback.
Technical Comments
1. Price is likely to be capped by the 20EMA, which is also hinting at a bearish price trend.
2. MACD remains bearish and is hinting at a bearish price trend.
Technical Overview
USD/JPY – Price has been trading within a range of 142.60 to 143.83 after it failed to break above 145 in the previous week. Fear of a BOJ intervention is likely to cap the rally, while the base is likely to be supported by a strong US Treasury yield. Yesterday, price again stayed within this range and we are expecting this range to continue at least until FOMC on Thursday morning. Stochastic is neutral while both MACD and 20EMA are flat and neutral.
| Support | 142.90 | 142.55 | 141.95 |
| Resistance | 143.40 | 143.80 | 144.40 |
EUR/USD – Price moved higher to 1.0050 overnight and price has remained in a range for the past few days. However, we remain bearish and we are looking for a price decline to 0.9865 over the next few days. Stochastic is rising and is hinting that the price rally overnight is not over yet but MACD remains bearish and is hinting at a bearish price trend. 20EMA is neutral at the moment.
| Support | 1.0005 | 0.9955 | 0.9900 |
| Resistance | 1.0055 | 1.0095 | 1.0135 |
GBP/USD – We had a sell call at 1.1440 yesterday which was filled when price rallied to a high of 1.1460. Our view remains unchanged. We would recommend shifting stop lower to previous day’s high at 1.1465 and profit target at 1.1355. Stochastic is still rising, hinting that the rally may still continue but MACD remains bearish. 20EMA is also bearish and hinting at a price decline to the previous low.
| Support | 1.1410 | 1.1350 | 1.1300 |
| Resistance | 1.1460 | 1.1500 | 1.1555 |
USD/CAD – After reaching a high at 1.3343 overnight, we have seen a price decline to the 20EMA support line at 1.3240. Stochastic is declining from the overbought zone but MACD remains bullish. 20EMA is also bullish and hinting at a price rally. If price is supported above 1.3220, we could see another rally to test the overnight high at 1.3343. A break of this high could lead price higher to 1.3420 in the next few days.
| Support | 1.3240 | 1.3205 | 1.3155 |
| Resistance | 1.3275 | 1.3310 | 1.3345 |
NZD/USD – Price reached a low of 0.5921 at the point of this writing, but this low was accompanied by a divergence warning from the MACD indicator hinting at a possible price low. Stochastic is rising from the oversold zone but both 20EMA and MACD remain bearish. Our view remains unchanged from yesterday. We are likely to see price continues its decline to 0.5845. Only a move above 0.6005 would negate our bearish view for the next few days.
| Support | 0.5900 | 0.5870 | 0.5840 |
| Resistance | 0.5935 | 0.5975 | 0.6005 |