Market Talk
– The U.S. dollar clawed back from earlier losses as a hawkish Federal Reserve official laid out the case for further rate hikes. Rumours about a loosening in COVID-19 restrictions with report that Chinese health officials would hold a news conference capped gains in the greenback.
– St. Louis Fed President James Bullard said the U.S. central bank needs to raise interest rates quite a bit further and then hold them there throughout next year and into 2024 to gain control of inflation and bring it back toward the Fed’s 2% goal boosted the dollar.
– The euro was up 0.38% at $1.0379, after surging to a five-month peak of $1.0497 overnight before falling back after European Central Bank President Christine Lagarde hinted at a series of interest rate hikes to fight inflation. Sterling edged 0.36% higher to $1.2001.
– The Aussie, often used as a liquid proxy for the yuan, rose 0.77% to $0.6704. The kiwi similarly gained 0.71% to $0.6204. The dollar dipped to 138.65 yen, after briefly touching a three-month trough of 137.50 overnight.
– Gold prices slipped from a more than one-week high below a key support, as the dollar rose from session lows on hawkish comments from members of the U.S. Federal Reserve reiterating their fight against inflation.
Chart Focus USD/JPY
Key Points
1. Buy USD/JPY recommendation.
2. Buy USD/JPY at 137.80. Stop at 137.50 and profit target at 139.75.
3. Hawkish remarks from a Fed official and yield differential are likely to aid the U.S. dollar.
4. Price has a Double Bottom chart pattern with MACD also hinting at a price bottom.
Fundamental Comments
1. Hawkish remarks from James Bullard is likely to aid the U.S. dollar.
2. A big yield differential between the US bond and Japanese bond is likely to aid the U.S. dollar.
Technical Comments
1. Price could be forming a Double Bottom chart formation, which is a hint of a possible price low.
2. MACD has given a divergence warning of a possible price bottom.
Key Levels
| Support | 138.05 | 137.65 | 137.10 |
| Resistance | 138.75 | 139.60 | 139.95 |
Technical Overview
USD/CAD – Price reached a high of 1.3504 on Monday and we saw a correction down to 1.3415. This is where the 20EMA support lies as well. Stochastic is declining from the overbought zone, hinting at a price decline but both MACD and 20EMA are hinting at a bullish price trend. If price can stay above the 20EMA at 1.3410, we are likely to see a test of Monday’s high again in the next 24 hours.
| Support | 1.3410 | 1.3370 | 1.3315 |
| Resistance | 1.3460 | 1.3505 | 1.3540 |
EUR/USD – Price has decline from a high of 1.0496 on Monday to a low of 1.0329 last night. We are likely to see price moving lower to 1.0220 in the next few days as MACD had given a divergence warning of a possible price high. 20EMA is also hinting at a price decline ahead. Stochastic is also declining and hinting at a price decline. Only a move above 1.0496 would negate our bearish view.
| Support | 1.0330 | 1.0295 | 1.0220 |
| Resistance | 1.0370 | 1.0430 | 1.0495 |
GBP/USD – We had a buy call yesterday at 1.2030 yesterday but our call was wrong. Price declined to a low of 1.1939 taking out our stop at 1.1995. Stochastic is in the oversold zone and MACD is also hinting at a possible price rally. However, 20EMA is hinting at a bearish price trend. A three and a half week rally from 1.1142 to 1.2152 could have ended and a correction to the Fibonacci 38% of the rally at 1.1765 is likely in the next few days.
| Support | 1.1980 | 1.1925 | 1.1870 |
| Resistance | 1.2020 | 1.2075 | 1.2125 |
XAU/USD – Price reached a low of $1731.35 overnight for the third time in the past 7 days. Stochastic is also near to the oversold zone and is turning up, hinting at a price rally. MACD and 20EMA are neutral at the moment. If price can hold above the strong support at $1731, we are likely to see a test of the recent high at $1763.60. However a break of the support is likely to send price lower to $1700.
| Support | 1744.35 | 1731.35 | 1721.35 |
| Resistance | 1754.95 | 1763.40 | 1773.25 |
XAG/USD – Last Friday, we had a buy call at $21.15 which was filled when price fell to a low of $21.03 on Monday morning. Price reached a high of $21.61 before a declined to a low of $20.82. We would recommend keeping stop at $20.80 and profit target at $22.10. Stochastic is near to the oversold zone, hinting at a limited downside. However both MACD and 20EMA are hinting at a bearish price trend.
| Support | 20.80 | 20.55 | 20.10 |
| Resistance | 21.15 | 21.35 | 21.70 |