Market Talk
– The U.S. dollar edged higher against the euro on Thursday after data showed the U.S. economy maintained a strong pace of growth in the fourth quarter, backing the case for the U.S. Federal Reserve to maintain its hawkish stance for longer.
– US Q4 GDP data came in better than expected, expanding by an annualized 2.9%, down from the year-on-year expansion of 3.2% in the third quarter, but still higher than Wall Street economists’ forecasts for a 2.6% growth. This is a double-edged sword for investors, as it could embolden the Fed to keep key interest rates at restrictive levels for longer.
– The Australian dollar held hefty weekly gains on Friday as markets priced in higher interest rates by the RBA. The Aussie stood at $0.7125, having gained 2.2% on the week so far to reach highs not seen since June at $0.7142. The next bull target is $0.7282, with support at $0.7063.
– The euro was 0.23% lower at $1.08895, but not far from the nine-month high of $1.09295 touched on Monday. Sterling was about flat on Friday morning against the U.S. dollar at 1.2378. Against the yen, the dollar was up 0.54% at 130.275 yen.
– Gold prices came within a hair’s breadth of $1,950 an ounce, reaching an overnight high of $1949.15, before retreating on Thursday, as bulls in the game appeared to be conserving energy for another crack at the key resistance if U.S. inflation data due in the next 24 hours turns out to be tamer than thought.
Chart Focus USD/CAD
Key Points
1. Buy USD/CAD recommendation.
2. Buy USD/CAD at 1.3330. Stop at 1.3295 and profit target at 1.3410
3. A strong set of US data and interest rate differential are both in the US dollar favour.
4. A reversal candlestick pattern and MACD are both showing signs of a potential price reversal in the making.
Fundamental Comments
1. A strong set of US data could embolden the Fed to keep key interest rates at restrictive levels for longer, aiding the US dollar.
2. Interest rate differential is in the US dollar favour.
Technical Comments
1. Price made a low on the 4-hourly chart with a Long Legged Doji, hinting at a possible price bottom.
2. MACD is showing divergence and hinting that price may have made a potential low.
Key Levels
| Support | 1.3320 | 1.3275 | 1.3225 |
| Resistance | 1.3355 | 1.3400 | 1.3430 |
Technical Overview
USD/JPY – Price reached a low of 129.10 and has bounced back up to 130.60. Stochastic is also moving higher and is hinting at a price rally. However, both MACD and 20EMA are hinting at a neutral price trend. This is supporting our view that price is likely to continue in a sideways consolidation in the next 48 hours. Unless price can move above 131.10 or go below 129.10, we are expecting price to stay within this range.
| Support | 129.70 | 129.10 | 128.70 |
| Resistance | 130.25 | 130.60 | 131.10 |
EUR/USD – Price continues its rally and made a new overnight high at 1.0929. However, this high was accompanied by a divergence warning from the MACD indicator, warning about a potential high in the making. Price has since declined below the 20EMA. Stochastic is declining and is hinting at a price decline ahead. MACD is neutral. We think price may have reached a high and a corrective decline to 1.0780 is likely in the next few days.
| Support | 1.0855 | 1.0810 | 1.0765 |
| Resistance | 1.0895 | 1.0930 | 1.0980 |
GBP/USD – Price reached a high of 1.2447 on Monday but this high was accompanied by a divergence warning from both the MACD and the stochastic indicator. After a decline to 1.2262, price has climbed up higher to 1.2430. Stochastic is near to the overbought zone and is hinting at a limited upside. Both MACD and 20EMA are neutral. We think price could be moving lower to 1.2260 again in the next few days.
| Support | 1.2360 | 1.2315 | 1.2280 |
| Resistance | 1.2405 | 1.2455 | 1.2490 |
XAU/USD – After reaching a high of $1949.15 overnight, price has been declining. The price decline has also broken below a rising trend channel starting from 29 Dec. Price has also moved below the 20EMA. If price fails to move above the trend channel and the 20EMA at $1932, price could be heading lower to $1900 in the next few days. A move above $1932 would negate our bearish view and hints at a price rally to $1950.
| Support | 1919.40 | 1911.30 | 1896.55 |
| Resistance | 1931.10 | 1942.10 | 1958.30 |
EUR/JPY – We had a buy recommendation yesterday at 141.10, which was filled when price declined to a low of 141.07 this morning. Stochastic has reached a low and has turned up, hinting that price may have reached a low and is moving higher. However, both MACD and 20EMA are weak. Price can go in either direction. We would recommend lifting stop higher to 140.85 while keeping profit target at 142.70.
| Support | 141.05 | 140.70 | 140.45 |
| Resistance | 141.50 | 141.90 | 142.30 |