Market Talk
– The U.S. dollar was on the front foot on Monday, hovering near a seven-week peak after a slew of strong U.S. economic data reinforced the view that the Federal Reserve will have to raise interest rates further and for a longer.
– U.S. spending and inflation data on Friday depicted a U.S economy running too hot at the start of the year, increasing the urgency for the Fed to tighten further over coming months. The PCE price index shot up 0.6% last month after gaining 0.2% in December, while consumer spending was 1.8% last month.
– The euro was up 0.08% to $1.0554 on Monday morning, coming off the seven week low it hit on Friday. Sterling was last trading at $1.1959, up 0.13% on the day. The Japanese yen strengthened 0.15% to 136.26 per dollar, having slipped to more than two month lows of 136.58 earlier in the session.
– The Aussie was hovering at $0.6732, having plunged 1.2% on Friday as far as $0.6719, the lowest since Jan. The kiwi dollar was reeling at $0.6165, after tumbling 1.0% the previous session to as low as $0.6153, the weakest since late November.
– Gold prices were muted on Monday, hovering around a two-month low at $1811.37 an ounce amid concerns over high U.S. inflation and a hawkish response from the Federal Reserve after US data gave the central bank more impetus to keep hiking rates.
Chart Focus AUD/JPY
Key Points
1. Buy AUD/JPY recommendation.
2. Buy AUD/JPY at 91.15. Stop at 90.85 and profit target at 91.95.
3. A higher peak in Aussie cash rate and interest rate differential are both aiding the Aussie dollar.
4. Price is likely to find support at a previous low with stochastic and MACD both hinting at a possible price low.
Fundamental Comments
1. Strong Aussie data is hinting at a higher peak in Aussie cash rate, which is likely to aid the Aussie dollar.
2. Interest rate differential is in the Aussie dollar favour, aiding the Aussie dollar.
Technical Comments
1. Price is likely to find support at the previous low support.
2. Stochastic and MACD indicators are hinting at a possible price low in the making.
Key Levels
| Support | 91.15 | 90.85 | 90.45 |
| Resistance | 91.85 | 92.25 | 92.65 |
Technical Overview
USD/JPY – Price reached a high of 136.55 this morning despite earlier divergence warnings from the MACD indicator. Stochastic is hinting that price can continue to move higher. 20EMA is hinting at a bullish price trend. Price is likely to find support at 135.35 and we could see another test of this morning’s high at 136.55. Price could even move up to 137.45 in the next 48 hours. A move below 135.35 would negate our bullish view.
| Support | 135.95 | 135.35 | 134.75 |
| Resistance | 136.55 | 136.90 | 137.35 |
EUR/USD – Price continued its decline to a low of 1.0535 last Friday, despite earlier warning of divergences from the MACD indicator. MACD and 20EMA are both hinting at a continuation of this decline. Stochastic is hinting at a limited downside. Price may do a mini corrective rally towards the 20EMA at 1.0590 and from there we could see another decline to 1.0490 in the next few days.
| Support | 1.0535 | 1.0490 | 1.0445 |
| Resistance | 1.0575 | 1.0610 | 1.0665 |
GBP/USD – We have a sell call at 1.2035 last Friday which was filled when price moved up to a high of 1.2041. Price had declined to a low of 1.1928 on Friday just below our profit target at 1.1930. Both MACD and 20EMA are hinting at a continuation of the decline to test 1.1914. We think price is likely to test this support as well. The next direction is likely to be decided by the reaction at 1.1914.
| Support | 1.1910 | 1.1865 | 1.1810 |
| Resistance | 1.1965 | 1.2005 | 1.2075 |
XAU/USD – Price reached a low of $1808.55 last Friday and the decline continues with price reaching a low of $1806.30 at the point of this writing. MACD and 20EMA are both hinting that price will continue to decline. Stochastic is hinting at a limited downside. As long as price stays below 20EMA at $1822, we see price declining to $1787.90(Fibonacci 50% correction) in the next few days.
| Support | 1803.70 | 1791.10 | 1783.90 |
| Resistance | 1820.70 | 1834.50 | 1847.55 |
AUD/USD – Price failed to move above the falling 20EMA line at 0.6380 last Friday and we saw a decline in price lower to 0.6700 at the point of this writing. MACD and 20EMA are both hinting at a continuation of this decline. Stochastic is hinting at a limited downside. We are expecting this decline to continue lower to 0.6645 which is the Fibonacci 50% correction point of the rally from 0.6170 to 0.7156.
| Support | 0.6695 | 0.6645 | 0.6580 |
| Resistance | 0.6740 | 0.6780 | 0.6825 |