Market Talk
– The U.S. dollar hit a three-month high against a basket of currencies on Tuesday after Federal Reserve Chair Jerome Powell said the U.S. central bank is likely to raise rates more than previously expected and warned that the process of getting inflation back to 2% has “a long way to go.”
– Fed officials in December had forecast that rates would increase to between 5.00% and 5.25% this year. Traders are now pricing for the Fed rate to peak at 5.64% in September 2023 after Powell’s testimony. Fed funds futures traders are now pricing in a roughly 60% probability that the Fed will hike rates by 50 basis points at its March 21-22 meeting.
– The greenback reached 137.17 Japanese yen, up around 0.9% on the day and the highest since 20 Dec. after the yield on two-year Treasury notes which best reflects short-term rate expectations, hit 5% for the first time since July 2007.
– The Australian dollar slid 2.2% to $0.6585, its lowest since Nov 11 after the Reserve Bank of Australia raised its cash rate by 25 basis points to the highest in more than a decade, as expected, but suggested it might be nearly done tightening.
– Gold was down more than US$30 on Tuesday after Federal Reserve Chair Jerome Powell warned that U.S. rate hikes could end up being a lot higher than once imagined. Gold was last trading at $1811, while silver was trading at $19.91 on Wednesday morning.
Chart Focus AUD/JPY
Key Points
1. Buy AUD/JPY recommendation.
2. Buy AUD/JPY at 90.40. Stop at 90.05 and profit target at 91.25
3. Divergent monetary policy and interest rate differential are in the Aussie dollar favour.
4. A strong candlestick and stochastic are both hinting at a price rally.
Fundamental Comments
1. Interest rate differential is in the Aussie dollar favour.
2. Divergent monetary policy is likely to aid the Aussie dollar.
Technical Comments
1. A strong candlestick is hinting at a price bottom.
2. Stochastic is hinting at a price rally.
Key Levels
| Support | 90.45 | 90.10 | 89.85 |
| Resistance | 90.90 | 91.30 | 91.75 |
Technical Overview
USD/JPY – Price broke above the previous day’s high at 137.17, which was the highest since 20 Dec. The rally has continued to a high of 137.81 at the point of this writing. Price is likely to continue higher to 138.15 in the next 24 hours. Stochastic is hinting at an overbought situation and limited upsides. However, 20EMA and MACD are both hinting at a bullish price trend. We are also looking at a test of 138.17 and a move above this resistance.
| Support | 137.15 | 136.65 | 136.15 |
| Resistance | 137.85 | 138.20 | 138.60 |
EUR/USD – Price broke the low of 1.0532 and it looks like the decline will continue lower to 1.0480 in the next 24 hours. 20EMA is hinting at a bearish price trend. MACD is also hinting at a bearish price trend. Stochastic is turning and is hinting at a bearish price trend. Only a price move above the 20EMA at 1.0695 will negate our bearish view for the next few days.
| Support | 1.0525 | 1.0480 | 1.0440 |
| Resistance | 1.0555 | 1.0605 | 1.0645 |
GBP/USD – Price broke below the previous low of 1.1915 and declined to a low of 1.1818 at the point of this writing. 20EMA and MACD are both hinting at a strong bearish price trend but stochastic is hinting at a limit downside. We are bearish and we are looking at a price decline to 1.1640 in the next few days. Only a price move above the 20EMA at 1.2040 would negate our bearish view.
| Support | 1.1810 | 1.1760 | 1.1710 |
| Resistance | 1.1850 | 1.1905 | 1.1980 |
XAU/USD – We had a buy call on Gold at $1845 yesterday but we were wrong on this call. Price has declined to low of $1811.25 this morning and the decline is likely to continue to the previous week low at $1804.50. Both MACD and 20EMA are hinting at a continuation of the price decline. Stochastic is hinting at a limited downside. We would prefer to watch the reaction at the previous low of $1804.50 for further clue.
| Support | 1804.50 | 1796.95 | 1784.75 |
| Resistance | 1815.95 | 1831.70 | 1842.50 |
NZD/USD – We had a buy recommendation on Monday at 0.6205 which was filled. Yesterday, we had recommended keeping stop at 0.6170 and profit target at 0.6305. Our stop was triggered yesterday. The decline had taken out the previous week’s low at $0.6130, hinting at a bearish price trend. Stochastic, MACD and 20EMA are hinting at a bearish price trend. We see price moving lower to 0.6020 in the next 24 hours.
| Support | 0.6080 | 0.6040 | 0.5995 |
| Resistance | 0.6105 | 0.6160 | 0.6305 |