US Dollar at risk of a pullback from a 7-month high

October 12, 2016

The US dollar maintained the lead, rising to a 7-month high yesterday. The US dollar index closed at 97.73 supported by hawkish comments from Chicago Fed President Charles Evans who said that the US economy was on a sound footing and that an interest rate hike in December would be fine. In the equity markets, the third quarter earnings season got underway with the bell weather Alcoa missing earnings estimates while lowering its 2016 revenue targets. The equities came under pressure as a result. The yen was, however, the strongest currency yesterday.

USDJPY Daily Analysis

USDJPY (103.47): USDJPY closed with a doji after another attempt to breakout above 104.00 was met by strong selling. Still, the dollar managed to close nearly flat against the yen, resulting in a doji near the resistance level. A lower close today could be seen as a bearish signal as we continue to wait for a pull back in USDJPY. On the 4-hour chart, as noted in yesterday's commentary, price action reversed near 104.00 forming a lower high with a break out from the rising median line that followed. Prices remain consolidating near 103.70 - 103.50 resistance level, and we could expect near term weakness to 103.00. A break below 103.00 support level is needed to ascertain the declines towards 102.00 followed by 101.75 - 101.61.

XAUUSD Daily Analysis

XAUUSD (1257.20): Gold prices pulled back yesterday but remain supported above 1250. However, a more firm retest to 1250 would have increased the bullish expectation of a retracement to the 1300 support level. Still, watch for price to consolidate near the support of 1250. On the 4-hour chart, the minor trend line shown on the chart will be key as a breakout from here could see further upside. Initial minor resistance is seen near the 1265 region, therefore, a breakout above 1265 will confirm further upside in gold, towards the 1300 round number psychological resistance level. Traders should bear in mind this Friday's speech by Janet Yellen which will be the main event risk for gold.

AUDJPY Daily Analysis

AUDJPY (78.38): We have been covering AUDJPY previously and alerted to the rising wedge pattern. The Australian dollar opened the week with a bang as prices quickly rallied back to challenge the previous resistance level of 78.65 earlier on Monday. However, the rally was short lived as price quickly reversed back following a lower high. Yesterday, AUDJPY fell towards the support level at 78.00, and we currently see a strong rebound in prices. The bullish momentum could keep AUDJPY supported to the upside, and it is likely that another retest back to 78.65 is on the cards. Watch for a potential reversal back near the 78.65 resistance which could mark the start of a reversal to the downside, targeting 78.00 support once again followed by 77.35.

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