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May 18, 2018

GREENBACK SOARS HIGHER ALONGSIDE RISING US BOND YIELDS

KING DOLLAR

The US dollar index recovered the previous trading week’s heavy losses and soared to its highest trading level since December 2017, after robust US Retail Sales figures help to restore confidence that the Federal Reserve would hike rates at their next meeting. The greenback also benefitted from rising US bond yields, as the US 10-year Treasury yield moved to its highest trading level since 2011. Emerging market currencies again suffered heavy losses against the US dollar as the combination of more attractive returns, on safer US government bonds, raises the cost of servicing US dollar-denominated debt in emerging market countries.

  • The USDCHF pair is bullish while trading above the 1.0000 level, further upside towards 1.0048 and 1.0100 seems possible.

  • If the USDCHF pair moves below the 1.0000 level, key support is located at the 0.9978 and 0.9910 levels.

GOLD BREAKS SUPPORT

Gold prices fell sharply lower this week, as the rising value of the US dollar caused investors to sell spot gold against the greenback. The XAUUSD pair fell below the key $1,300 support level after moving below its key 200-day moving average, sparking a strong technical sell-off in the yellow metal. Gold started the new trading-week consolidating around the $1,320 level, but quickly fell as the US dollar advance gathered pace, with spot gold moving to its lowest trading level this year, hitting, $1,285 per ounce.

  • XAUUSD is strongly bearish while trading below the $1,300 level, further downside towards $1,275 and $1,248 seems possible.

  • If XAUUSD moves above the $1,300 level, key resistance is found at the $1,310 and $1,325 levels.

EURO WORRIES

The euro currency fell sharply lower against the US dollar, Swiss franc, and British pound this week as Italian political woes caused a sell-off in the single currency.  Economic and political uncertainty in Italy and the additional implications of an anti-establishment government, led by the Five Star Movement and Northern League parties spooked financial markets. The EURUSD pair fell below the 1.1800 level, while the risk-sensitive EURCHF pair dropped towards the 1.1800 level, as traders moved away from the euro and into the safety of the Swiss franc currency.

  • The EURUSD pair is strongly bearish below the 1.1800 level, further downside towards 1.1750 and 1.1715 appears possible.

  • If the EURUSD pair moves above the 1.1800 level, buyers may test towards the 1.1838 and 1.1900 resistance levels.

YEN WEAKNESS

The USDJPY pair finally moved above the 110.00 level, as the US dollar index advanced and the Japanese economy posted much weaker than expected economic data this week. Official data showed the Japanese economy contracted 0.2 percent in the first fiscal quarter, adding to fears that the economy of Japan may be slowing down. The USDJPY pair moved even higher, hitting the 111.00 level, as Japanese CPI inflation fell for the second month, while monthly and annual Japanese Machine Tool Orders contracting worse than economists had initially forecasted.

  • The USDJPY pair is bullish above the 110.00 level, key resistance is located at the 111.37 and 112.00 levels.

  • The USDJPY pair will turn bearish below the 110.00 level, key support is then found at 109.60 and 109.00 levels.

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