01-Mar-2021

1) GBP/USD Retreats Below 1.4000, UK/US PMIs In Focus
2) USD/CAD Flirts With Session Lows, Below 1.2700 Mark
3) XAU/USD Clings To Recovery Gains Above $1750 Level, Upside Seems Limited

1) GBP/USD Retreats Below 1.4000, UK/US PMIs In Focus

GBP/USD trims early Asian recovery gains while trading below 1.4000. UK Chancellor Sunak is up for £5 billion grants to businesses. US FDA approved Johnson & Johnson’s one-shot vaccine. UK/US PMIs eyed.

From a technical perspective, the pair managed to bound from confluence support near the 1.3890 region. The mentioned area comprises of 100-period SMA on the 4-hourly chart and the 50% Fibonacci level of the post-BoE strong positive move. This, in turn, should act as a key pivotal point for short-term traders and help determine the pair’s next leg of a directional move. A sustained breakthrough should pave the way for a further decline to mid-1.3800s en-route the 61.8% Fibo. level, around the 1.3820-15 region and the next relevant support near the 1.3790-85 zone. The latter coincides with 200-period SMA, below which the pair might turn vulnerable to extend the sharp corrective slide.

On the flip side, any further recovery beyond the key 1.4000 psychological mark could be seen as a selling opportunity near the 1.4035 supply zone. This, in turn, should keep a lid on any further gains for the major near the 23.6% Fibo. level, around the 1.4075 region. A sustained move beyond will negate any near-term bearish bias, instead set the stage for the resumption of the recent/well-established bullish trend. The pair might then aim to reclaim the 1.4200 round-figure mark with some intermediate resistance near the 1.4170-75 area.

The GBP/USD pair witnessed some heavy selling for the second consecutive session on Friday and extended its sharp retracement slide from the vicinity of mid-1.4200s, or nearly three-year tops. A combination of factors assisted the US dollar to build on the previous day’s strong positive move, which, in turn, was seen as a key factor exerting pressure on the major. The greenback continued benefitting from the recent runaway rally in the US Treasury bond yields and got an additional boost from a softer risk tone around the equity markets.

Investors remain optimistic about a strong global economic recovery amid the progress in COVID-19 vaccinations and US President Joe Biden’s proposed $1.9 trillion pandemic relief package. The reflation trade forced investors to price in an uptick in inflation and pushed the yield on the benchmark 10-year US government bond to the highest level since February 2020 earlier last week. Meanwhile, the rout in the fixed income market fueled fears about distressed selling in other assets and led to the global risk-aversion trade.

The pair slipped to over one-week lows, albeit showed some resilience below the 1.3900 mark and managed to regain some positive traction on the first day of a new trading week. The British government’s plan to ease current lockdown measures and hopes for a swift UK economic recovery extended some support to the sterling. The uptick was further supported by news over the weekend, indicating that UK finance minister Rishi Sunak would announce £5 billion of additional grants to help businesses hit by the pandemic in his budget statement this Wednesday.

Apart from this, a goodish rebound in the equity markets weighed on the safe-haven USD and provided a modest lift to the major. Moving ahead, market participants now look forward to the final UK Manufacturing PMI print for February. Later during the early North American session, the release of the US ISM Manufacturing Index will influence the USD price dynamics and produce some meaningful trading opportunities around the major.

2) USD/CAD Flirts With Session Lows, Below 1.2700 Mark

The USD/CAD pair lost some additional ground during the early European session and refreshed daily lows, around the 1.2675 region in the last hour.

The pair struggled to capitalize on last week’s solid rebound from multi-year lows and once again started retreating from the 1.2745-50 supply zone. The pullback was sponsored by a softer tone surrounding the US dollar and a fresh leg up in crude oil prices, which tends to underpin the commodity-linked loonie.

The US Treasury bond yields retreated further from over one-year tops touched last week, which, in turn, was seen as a key factor that kept the USD bulls on the defensive. Apart from this, a strong rally in the equity markets further dented the greenback’s relative safe-haven status and exerted some pressure on the USD/CAD pair.

On the other hand, the Canadian dollar benefitted from bullish crude oil prices, which rallied over 1.5% in reaction to the passage of a massive US fiscal spending plan in the House of Representations. The US President Joe Biden’s $1.9 trillion pandemic relief package will now move to the US Senate for further deliberation.

Meanwhile, the reflation trade has been fueling expectations for an uptick in inflation and has been fueling doubts that the Fed would retain ultra-low rates for a longer period. This, in turn, extended some support to the US bond yields and helped limit any meaningful slide for the USD, warranting some caution for bearish traders.

This makes it prudent to wait for some strong follow-through selling before confirming that the recent bounce has run out of steam and positioning for the resumption of the prior depreciating trend. Monday’s release of the US ISM Manufacturing PMI might influence the USD and produce some trading opportunities around the USD/CAD pair.

3) XAU/USD Clings To Recovery Gains Above $1750 Level, Upside Seems Limited

Gold edged higher through the early European session and was last seen hovering near the top end of its daily trading range, just below the $1760 level.

Gold managed to regain positive traction on the first day of a new trading week and has now recovered a part of Friday’s slump to eight-month lows. The uptick was supported by a softer tone surrounding the US dollar, which tends to benefit the dollar-denominated commodity. Retreating US Treasury bond yields kept the USD bulls on the defensive and extended some additional support to the non-yielding yellow metal.

It is worth recalling that the yield on the benchmark 10-year US government bond soared to the highest level in a year amid expectations about a strong economic recovery. The reflation trade also forced investors to price in the possibility for an uptick in inflation, which raised doubts that the Fed would retain ultra-low rates for a longer period and dragged the XAU/USD to its lowest since June 2020 on Friday.

Meanwhile, the impressive pace of COVID-19 vaccinations and the progress in a massive US fiscal spending plan further boosted investors’ confidence. In fact, the House of Representatives passed US President Joe Biden’s proposed $1.9 trillion pandemic relief package on Saturday. This, in turn, led to a fresh leg up in the equity markets, which might keep a lid on any further gains for the safe-haven XAU/USD.

This makes it prudent to wait for a sustained move beyond the $1760-65 region before confirming that the commodity has bottomed out in the near-term and positioning for any further appreciating move. Market participants now look forward to the release of the US ISM Manufacturing PMI for some short-term trading impetus.