02-Apr-2021

1) EUR/USD Trades Below 1.18 Ahead Of Critical Nonfarm Payrolls
2) GBP/USD Hovers Around 1.3850 Ahead Of US Jobs Report
3) XAU/USD’s Weekly Close Above $1729 Keeps Buyers Hopeful

 

 

1) EUR/USD Trades Below 1.18 Ahead Of Critical Nonfarm Payrolls

EUR/USD is trading in a narrow range below 1.18 as investors count down toward the US Nonfarm Payrolls and after a cheerful start to the second quarter. Low liquidity on Good Friday may trigger highly volatile moves.

Euro/dollar has been able to reach levels last seen on Monday, but it remains on a downtrend as the four-hour chart clearly shows. Momentum and the Relative Strength Index are balanced while EUR/USD remains capped by the 50, 100, and 200 Simple Moving Averages. Overall, bears are in the lead.

Support is at the daily low of 1.1770, followed by 1.1760 and the psychologically significant 1.17. Further down, 1.1630 is the downside target.

Some resistance awaits at the daily high of 1.1785, followed by 1.1805, 1.1835, and 1.1875.

All the gauges are flashing green Indicators checklist for March’s Nonfarm Payrolls report are pointing to a positive outcome, and that may boost the dollar. The economic calendar is pointing to an increase of over 600,000 jobs last month, which would be the highest since October. However, it could be even higher.

The ISM Manufacturing Purchasing Managers’ Index shot up to 64.7 – the highest since 1983 and a sign of robust activity in America’s industrial sector. This forward-looking survey included a leap in the employment component. The mix of optimism around vaccines, reopening in several states, and stimulus checks have all contributed to hiring. The question is how much. Some analysts foresee a leap of over one million jobs, but that could be over the top.

These all-important labor market statistics are published on Good Friday, a holiday in many parts of the world. Trading volume is limited and the lack of liquidity could result in significant moves.

Leading toward this all-important release, the dollar has been on the defensive despite apparent economic strength in the US. Treasury yields remain in the driver’s seat and they dropped after President Joe Biden presented his massive $2.25 trillion infrastructure spending plan. Why?

First, funding for this expenditure is set to come from tax hikes, therefore lessening the need for more debt issuance. With fewer bonds circulating, they are worth more – and the result is lower yields and therefore a weaker dollar. Secondly, Republicans are opposed to the scheme and Congress may substantially modify Biden’s plan.

That dynamic may change if prospects of robust recovery raise inflation expectations and force the Federal Reserve to act sooner than later, and contrary to its current pledge. The next adjustment in markets depends on the NFP.

Moreover, if there is one currency the dollar has more to run against, it is the euro. Good Friday is a somber event in most of the old continent, which is under various forms of lockdowns. COVID-19 is raging in Europe and while vaccinations have picked up, they have reached roughly 12% of the population, in comparison to around 30% in the US and nearly half of Britain’s citizens.

And if the Fed may raise rates in America due to higher inflation, the European Central Bank is far away from such a move. The Core Consumer Price Index disappointed with 0.9% annual in March, lower than expected and reflecting weakness.

All in all, the tables remain tilted in favor of the dollar and against the euro.

 

2) GBP/USD Hovers Around 1.3850 Ahead Of US Jobs Report

GBP/USD has been consolidating its gains around 1.3850 as the market mood remains upbeat on Good Friday and as the UK vaccination campaign continues at full speed. All eyes are on US job figures for March.

Pound/dollar has set a higher high after bottoming out at a better level earlier in the week, as the four-hour chart is showing. This emerging uptrend is also reflected in rising momentum and the currency pair’s surpassing of the 100 Simple Moving Average. All in all, bulls gaining ground.

Some resistance is at the daily high of 1.3850, followed by 1.39, which provided support during March. Further above, 1.3935 and 1.40 are eyed.

Support is at 1.3810, a swing high from earlier this week. It is followed by 1.3780, 1.3740, and 1.37.

A 180-degrees turn back down or 180 pips up to the previous peak? One thing is all but certain – volatility is set to surge once the US Nonfarm Payrolls are released. Good Friday is a holiday in most parts of the world, but America’s Bureau of Labor Statistics still publishes the all-important job figures on this day.

The US is on an accelerating recovery path amid a solid vaccination campaign, state reopenings, two rounds of stimulus checks – and optimism about a new infrastructure package. While the latter development may take time to come into fruition, the US industry is already firing on all cylinders. The ISM Manufacturing Purchasing Managers’ Index smashed expectations with a score of 64.7 in March, the highest since 1983.

Economists expect an increase of 647,000 jobs, a considerable jump from 379,000 created in February. The jobless rate is forecast to drop from 6.2% to 6%, but markets will likely focus on the headline figure. If the NFP exceeds projections – and some think it may hit one million – the dollar could rise as investors begin pricing in an interest rate hike.

Leading to the publication, the greenback has been on the back foot, dropping alongside bond yields. Investors seem to shrug off President Joe Biden’s new plans, which include tax hikes, and are running against opposition in Congress. Moreover, rising COVID-19 cases in the US – despite rapid immunization – also curb some of the enthusiasm.

While the NFP may boost the dollar, sterling is well-positioned to weather the storm. Contrary to America, infections are dropping in Britain. That may allow GBP/USD to rise if the figures fall short of expectations. Technicals also show an improving picture for the pound.

 

3) XAU/USD’s Weekly Close Above $1729 Keeps Buyers Hopeful

The recovery in Gold (XAU/USD) from multi-month lows gathered steam on Thursday after the US dollar tumbled in tandem with the Treasury yields. Gold rallied over 1% to settle the holiday-shortened week above the critical resistance at $1729.

Investors cheered strong US manufacturing data and President Biden’s infrastructure plan, which boosted global stocks at the expense of the safe-haven gold. Technically, gold’s recovery seems to have some legs but its fate hinges on the US NFP release and next week’s FOMC minutes.

The Technical Confluences Detector shows that gold faces immediate resistance at $1732, which is the Fibonacci 38.2% one-week.

A dense cluster of resistance is seen around the $1737 area, which is the confluence of SMA200 four-hour and Fibonacci 61.8% one-week.

The bulls will then look to challenge powerful resistance at $1747, the convergence of the previous week high, pivot point one-day R2, and pivot point one-week R1.

Alternatively, a sustained break below the $1929 support – the intersection of the Fibonacci 23.6% one-week and Fibonacci 61.8% one-month – could revive the downside bias.

The next relevant support is seen around $1725, the confluence of the SMA10 one-day and Fibonacci 23.6% one-day.

Further south, $1720 could likely test the bearish commitments. At that point, the Fibonacci 38.2% one-day coincides with the previous week’s low.