02-Feb-2021

1) EUR/USD: Bulls Trying Hard To Defend 1.2060-50 Support Zone
2) XAU/USD: Gold Falters Near $1875-76 Resistance Zone
3) NZD/USD: Jobless Rate To Hit The Highest Since 2015

1) EUR/USD: Bulls Trying Hard To Defend 1.2060-50 Support Zone

A combination of factors prompted some fresh selling around the EUR/USD pair and dragged it to over two-week lows on the first day of a new trading week. Uncertainty over the rollout of the COVID-19 vaccine in Europe was seen as one of the key factors that continued weighing on the shared currency. The intraday selling picked up pace following a record slump in German retail sales, which indicated that coronavirus-induced lockdowns choked consumer spending in the block’s biggest economy. Meanwhile, an upward revision of the Eurozone Manufacturing PMIs did little to impress bulls or lend any support to the major.

The pair was further pressured by a broad-based US dollar strength. The greenback was back in demand amid doubts about the timing and size of the US President Joe Biden’s proposed COVID-19 relief package. A group of Republican senators urged Biden to cut the massive $1.9 trillion price tag of the economic stimulus measures to garner bipartisan support and visited the White House to discuss a $618 billion alternative plan. That said, a solid rebound in the equity markets kept a lid on any runaway rally for the safe-haven USD.

Apart from this, the disappointing release of the US ISM Manufacturing PMI further collaborated towards capping gains for the greenback. This, in turn, assisted the pair to defend the 1.2060-50 support zone and regain some positive traction during the Asian session on Tuesday. Market participants now look forward to the release of the prelim Eurozone Q4 GDP report for a fresh impetus. The region’s economy is anticipated to have contracted by 2.1% during the October-December period as against the 15.9% growth recorded in the previous quarter.

From a technical perspective, a sustained break below the 1.2060-50 important support will shift the near-term bias in favor of bearish traders. The pair might then accelerate the slide further towards the key 1.2000 psychological mark. This is closely followed by support near the 1.1980-75 region, which if broken decisively will set the stage for an extension of the ongoing corrective fall from near three-year tops touched in January.

On the flip side, momentum back above the 1.2100 mark might now confront immediate resistance near the 1.2135-40 region. Some follow-through buying has the potential to push the pair further towards the 1.2190-1.2200 supply zone en-route the 1.2240 hurdle. The momentum could further get extended and assist bulls to aim back to reclaim the 1.2300 round-figure mark.

2) XAU/USD: Gold Falters Near $1875-76 Resistance Zone

Gold struggled to capitalize on the weekly bullish gap opening on Monday and remained capped near the $1875-76 resistance zone. The retail-inspired pressure on hedge funds shifted to silver and the spillover effect provided a modest lift to the commodity. That said, a combination of factors kept a lid on any further gains. A solid rebound in the equity markets held bulls from placing any aggressive bets around the safe-haven precious metal. Apart from this, a broad-based US dollar strength further weighed on the dollar-denominated commodity.

The greenback was back in demand amid doubts over the timing and size of the US fiscal stimulus measures. In fact, a group of Republican senators urged US President Joe Biden to cut the price tag for his proposed economic stimulus package and discussed a $618 billion alternative plan. However, Democrat lawmakers filed the $1.9 trillion budget measure to bypass Republicans to get the measure passed in Congress. This, in turn, pushed the US Treasury bond yields higher on Tuesday and exerted some downward pressure on the non-yielding yellow metal.

The XAU/USD was trading below the $1860 level during the latter part of the Asian session, though concerns about the delay in COVID-19 vaccine supplies helped limit the downside. Moving ahead, the broader market risk sentiment will play a key role in influencing the intraday movement for the commodity. This, along with the US bond yields and the USD price dynamics, will also be looked upon for some meaningful trading opportunities.

From a technical perspective, the $1875-76 horizontal resistance, along with a near three-week-old ascending trend-line, constitutes the formation of an ascending triangle on short-term charts. Ascending triangles have a bullish bias and a sustained move beyond would mark a reversal for the XAU/USD. That said, technical indicators on the daily chart are yet to confirm a bullish bias and warrant some caution. This makes it prudent to wait for some follow-through beyond the triangle resistance before positioning for any further appreciating move.

A sustained move beyond should pave the way for an extension of the recent bounce from seven-week lows and push the metal to the $1900 round-figure mark. The momentum could further get extended towards the $1922-24 supply zone en-route the next major hurdle near the $1960 region.

On the flip side, the ascending trend-line, currently around the $1845-44 region, might continue to protect the immediate downside. A convincing break below will negate the constructive outlook, turning the commodity vulnerable to weaken further below the $1830 intermediate support and slide back to challenge the $1800 mark.

3) NZD/USD: Jobless Rate To Hit The Highest Since 2015

Although the New Zealand economy fared relatively well against the Western world in combating the coronavirus crisis, the dour virus situation overseas is seen weighing on the South Pacific nation and its labor.

New Zealand’s unemployment rate is expected to have climbed north in the fourth quarter despite a mild improvement in other employment indicators, the NZ Statistics will show this Wednesday.

The NZ Unemployment Rate is foreseen at 5.6% in Q4 2020, up from 5.3% recorded in the July-September quarter. The jobless rate is likely to hit the highest since Q2 2015. The economy did not see any jobs growth in the reported period, with the figure likely to arrive at 0% vs. -0.8% seen in Q3. The Participation Rate is seen a tad higher at 70.2% in the final quarter of 2020 vs. Q3’s 70.1%.

New labor market data on Wednesday is predicted to show the worst of the job situation is not yet behind us.

Despite the economy unlikely to see job losses in the December quarter, the increase in the unemployment rate and underutilization rate could call for additional support from the Reserve Bank of New Zealand (RBNZ) to revive the jobs growth.

Further, markets are expecting the unemployment rate to extend its upward trend in the first quarter of 2021 amid worsening trading conditions for tourist operators, as most major Western economies are battling fresh lockdowns due to the spread of the new covid strain, found in the UK and South Africa. Meanwhile, the wage growth is also likely to remain muted in the final part of 2020.

In such a scenario, the RBNZ could be compelled to bring back negative rate discussions on the table while almost sealing in an expansion to its newly-launched Funding for Lending Programme (FLP).

At its November monetary policy meeting, the RBNZ Governor Adrian Orr said that the Official Cash Rate (OCR) will remain at 0.25% until March 2021.

However, a disappointment in the jobs report could prompt the RBNZ to consider negative rates as a policy option, in a bid to revive the post-pandemic labor market recovery.

Any upside surprises in the employment report could join the recent market’s optimism over the US fiscal stimulus, supporting Tuesday’s rebound in NZD/USD. Broad market sentiment and the US dollar dynamics could also have a significant impact on the kiwi at the time of the data release.

Looking at the daily chart, the price is locked in a range between the 21-Simple Moving Average (DMA) and 50-DMA. Therefore, the outcome of the jobs data could yield a range breakout in either direction for the kiwi. Acceptance above the 21-DMA at 0.7193 is critical to extending the recovery. Meanwhile, a breach of the critical 50-DMA support at 0.7134 could trigger a sharp decline towards the 0.7100 level, below which the December 25 low at 0.7070 could be challenged.