02-Jun-2021

1) EUR/USD Dips Below 1.22 Amid Dollar Strength
2) GBP/USD Retreats Below 1.4150 As US Yields Hold Their Ground
3) XAU/USD Risks Further Falls As Technical Setup Turns Bearish

1) EUR/USD Dips Below 1.22 Amid Dollar Strength

EUR/USD has dropped below 1.22 as the dollar recovers upbeat US data despite dovish Fed remarks. German Retail Sales disappointed with -5.5% and the ECB’s Knot said Europe’s recovery seems to be going faster than expected. Additional Fed speakers are scheduled to speak later on.

Euro/dollar continues benefiting from upside momentum on the four-hour chart and trades above the 100 and 200 simple moving averages. Bears may cheer the fact that the currency pair is dipping below the 50 SMA, but this drop seems short-lived.

Support awaits at the round 1.22 level, which capped EUR/USD last week. It is followed by 1.2175, which was a cushion last week, followed by 1.2160 and 1.2130.

Resistance is at 1.2255, which was the high point on Tuesday. It is followed by 1.2266, May peak – and an upside target for the pair. Next, 1.23 awaits bulls.

That seems the most likely path for EUR/USD. The main dollar driver is speculation about the Federal Reserve’s next moves – will the world’s most powerful central bank print fewer greenbacks? A tapering of the Fed’s bond-buying scheme could happen sooner if inflation rises too fast – that is the thinking in markets.

The ISM Manufacturing Purchasing Managers’ Index showed a resilient US economy – and persistent price pressures. The inflation component stood at 88 in May, only marginally below the record high seen in April. This gauge joins other robust measures of prices and evidence of shortages.

However, the bank is not budging. Federal Reserve Governor Randal Quarles said that he does not think the Fed should use its tools to resolve supply shortages. His colleague Lael Brainard repeated the mantra that the economy has a long way to go, meaning that the bank should remain accommodative for a longer period.

Probably not. Atlanta Fed President Raphael Bostic and his colleague from Chicago Charles Evans are set to speak today and given their previous statement, they will likely remain dovish and weigh on the dollar.

In the meantime, there are reasons to be cheerful for the prospects of the old continent. Markit’s preliminary eurozone PMIs for May showed robust growth while the Unemployment Rate surprised by remaining at 8% in April. Inflation also marginally exceeded expectations in the old continent.

On the vaccination front, Europe is accelerating its campaign while the jabbing pace in the US has slowed down markedly. COVID-19 cases have been falling sharply, nearly catching up with the low levels in the US:

2) GBP/USD Retreats Below 1.4150 As US Yields Hold Their Ground

GBP/USD is trading under 1.4150, down on the day. US yields are holding their ground after the robust US ISM Manufacturing PMI read on Tuesday. The UK passed a full day without any COVID-19 death yet fears of variants persist.

On the daily chart, the pair has been facing a stiff resistance near the 1.4200 mark. The double top formation in the vicinity of the 1.4245 area makes it hard for GBP/USD to continue with upside momentum.

The bulls, therefore, experience corrective pullback on the premises of double top, a bearish reversal formation. The GBP/USD price is then likely to test the 23.6% Fibonacci retracement, which extends from the lows of 1.3669, level at 1.4100.

The negative divergence in the Relative Strength Index (RSI) indicator implies a significant downward reversal in price. In doing so, the bears would march toward the 50-day Simple Moving Average (SMA) at 1.3930.

Chatters that Brexit led to £110 billion loss to the UK service exporters, per the research from the Aston University in Birmingham, marked furies over indecisive talks between the European Union (EU) and Britain over the trade deal. On the same line, the Daily Mail came out with the news saying, “The EU’s ambassador to London Joao Vale de Almeida stoked the row over Northern Ireland insisting there is ‘no alternative’ to the protocol that unionists want to be scrapped.” It should be noted that the launch of the UK’s post-Brexit independent trade authority, on Tuesday, is cited as a risk to the EU as the trade body can now levy sanctions on the bloc if needed.

Elsewhere, no new covid-led deaths couldn’t be cheered in the UK as scientists warned over heavy unlock even as the covid variants remain dominant. The same push the EU to keep the UK off from a safe travel list, per Reuters. It’s worth mentioning that the comments from BOE Governor Andrew Bailey suggesting reflation fears due to the green shift also weighed on the GBP/USD prices.

On the data side, the UK BRC Shop Price Index for April recovered from -1.3% to -0.6% YoY whereas ISM Manufacturing PMI jumped above 60.7 forecasts and prior to 61.2 in May.

3) XAU/USD Risks Further Falls As Technical Setup Turns Bearish

Gold price (XAU/USD) retreated sharply from five-month highs of $1917 and finished Tuesday at $1900, as stronger US economic data pointed to a strengthening recovery. The optimism over the US economy lifted the Treasury yields alongside the dollar, as the Fed’s tapering bets resurfaced. US ISM PMI showed a pick up in the manufacturing activity in May. However, growing concerns over higher price pressures continued to overwhelm investors, which kept a floor under the gold price. Eurozone inflation exceeded ECB’s target range last month, which is likely to spell trouble for the central bank any time soon.

Gold price extends Tuesday’s weakness into early Europe this Wednesday, pressured by a broadly firmer US dollar while covid concerns in Asia continue to cushion the downside. Looking ahead, if the risk-off mood intensifies, the US dollar is likely to catch a fresh bid wave, exacerbating the pain in gold. Meanwhile, an uptick in the Treasury yields, amid a potential revival of the risk-on trades, could also exert downside pressure on the yields of gold. The metal will remain at the mercy of the dynamics in the dollar and yields, taking cues from the broader market sentiment, in absence of relevant US macro news.

Gold’s four-hour chart confirmed a rising wedge breakdown earlier this Wednesday, following a sustained break below the rising trendline support at $1900.

Gold price is challenging critical 50-simple moving average (SMA) support at $1895, below which a sharp sell-off towards the bullish 100-SMA at $1873 cannot be ruled out.

The Relative Strength Index (RSI) shows that the tide has turned in favor of the bears, as it has pierced through the midline to now trade in the bearish region.

Alternatively, acceptance above powerful support turned resistance at $1901 is critical to negate the downside bias in the near term.

The next stop for the buyers is seen at the $1910 round number.