04-Aug-2020

1) EUR/USD: Ready To Rally? US Political Mess, Coronavirus, Bounce At Critical Support Pointing Up
2) Australian Dollar Wavers After Mild RBA Interest Rate Decision
3) Gold Price: Bulls Eye $2000 Amid Record Low US Real Yields, Favorable Technicals

1) EUR/USD: Ready To Rally? US Political Mess, Coronavirus, Bounce At Critical Support Pointing Up

After correcting with a fall of over 200 pips, EUR/USD could be gearing for another move up – and for good reasons.

First and foremost, talks between Democrats and Republicans on the next relief package are stuck. Speaker of the House Nancy Pelosi does not expect progress this week and White House Chief of Staff Mark Meadows – a fiscal hawk – opposes surpassing $1 trillion in spending.

The longer the impasse extends, the greater the damage to the US economy, potentially prompting the Federal Reserve to act. For now, officials at the central bank are reluctant to act. Charles Evans, President of the Chicago branch of the Federal Reserve, said the ball is now in Congress’ court.

Nevertheless, the pressure to add more monetary stimulus – such as pushing the yield curve lower – may grow. Depressed returns on US debt, may, in turn, weigh on the greenback.

Another factor weighing on the dollar is data – while the ISM Manufacturing Purchasing Managers’ Index beat expectations with 54.2 in July, the employment component remained well below 50 – implying more firing in the industrial sector. Factory Orders figures for June are awaited, while speculation ahead of Friday’s Non-Farm Payrolls is rising.

The good news from America is the drop in new coronavirus statistics – yet that is likely due to the weekend effect. Tuesday’s figures may continue showing a flattening of the cases curve, yet mortalities are set to bounce back above 1,000.

In the old continent, several countries are experiencing flareups, but the situation seems under control. The highest number of new cases per 100,000 is in Spain – around 60, yet this is far from being concerning. The number of the unemployed surprisingly dropped by nearly 90,000 in the eurozone’s fourth-largest economy in July.

Overall, the dollar has reasons to fall while euro bulls seem to have little to worry about.

Euro/dollar has bounced off 1.17 – a level that supported it also in late July and now turns into a double-bottom. In addition, that level is where EUR/USD launched at, back in 1999. While upside momentum on the four-hour chart vanished, the currency pair swiftly recaptured the 50 Simple Moving Average.

EUR/USD is battling 1.1780, a cap on the way up. It is followed by 1.1805, which had a similar role last week. The higher levels to watch are 1.1850 and 1.1909.

Initial support is at 1.1735, where the 50 SMA hits the price, followed by 1.17 mentioned earlier. Further down, 1.1625 and 1.1540 await it.

2) Australian Dollar Wavers After Mild RBA Interest Rate Decision

The Australian dollar was little changed during the Asian session as traders reacted to the country’s retail sales and the RBA interest rate decision. Data from Australia showed that retail sales rose by 2.7% in June after climbing by 16.9% in the previous month. In total, sales fell by 3.4% in the second quarter. In June, the country’s exports increased by 3% while imports rose by 1%, leading to a trade surplus of more than $8 billion. In a statement, the Reserve Bank of Australia left interest rates unchanged as most analysts were expecting.

The Japanese yen was little changed against the US dollar after the statistics office released inflation data from Tokyo. The data showed that the headline CPI in Tokyo rose to 0.6% in July after rising by 0.3% in the previous month. In the same month, the core CPI, which excludes the volatile food and energy products rose to 0.4% from 0.2%. As the biggest city in Japan, data from Tokyo tend to be representative of the entire country. The data came a day after we received relatively strong manufacturing PMI data from Japan.

Looking ahead, the economic calendar will have no major events today. In Europe, the Eurostat will release the June factory gate inflation data. Analysts expect these numbers to be relatively weak. In the US, we will receive the June factory orders and durable goods orders data. Additionally, we will receive important earnings releases today. Among the companies to watch will be Walt Disney, Sony, Diageo, BP, Bayer, and Monster Beverage.

The AUD/USD pair was slightly changed as investors reacted to the RBA decision, retail sales, and trade numbers from the country. The pair is now trading at 0.7125, which is below last month’s high of 0.7226. On the four-hour chart, it is above the ascending trend line that is shown in white and the 50-day and 100-day exponential moving averages. The DeMarker indicator has moved to the oversold level. Like the EUR/USD pair, the outlook for the AUD/USD is neutral at this stage.

3) Gold Price: Bulls Eye $2000 Amid Record Low US Real Yields, Favorable Technicals

Gold (XAU/USD) witnessed a bumpy ride starting out a fresh week on Monday, settling almost unchanged about $10 below the new record highs of $1988.02. The greenback staged a recovery amid profit-taking and upbeat US ISM Manufacturing data and knocked-off the bright metal as low as $1960. The US manufacturing activity accelerated to its highest level in nearly 1-1/2 years in July. However, the metal regained poise and jumped back towards $1980 on the back of the late-selling in the US dollar. The dollar recovery faltered, in the face of the rising coronavirus cases across the US states and slow progress towards a US fiscal spending package.

So far this Tuesday, the yellow metal consolidates the overnight advance, with the upside attempts seen capped by the upbeat market mood. Vaccine hopes and renewed weakness in the US dollar drive investors towards the riskier assets. Although, the non-yield gold continues to draw support from the negative US 10-year real yields, which wallow near record lows of -1%. The falling real rates are indicative of dour macro outlook, thus, underpinning the safe-haven bids for gold. Fresh US-China concerns over the Hong Kong and Tik-Tok issue could likely benefit the precious metal going forward. Next of relevance for traders remains the US Factory Orders data and ongoing US stimulus negotiations.

fxsoriginalAs observed in the hourly chart, the price is teasing a descending triangle breakout near $1976 levels, with the Relative Strength Index (RSI) still holding up above the midline in the bullish territory.

A technical breakout on an hourly closing basis above the $1978 level could open doors for a retest of the record highs en route the $2000 barrier.

The immediate downside sees powerful support at $1973/72, the confluence of the 21 and 50-hourly Simple Moving Averages (HMA).

The next support awaits at $1966, the horizontal 100-HMA, which will test the bears’ commitment.

A break below the horizontal trendline support at $1960 will negate the near-term bullish bias, opening floors for further correction.