04-Sep-2020

1) Dollar Pares Gains In New York On Selloff In U.S. Treasury Yields And Stocks
2) Gold: XAU/USD Awaits A Fresh Direction From The US NFP
3) EUR/USD: Bulls Defend Ascending Channel Support, Focus Shifts To NFP
4) GBP/USD Forecast: Sterling Selling Opportunity After The NFP? Here Is Why
5) AUD Lower As Global Equities Sold Off

 

 

1) Dollar Pares Gains In New York On Selloff In U.S. Treasury Yields And Stocks

Although the greenback extended its recent winning streak in Asia and European morning, dollar later pared its gains in New York due after release of weekly jobless data as well as selloff in U.S. Treasury yields and equities ending Thursday higher against majority of its peers except for safe-haven Japanese yen and Swiss franc. (All three indices fell more than 2.78%).

Reuters reported U.S. initial claims for state unemployment benefits totaled a seasonally adjusted 881,000 for the week ended Aug. 29, compared to 1.011 million in the prior week, the Labor Department said on Thursday. Economists polled by Reuters had forecast 950,000 applications in the latest week.

Versus the Japanese yen, dollar found renewed buying at 106.13 in Australia and rose to 106.34 in Asia. Despite retreating to 106.18 in European morning, the pair later rallied to session highs at 106.55 at New York open on usd’s broad-based strength. However, price then erased intra-day gain and tumbled to 106.01 due to selloff in U.S. Treasury yields and stocks.

The single currency remained under pressure in Asia and fell to session lows at 1.0790 at European open on usd’s strength before rebounding to 1.1836. The pair later ratcheted higher to 1.1864 in New York afternoon on cross-buying in euro before stabilizing.

Reuters reported the euro zone’s rebound from its deepest downturn on record faltered in August as growth in the bloc’s dominant service industry almost ground to a halt, a survey showed on Thursday, suggesting the long road to recovery will be bumpy. It sank to 51.9 last month from July’s 54.9 – close to the 50 mark separating growth from contraction, albeit slightly better than an initial flash reading of 51.6. The services PMI fell to 50.5 from 54.7, better than its flash reading of 50.1.

Although the British pound staged a strong rebound to 1.3360 (Reuters) in Australia after Wednesday’s selloff to 1.3284, cable met renewed selling there and dropped to 1.3277 at European open on usd’s strength before recovering to 1.3318 but only to fall again to session lows at 1.3243 due to cross-selling in sterling, especially versus euro. The pair then bounced to 1.3284 in New York afternoon before retreating again.

In other news, Reuters reported European finance ministers will discuss at a meeting in Berlin next week the implementation of a 750 billion euro recovery package and how to give the EU its own fiscal resources to pay back joint debt, German Finance Minister Olaf Scholz said on Thursday.

Australia retail sales, Germany industrial orders, France budget balance, current account, UK Markit construction PMI, U.S. non-farm payrolls, private payrolls, unemployment rate, average earnings, and Canada employment change, unemployment rate, Ivey PMI.

 

2) Gold: XAU/USD Awaits A Fresh Direction From The US NFP

Gold (XAU/USD) extended the previous sell-off and finished Thursday in the red around $1931, despite the sharp declines in the Wall Street indices, which fuelled a broad risk-aversion. Meanwhile, the US dollar witnessed an up and down session, mostly holding up the recent bounce fuelled by the hopes of improved US economic recovery. The US Jobless Claims came in below the 1 million level last week while the country’s manufacturing sector activity remained solid. US policymakers showed a sense of urgency on additional fiscal stimulus to boost the economic rebound from the coronavirus impact.

Despite the overnight bounce in gold, the bulls remain unnerved ahead of the critical US Non-farm payrolls data due to be published later on Friday at 1230 GMT. The key US jobs report will offer fresh hints on the strength of the economic recovery, given the slowdown in jobs growth. The economy is expected to add 1400K jobs in August vs. +1763K prior while the jobless rate is seen ticking lower to 9.8% from July’s 10.2%. Any disappointment in the labor market report could prompt the return of the dollar bears and bode well for gold. In the meantime, the pre-NFP caution trading is likely to remain in play, with the dollar dynamics closely followed.

Despite a falling trendline breakout and an uptick on the Relative Strength Index (RSI) on the hourly chart, the upside attempts remain capped by the bearish 50-hourly Simple Moving Average (HMA) at $1944.

Meanwhile, on the daily chart, the spot clings onto the critical triangle support at $1925in the lead up to the US payrolls release. On the flip side, the downward-facing 21-daily Simple Moving Average (DMA) at $1955 could limit the advances.

The daily RSI trades neutral at the midline, suggesting a lack of clear directional bias. Therefore, the US data will emerge as the key decider for the next direction in the bright metal.

The path of least resistance appears to the upside, in light of a bunch of healthy support levels in the major SMAs.

 

3) EUR/USD: Bulls Defend Ascending Channel Support, Focus Shifts To NFP

The EUR/USD pair reversed an intraday dip to sub-1.1800 levels, or one-week lows and finally settled nearly unchanged on Thursday. The shared currency was being weighed down by the ECB chief economist Philip Lane’s comments on Tuesday, saying that the euro-dollar rate does matter for monetary policy, and mixed data from the Eurozone. Markit released the final versions of the Eurozone Services PMI, which showed that the service activity barely expanded in August. Adding to this, the Eurozone retail sales missed market expectations and dropped -1.3% MoM in July.

The pair was further pressured by some early US dollar strength, which lacked any strong follow-through, instead fizzled out rather quickly despite a larger-than-anticipated fall in the US Initial Weekly Jobless Claims. Separately, the US ISM Non-Manufacturing PMI showed that the service industries in the US expanded at a more moderate pace in August. The gauge edged lower to 56.9 during the reported month, down from the 58.1 in July. This, in turn, prompted some fresh selling around the USD and assisted the pair to recover early lost ground.

The USD lost some additional ground after the Chicago Fed President Charles Evans said that the US central bank could promise to keep interest rates near zero until inflation reaches 2.5%. This was well above current low levels and the Fed’s inflation target of 2%. Nevertheless, renewed USD weakness led to the pair’s intraday bounce of over 60 pips. The pair now seems to have stabilized near mid-1.1800s as investors now look forward to the closely watched US monthly jobs report – popularly known as NFP – before positioning for the next leg of a directional move.

The US economy is expected to have added another 1.4 million jobs in August. This would mark a slowdown from the 1.763 million jobs created in the previous month. Meanwhile, the unemployment rate is expected to tick down to 9.8% from 10.25% in July. Any disappointment will add to the uncertainty over the outlook for the economy and prolong the near-term well-established USD bearish trend. Conversely, the market reaction to a stronger report is more likely to remain limited and fail to provide any meaningful boost to the greenback amid expectations of highly accommodative policy stance by the Fed.

From a technical perspective, the pair on Thursday managed to rebound swiftly from a support marked by the lower boundary of a one-month-old ascending trend-channel. With technical indicators on the daily chart still holding in the bullish territory, some follow-through buying has the potential to lift the pair back towards the 1.1900 mark, towards the 1.1935-40 horizontal resistance. Bulls might then aim back to retest YTD tops – levels just above the key 1.2000 psychological mark.

On the flip side, the 1.1800-1.1790 region (trend-channel support) might continue to protect the immediate downside. A convincing breakthrough will be seen as a fresh trigger for bearish traders and turn the pair vulnerable to accelerate the fall further towards the 1.1700 round-figure mark. The mentioned level coincides with August monthly swing lows, below which the pair seems all set to extend the near-term corrective slide.

 

4) GBP/USD Forecast: Sterling Selling Opportunity After The NFP? Here Is Why

Cable is at the crossroads, finding its feet and looking for a direction – and that next move could be a zig-zag, first up and then down. That may present a selling opportunity.

The surge may emerge from the all-important US Non-Farm Payrolls figures for August. The economic calendar is pointing to an increase of 1.4 million jobs, but there are reasons to expect a lower figure.

First, the employment components of ISM’s purchasing managers’ indexes both pointed to contraction – both in services and in manufacturing. The weakness in hiring comes despite the broad expansion.

Second, ADP’s private-sector labor figures missed estimates with an increase of only 428,000 positions last month. Skeptics are rightly pointing to the fact that America’s largest payroll firm has been off the mark in recent months. However, contrary to previous months, ADP did not make a meaningful upward revision to July’s figures – indicating it is more convinced of the slowdown in hiring.

Third, a seasonal quirk that pushed July’s statistics higher is not in play in August. Economists probably took that into account, but perhaps not fully.

Overall, an increase of fewer than one million jobs cannot be ruled out and that could weigh on the dollar.

After the NFP dust settles, there is room to refocus on Britain’s issues. Leeds, a large northeastern city, is facing lockdown amid an increase in coronavirus cases. The UK’s virus situation is much improved in comparison to the worst of the crisis, but it is not out of the woods.

Brexit talks remain deadlocked and there is also little progress in preparations for the day after the transition period ends. Concerns about the state of customs may also weigh on sterling.

Apart from Brexit, another time bomb looms – the expiry of the furlough scheme in October. It seems that the government would like to extend it, yet may have to raise taxes. Investors and the public are unhappy with the miserable choices.

The Treasury paid most of the salaries of workers that were unable to work due to the crisis, keeping them attached to employers and holding a lid on the unemployment rate – only 3.9% as of June.

Rishi Sunak, Chancellor of the Exchequer, briefed fellow Conservative Party members of “difficult times.” Officials at the Bank of England echoed that message by warning of a long recovery path.

Overall, US weakness may divert attention from Britain’s issues – yet probably only temporarily.

Despite the stabilization, momentum on the four-hour chart remains to the downside. Cable is struggling to recapture the 50 Simple Moving Average while still holding above the 100 and 200 SMAs.

Support awaits at 1.3240, Thursday’s low, followed by 1.3175 and 1.3120, both stepping stones on the way up. The next lines to watch are 1.3050 and 1.30.

Resistance is at 1.33, a round level that worked in both directions. It is followed by 1.3360, which capped GBP/USD both on the way and when descending. The next levels to watch are 1.3420, 1.3480, and 1.3510.

 

5) AUD Lower As Global Equities Sold Off

The AUD had a rough session yesterday, falling from 0.7320 to 0.7265 on the day as global equities fell sharply. There was no obvious reason for the fall in equities however the moves spilled over into currency markets as commodity currencies like the Aussie and the Kiwi were hit hard while safe haven currencies such as the Japanese Yen and Swiss Franc outperformed.

Looking ahead to today’s session, we have July retail sales due out this morning. Markets are pricing sales growth of 3.3% which would be an improvement from June’s 2.7% read however the outlook for August looks particularly bleak given the lockdowns in Victoria. Focus then shifts offshore to tonight’s US non-farm payrolls read where markets are looking for a 1350K increase and a lower unemployment rate of 9.8%.

On the technical front, an extension of the recent downtrend could see initial support tested at 0.7245 whilst on the upside, a reversal could see the pair push through the key 0.73 handle.

As we touched on above, the big falls in global equities have dominated headlines in financial markets overnight. The S&P500 fell 4% without any trigger whilst the Euro Stoxx 600 performed better, only falling 1.4%.

The moves did spill over into currency markets however the USD index was largely unchanged on the day whilst safe haven currencies outperformed. USD/JPY fell to 106.00 and the EUR returned to levels above 1.18 after a two day downtrend.

Commodities were mixed amidst the risk off mood. Despite 1% and 1.3% falls in oil and copper, Iron ore rose 2% to touch its highest level since January 2014.