05-Jan-2021

1) GBP/USD: Imposition of Third Lockdown in the UK Could Cap The Upside
2) EUR/USD: 1.2300 Capping Gains Amid COVID-19 Jitters, Georgia Election Worries
3) XAU/USD: Gold Remains Capped By $1947 Ahead Of Georgia Race – Confluence Detector
4) USD/JPY: Key 102.69 Support Appears At-Risk Ahead Of Georgia’s Elections

1) GBP/USD: Imposition of Third Lockdown in the UK Could Cap The Upside

The GBP/USD pair witnessed a dramatic turnaround on the first trading day of 2021 and retreated over 160 pips from the 1.3700 mark, or fresh 32-month tops. The early positive move was exclusively sponsored by sustained US dollar selling bias and seemed rather unaffected by concerns about the exclusion of the UK services sector from the Brexit agreement. That said, worries about an unprecedented level of COVID-19 infection in the UK kept a lid on any further gains for the major, rather prompted some aggressive selling at higher levels. In fact, infections rose by a record 58,784 on Monday, marking the seventh-straight day of more than 50,000 new confirmed coronavirus cases.

The intraday selling bias aggravated further after UK Prime Minister Boris Johnson imposed a third national lockdown until mid-February to curb the continuous surge. The move was predicted to slow the economic recovery and prompt the Bank of England to ease monetary policy further, which, in turn, took its toll on the British pound. Apart from this, doubts about the effectiveness of the vaccine on a new coronavirus strain coming from South Africa and uncertainty about the runoff elections in Georgia tempered enthusiasm. This was evident from a sharp pullback in the US equity markets, which helped revive demand for the safe-haven greenback and further contributed to the pair’s intraday slide.

The pair dived to levels below mid-1.3500s, albeit lacked any strong follow-through selling. The pair managed to regain some positive traction during the Asian session on Tuesday amid the emergence of some fresh USD selling. There isn’t any major market-moving economic data due for release from the UK. Meanwhile, the US economic docket highlights the release of ISM Manufacturing PMI. This, along with developments surrounding the coronavirus saga and the broader market risk sentiment, might influence the USD price dynamics and assist investors to grab some meaningful trading opportunities.

From a technical perspective, the overnight sharp pullback stalled near 200-hour EMA. The mentioned support is currently pegged near the 1.3550 region, which should now act as a key pivotal point for intraday traders. A sustained break below might prompt some technical selling and accelerate the slide further towards the key 1.3500 psychological mark. The latter coincides with the 38.2% Fibonacci level of the 1.3188-1.3704 strong move up. Failure to defend the mentioned support levels should pave the way for an extension of the corrective slide.

On the flip side, any move back above the 1.3600 mark might now confront resistance near the 1.3645-50 region. Some follow-through buying could negate prospects for any further decline and assist bulls to make a fresh attempt to conquer the 1.3700 mark. The momentum could further get extended towards the 1.3780-85 intermediate resistance before the pair eventually aims to reclaim the 1.3800 mark.

2) EUR/USD: 1.2300 Capping Gains Amid COVID-19 Jitters, Georgia Election Worries

The EUR/USD pair caught some fresh bids on the first trading day of 2021 and retested 32-month tops, albeit once again struggled to find acceptance above the 1.2300 mark. Hopes for a sharp global economic recovery this year, along with expectations of an additional US financial aid package remained supportive of the underlying bullish sentiment across the global financial markets. Adding to this, speculations that the Fed will keep rates lower for a longer period further undermined the safe-haven US dollar and was seen as a key factor behind the pair’s goodish intraday positive move.

The shared currency was able to sustain gains despite a modest downward revision of the Eurozone Manufacturing PMIs. The readings, however, reflected the resilience of the manufacturing sector, which could act as a crucial support to the economy and help offset the impact of any further decline in the services sector. That said, news that Germany is extending its lockdown until January 31 added to market concerns about the continuous surge in new COVID-19 cases. Apart from this, a turnaround in the US equity markets provided some respite to the USD and capped gains for the major.

Investors turned cautious amid doubts about the effectiveness of vaccine on a new coronavirus strain coming from South Africa and uncertainty about the runoff elections in Georgia. This, in turn, fueled demand for the perceived safe-haven greenback and led to the pair’s intraday pullback of around 65 pips. Meanwhile, the downside remained cushioned and the pair managed to regain some positive traction during the Asian session on Tuesday. In the absence of any major market-moving economic releases from the Eurozone, the USD price dynamics should play a dominant role in influencing the pair.

Later during the early North American session, the releases of the ISM Manufacturing PMI will also be looked upon for some trading impetus. The key focus, however, will remain on developments surrounding the coronavirus saga, which remains an exclusive driver of the broader market risk sentiment.

From a technical perspective, repeated failures near the 1.2300 mark could be seen as the first signs of bullish exhaustion. That said, the pair so far has managed to defend a two-week-old ascending trend-line support. This makes it prudent to wait for a sustained breakthrough the mentioned support, currently near the 1.2230-25 region, before positioning for any further corrective fall. The pair might then slide below the 1.2200 mark and aim to test the 1.2130-25 congestion zone. The latter should act as a key pivotal point and help determine the pair’s next leg of a directional move.

On the flip side, the 1.2300-1.2310 region might continue to act as a key barrier. A sustained strength beyond will be seen as a fresh trigger for bullish traders and pave the way for an extension of the recent strong upward trajectory. The momentum has the potential to push the pair further beyond mid-1.2300s, towards reclaiming the 1.2400 mark for the first time since April 2018.

3) XAU/USD: Gold Remains Capped By $1947 Ahead Of Georgia Race – Confluence Detector

Gold (XAU/USD) holds below the critical $1947 barrier heading into Tuesday’s runoff elections in Georgia. Gold buyers remain hopeful of Democratic control of Congress, as it implies an easier path for President-elect Joe Biden to push for additional fiscal support.

An increase in inflows into gold ETFs combined with a surge in coronavirus cases-led fresh lockdowns also keeps the metal underpinned. Let’s look at the key technical levels for trading gold in the lead up to the critical Georgia vote.

The Technical Confluences Indicator shows that Monday’s 2% rally remains capped below the critical $1947 resistance, which is the pivot point one-month R1.

Only a sustained break above the latter could unleash the further upside, with immediate resistance aligned at $1952, the Bollinger Band four-hour Upper.

The next upside target for the buyers is seen at $1958, where the pivot point one-day R1.

Alternatively, the convergence of the Fibonacci 23.6% one-day and SMA100 15-minutes at $1935 could challenge the retracement from two-week tops.

Further south, the $1929 cushion could limit the declines. That level is the Fibonacci 38.2% one-day.

Meanwhile, strong support of the pivot point one-week R2 at $1921 will be the level to beat for the bears.

4) USD/JPY: Key 102.69 Support Appears At-Risk Ahead Of Georgia’s Elections

USD/JPY trades with mild losses below the 103 level, having faced rejection just above Monday’s close of 103.14.

Markets remain worried about the surge in coronavirus cases and the resultant imposition of stricter curbs worldwide.

On the other side, coronavirus vaccine optimism and expectations that the Democrats could likely seek control of Congress in the critical Georgia run-off elections lend some support to the USD/JPY bulls.

However, from the technical perspective, the bias appears to the downside in the major. The daily chart shows that the bears have fought back control on Tuesday after charting three consecutive Doji candlesticks.

The bears remain poised to test the five-month-old descending trendline support, now seen at 102.69.

The 14-day Relative Strength Index (RSI) points south, heading towards the oversold territory. This suggests that there is more scope for additional downside moves.

Also, adding credence to the bearish bias, the spot trades below all the major daily moving averages (DMA).

A breach of the abovementioned critical support could expose the psychological 102.50 level.

Alternatively, a sustained recovery above daily highs of 103.19 could offer some temporary reprieve to the buyers.

Further up, Monday’s high of 103.31 could be tested, as the bulls look to recapture the bearish 21-DMA at 103.58.