05-Oct-2020

1) Dollar’s Decline Not Expected To Go Far, But Still A Lot Of Confusion Lingering
2)  XAU/USD: Gold’s Fate Hinges On Trump’s Health, 21-DMA – Level To Beat For Bulls
3) EUR/USD: Bulls Await Sustained Move Beyond A One-Month-Old Descending Channel
4) GBP/USD: Lack Of Follow-Through Buying Warrants Caution For Bulls
5) AUD/USD: Ausi Consolidates Below 0.7200 Ahead Of RBA Rate Decision Tuesday

1) Dollar’s Decline Not Expected To Go Far, But Still A Lot Of Confusion Lingering

US president Trump announcing during early Friday trading hours he got infected with the coronavirus triggered an uncertainty shockwave. Equity (futures) markets plunged more than 2% with disappointing September payrolls (halved compared to August!) weighing additionally on sentiment later on the day. Steep losses were pared somewhat after Speaker of the House Pelosi signaled that additional relief for the airline industry is in the making. Markets interpreted it as overall fiscal talks with the Republicans are advancing even tough Pelosi highlighted significant differences remain. US stocks still closed more than 2% in the red. Tech underperformed amid reports US Congress may propose legislation that would force the likes of Amazon to separate their main businesses from other activities. Brent oil dipped below $40/barrel again. Core bonds held tight to their initial morning gains until US dealings kicked in. Both German and US yields jumped off intraday lows for no apparent reason across the curve, erasing all earlier losses. US yields even rose more than 3 bps at the long end of the curve. The dollar had a bumpy ride. EUR/USD touched key support near the 1.17 area multiple times but a break didn’t occur. The couple eventually closed near 1.172, slightly down from 1.174. The trade-weighted dollar finished virtually unchanged in the high 93.8 zone, a disappointing performance given the moves in equity. USD/JPY rebounded from an intraday low at 105 to end at 105.29 (down from 105.53). Sterling soared after reports that UK PM Johnson would personally weigh in on Brexit talks to try to unlock the stalemate. EUR/GBP fell from 0.911 to 0.905, defying the negative risk climate. Support at 0.903 (38.2% Fibo retracement) remained unchallenged though.

The weekend was coloured with a series of – sometimes conflicting – headlines related to Trump’s health. The take-away is that he is improving but probably was in a much worse condition than initially reported. Meanwhile, talk of renewed (local) lockdowns is building in France (Paris to shut down bars) and Italy over the UK (three-tier lockdown system) to New York (schools and non-essential businesses in several districts). Asian stocks trade comfortably higher nevertheless. Australia is leading (+2.6%). Volumes are below-average with China still closed though. Core bonds trade weaker, the Bund underperforming. The US dollar loses ground in a typical risk-on move. EUR/USD rises towards 1.174, undoing all of Friday’s losses. A similar story holds for USD/JPY (105.57). We think the greenback could (marginally) lose further today. Trump’s entourage will continue to play down the effects from Covid-19, instead highlighting his improving state. That should reduce overall uncertainty. We don’t expect a dollar decline to go very far however as there is still a lot of confusion lingering. We also keep a close eye on the US non-manufacturing ISM. Risks are tilted to the downside, especially after “stronghold” manufacturing started showing signs of weakness last week. A disappointing outcome could limit core bond yields’ upside too. Sterling displayed some strong swings on the drumbeat of Brexit headlines last week. The tone turned slightly more constructive but Barnier noted “persistent serious divergences”. Unless both sides manage to overcome those, we assume EUR/GBP 0.90 to hold.

2)  XAU/USD: Gold’s Fate Hinges On Trump’s Health, 21-DMA – Level To Beat For Bulls

Heading into a new week, the risk sentiment witnessed a major turnaround alongside the apparent improvement in US President Donald Trump’s health condition. The US dollar gave back a minor part of its last Friday’s surge amid the upbeat market mood, as Gold (XAU/USD) showed some signs of life around the $1900 mark. The ongoing optimism over the additional US fiscal stimulus also offered some support to the yieldless gold.  The yellow metal gained over 2% last week, settling Friday below the $1900 level. Friday’s slide was courtesy of the resurgent haven demand for the greenback after Trump and his wife were diagnosed with COVID-19.

Looking ahead, the price action in gold will likely depend on the fresh updates concerning Trump’s health, especially after some of the medical experts noted that the president’s condition may be more severe, given fluctuating oxygen levels and a steroid drug treatment. The safe-haven dollar could regain poise and knockdown gold should Trump’s condition deteriorate. In contrast, gold could extend the bounce in case of early discharge from the hospital. Also, of note remains the US Services PMI reports from both Markit and ISM for fresh trading impetus ahead of Wednesday’s FOMC September meeting minutes.

As observed in the daily chart, gold’s upside attempts likely to remain capped while it trades below the 21-day Simple Moving Average (DMA) at $1915.

Meanwhile, to the downside, the upward-sloping 100-DMA at $1856 could continue to offer support, leaving the prices in a narrow range.

A breakout on either side could trigger a substantial move, although the path of least resistance appears to the downside amid a bearish 14-day Relative Strength Index (RSI), currently at 44.86.

3) EUR/USD: Bulls Await Sustained Move Beyond A One-Month-Old Descending Channel

The EUR/USD pair witnessed some selling on Friday, albeit lacked any strong follow-through and remained confined in a familiar trading range. The unexpected news that the US President Donald Trump tested positive for COVID-19 spooked investors. This was evident from a fresh leg down in the equity markets, which drove haven flows towards the US dollar and turned out to be a key factor that exerted some pressure on the major. The shared currency was further pressured by softer-than-expected Eurozone consumer inflation figures, which showed that the headline CPI dropped -0.3% YoY in September. On a monthly basis, the CPI is expected to have increased by 0.1%, while the core CPI is seen advancing 0.2%.

From the US, the closely watched US monthly jobs report showed that the unemployment rate edged down to 7.9% in September as against consensus estimates pointing to a fall to 8.2% from 8.4% previous. This, to a larger extent, negated the disappointing headline NFP, which revealed that the US economy added 661K new jobs during the reported month and did little to provide any meaningful impetus. The pair momentarily slipped below the 1.1700 mark but showed some resilience below the 1.1700 mark and finally settled with modest losses. Nevertheless, the pair ended the week with modest gains and recovered a part of the previous week’s sharp pullback from the 1.1870 region.

Meanwhile, positive news about Trump’s coronavirus infection lifted the global risk sentiment and assisted the pair to regain some positive traction on the first day of a new week. Market participants now look forward to the final Eurozone Services PMI prints for a fresh impetus. The US economic docket highlights the release of the ISM Non-Manufacturing PMI. This, along with the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities.

From a technical perspective, the upside remains capped near the top end of a one-month-old descending trend-channel. The mentioned barrier coincides with 100-period SMA on the 4-hourly chart and is currently pegged near the 1.1760 region. A convincing breakthrough will be seen as a fresh trigger for bullish traders and lift the pair back towards the 50-day SMA barrier, around the 1.1800 level. Some follow-through buying will negate any near-term bearish bias and pave the way for a move back towards the 1.1900 round-figure mark. The momentum could further get extended towards reclaiming the key 1.2000 psychological mark in the near-term.

On the flip side, the 1.1700-1.1690 region now seems to have emerged as immediate strong support, which if broken decisively now seems to accelerate the slide back towards the recent swing lows, around the 1.1615-10 region. Failure to defend the mentioned support levels and a subsequent fall below the 1.1600 mark will set the stage for a slide toward challenging the trend-channel support, around the 1.1550-45 region.

4) GBP/USD: Lack Of Follow-Through Buying Warrants Caution For Bulls

The GBP/USD pair continued with its two-way price action on Friday and finally settled near the top end of its weekly trading range, around mid-1.2900s. The unexpected news that the US President Donald Trump tested positive for COVID-19 spooked investors and triggered a fresh wave of the global risk aversion trade. The anti-risk flow benefitted the US dollar’s safe-haven status and exerted some initial pressure on the major.

The early downtick attracted some dip-buying near the 1.2835 region in reaction to reports that the UK Prime Minister Boris Johnson will hold talks with the European Commission President Ursula von der Leyen on Saturday. The pair rallied around 120 pips from daily swing lows and moved little following the release of mixed US monthly jobs report.

In fact, the headline NFP revealed that the US added 661K new jobs in September, worse than consensus estimates pointing to a reading of 850K. The disappointing reading was offset by a larger than expected drop in the unemployment rates, which edged down to 7.9% during the reported month as against 8.2% expected and 8.4% previous.

Over the weekend, Johnson and the EU chief approved a further month of negotiations and instructed negotiators to work intensively to close gaps. This, coupled with an improvement in the global risk sentiment, assisted the pair to gain some traction on the first day of a new week. Positive news about Trump’s coronavirus infection boosted investors’ confidence, which undermined the greenback’s safe-haven demand.

Despite the supporting factors, the pair lacked any strong follow-through and remained confined in a range through the Asian session on Monday. Market participants now look forward to the final UK Services PMI for some impetus. The US economic docket highlights the release of the ISM Non-Manufacturing PMI. This, along with the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities.

From a technical perspective, any subsequent move up might continue to confront a stiff resistance near the 38.2% Fibonacci level of 1.3482-1.2676 recent downfall, around the 1.2980 region. This is closely followed by the key 1.3000 psychological mark, which if cleared decisively will set the stage for additional gains. The pair might then aim to reclaim the 1.3100 mark and extend the momentum further towards the 61.8% Fibo. level, around the 1.3160-70 region.

On the flip side, the 1.2900 mark now seems to protect the immediate downside ahead of the 23.6% Fibo. level, around the 1.2865 region. Some follow-through selling might prompt some technical selling and turn the pair vulnerable to break through the 1.2840-35 intermediate support. The downward trajectory might then drag the pair below the 1.2800 mark towards testing the next major support near the 1.2765-60 horizontal support.

5) AUD/USD: Ausi Consolidates Below 0.7200 Ahead Of RBA Rate Decision Tuesday

The Australian Dollar traded within a 50-pip range on Friday and with a risk-off end to the week the AUD/USD closed at 0.7160 vs the US Dollar. During the Asian session the pair initially pulled back touching an intraday low of 0.7131 following a drop in Australia’s Retail Sales numbers and reports of President Trump testing positive for COVID-19. Australia’s consumer spending, as represented by Retail Sales, fell 4% vs an expected contraction of 4.2%, this follows a rise of 3.2% in July. The decline in consumer spending validates the Reserve Bank of Australia’s easing of monetary policy. The central bank is now expected to cut rates to a fresh record low of 0.10% in November.

Looking ahead today, mostly low tier data out across the globe apart from US ISM Non-Manufacturing PMI with expectations to come in at 56.0 compared to 56.9 in the prior reading. Later in the week we will see the RBA rate decision and trade balance. The AUD/USD opens this morning at 0.7160, with no local scheduled releases moves will be again driven by offshore news and events. We can expect to see initial support at 0.7100 and 0.7050 on the downside. Resistance sits at 0.7200 followed by 0.7230.

The US Dollar Index which measures the strength of the Greenback against a basket of six major currencies was slightly up on Friday with September’s Nonfarm Payrolls reported adding 661k jobs to the economy vs. the 850k forecasted. The unemployment rate eased from to 7.9% from 8.4%. While millions more remain unemployed, September’s activity means that about 12 million jobs have been recovered since the mid-March economic shutdown that saw about 22 million layoffs.

Over in Europe, the EUR/USD closed lower at 1.1713 being one of the worst performers of the G10 currencies and the GBP/USD saw a brief rally after the news that UK Prime Minister Boris Johnson and EU’s President Ursula Gertrud Von Der Leyen are set to hold high level talks on Saturday in a bid to break the deadlock.