06-Apr-2021

1) EUR/USD Struggles With 1.18 Amid Cooler Market Mood
2) GBP/USD Recaptures 1.39 Amid UK Easing Optimism
3) AUD/USD Slides To Fresh Session Lows, Still Comfortable Above 0.7600 Mark
4) USD/CAD Refreshes Session Tops, Around Mid-1.2500s Amid A Pickup In USD Demand

 

 

1) EUR/USD Struggles With 1.18 Amid Cooler Market Mood

EUR/USD is trading around 1.18, off the highs as the safe-haven dollar benefits from concerns about a Chinese credit curb and uncertainty related to US stimulus. The eurozone Sentix Investor Confidence, US JOLTS, and covid headlines are eyed.

Momentum on the four-hour chart is to the upside, and euro/dollar also trades above the 50 Simple Moving Average. However, it remains capped below the 100 and 200 SMAs. All in all, the picture is mixed.

Some resistance awaits at the daily high of 1.1820, followed by 1.1875, which provided support in March. It is followed by 1.1910 and 1.1950.

Support is at 1.1785, a resistance line from last week, followed by 1.1760, 1.1740, and finally by the round 1.17 level.

Easter is over – but Europe’s largest countries remain under significant measures to curb the spread of COVID-19, weighing on their economies. The vaccination campaign is set to pick up in the second quarter, which begins in earnest only on Tuesday, and that provides hope. However, promises to ramp up inoculations have been broken in the past.

On the other hand, the US economy is thriving, as seen by the ISM Services Purchasing Managers’ Index for March, which hit a record high of 63.7 points sowing enthusiasm in America’s largest sector. That publication joined an increase of nearly one million jobs last month. Signs of a quick recovery – al; alongside an accelerating vaccination effort – raised expectations for inflation and a rate hike by the Federal Reserve.

On the other hand, the greenback is also a safe-haven currency that falls when the global mood improves. If the US is growing quickly, it is set to carry the rest of the world forward and investors may seek riskier assets. However, this risk-on/risk-off dynamic is supporting the dollar on Monday, amid reports that China wants to curb credit.

Moving forward, apart from waiting for a pickup in Europe, another known unknown is the fate of President Joe Biden’s infrastructure plan. While conservative Democratic Senator Joe Manchin opposes a corporate tax hike to 28%, he supports a raise from 21% to 25% and seems to agree to other parts of the program. Moreover, Dems will be able to use the short-cut reconciliation process to pass the bill, once they agree within themselves on the details.

If infrastructure investment advances, it could remind markets of the potential for higher inflation, sending the dollar up once again.

All in all, EUR/USD’s recent recovery seems short-lived, at least until Europe gets its vaccination effort going substantially faster.

 

2) GBP/USD Recaptures 1.39 Amid UK Easing Optimism

GBP/USD is trading around 1.39, edging higher after UK PM Johnson announced the next stage of the reopening is going through next week. The pound is shrugging off some demand for the dollar.

From a technical perspective, the overnight momentum and acceptance above the 38.2% Fibonacci level of the 1.4243-1.3671 downfall support prospects for additional gains. The constructive set-up is reinforced by the fact that technical indicators on hourly/daily charts have been gaining positive traction. Hence, some follow-through buying has the potential to lift the pair further towards the 50% Fibo. level, around the 1.3960-65 region, en-route the key 1.4000 psychological mark.

On the flip side, sustained weakness below the 1.3900 mark (38.2% Fibo. level) might prompt some technical selling and drag the pair back towards the 1.3840-35 horizontal support. This is followed by the 23.6% Fibo. level near the 1.3800 mark, which if broken decisively will negate any near-term positive bias. The pair might then turn vulnerable to accelerate the fall towards intermediate support near the 1.3740 horizontal level before eventually dropping to the 1.3700 mark and multi-week lows, around the 1.3670 region touched on March 25.

A combination of supporting factors assisted the GBP/USD pair to regain positive traction on the first day of a new week and move back above the 1.3900 mark. As investors looked past Friday’s blockbuster US NFP report, the upbeat market mood prompted some selling around the safe-haven US dollar. The British pound was further supported by the highly successful vaccination distribution program in the UK and the gradual reopening of the economy. In fact, UK Prime Minister Boris Johnson announced the second phase of lockdown easing on Monday and confirmed that nonessential stores will be allowed to reopen from April 12.

Meanwhile, the USD remained depressed and failed to gain any respite from upbeat US ISM Services PMI, which jumped to 63.7 in March from 55.3 previous. This was well above consensus estimates and added to the narrative of a relatively faster US economic recovery from the pandemic. The data, however, did little to impress the USD bulls or hinder the pair’s intraday positive move. Nevertheless, the pair ended near the top end of its daily trading range and climbed to over two-week tops during the Asian session on Tuesday.

The ongoing retracement slide in the US Treasury bond yields held the USD bulls on the defensive, which, in turn, extended some support to the major. That said, a softer tone around the US equity futures drove some haven flows towards the greenback and might keep a lid on any meaningful upside for the pair, at least for the time being. In the absence of any major market-moving economic releases, either from the UK or the US, the USD price dynamics will continue to play a key role in influencing the pair’s intraday momentum.

Against the backdrop of the upbeat US economic outlook, US President Joe Biden’s over $2 trillion infrastructure spending plan has been fueling expectations for an uptick in US inflation. This, in turn, has raised doubts that the Fed will retain ultra-low interest rates for a longer period, which should limit any meaningful slide in the US bond yields. This suggests that the path of least resistance for the USD remains up and the pair’s ongoing positive move runs the risk of fizzling out rather quickly.

 

3) AUD/USD Slides To Fresh Session Lows, Still Comfortable Above 0.7600 Mark

The AUD/USD pair fell around 40 pips during the early European session and refreshed daily lows, around the 0.7625-20 region in the last hour.

The pair struggled to capitalize on the post-RBA uptick to one-week tops and faced rejection near the 0.7660-65 supply zone amid a modest pickup in the US dollar demand. The AUD/USD pair did get a minor lift earlier this Tuesday after the RBA left the cash rate unchanged at 0.1% and sounded a bit optimistic in the accompanying policy statement.

The supporting factor was offset by the emergence of some buying around the USD, which remained well supported by the upbeat US economic outlook. Investors remain optimistic about the prospects for a relatively faster US economic recovery amid the impressive pace of coronavirus vaccinations and the Biden administration’s infrastructure spending plan.

Apart from this, a softer tone surrounding the US equity futures further benefitted the safe-haven USD and drove flows away from the perceived riskier Aussie. That said, the ongoing retracement slide in the US Treasury bond yields capped the upside for the USD and helped limit any further losses for the AUD/USD pair, at least for the time being.

Meanwhile, the reflation trade has been fueling speculations about an uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period. This should limit any meaningful slide in the US bond yields and further underpin the greenback, supporting prospects for a further near-term weakness for the AUD/USD pair.

There isn’t any major market-moving economic data due for release on Tuesday. Hence, the US bond yields and the broader market risk sentiment will play a key role in influencing the USD price dynamics. This should allow traders to grab some short-term opportunities ahead of the key release of the FOMC monetary policy meeting minutes on Wednesday.

 

4) USD/CAD Refreshes Session Tops, Around Mid-1.2500s Amid A Pickup In USD Demand

The USD/CAD pair edged higher through the early European session and refreshed daily tops, around the 1.2555 region in the last hour.

Having defended the key 1.2500 psychological mark on Monday, the pair staged a goodish rebound from two-week lows and was supported by a sudden pickup in the US dollar demand. Despite the ongoing decline in the US Treasury bond yields, the USD caught fresh bids during the first half of the trading action on Tuesday and extended some support to the USD/CAD pair.

Investors remain optimistic about the US economic outlook amid the impressive pace of coronavirus vaccinations and US President Joe Biden’s spending plan. Monday’s upbeat US ISM Services PMI added to the narrative of a relatively faster US economic recovery from the pandemic. This, along with a weaker risk tone drove some haven flows back towards the greenback.

Meanwhile, the relation trade has been fueling speculations about an uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. This should help limit any meaningful slide in the US bond yields, supporting prospects for additional gains for the greenback and an extension of the intraday move up for the USD/CAD pair.

However, a positive tone around crude oil prices benefitted the commodity-linked loonie and might turn out to be the only factor capping gains for the USD/CAD pair. That said, concerns that the third wave of COVID-19 infections and pandemic-related restrictions in Europe could hinder the anticipated recovery in fuel products should cap gains for the black gold.

In the absence of any major market-moving economic releases, either from the US or Canada, the USD price dynamics will continue to play a key role in influencing the intraday movement. Nevertheless, the combination of factors suggests that the path of least resistance for the USD/CAD pair is on the upside and intraday dips will now be seen as buying opportunity.