06-Oct-2020

1) Dollar Falls as Risk Sentiment Returns on Stimulus Package Hopes
2) AUD/USD Buoyed by US Fiscal Stimulus Hopes and Improving Health of President Trump
3) XAU/USD: Gold’s path of least resistance is up ahead of Powell’s speech
4) GBP/USD: Sustained move beyond 1.3000 mark to pave the way for additional gains
5) EUR/USD: Bulls seize control above one-month-old descending channel

1) Dollar Falls as Risk Sentiment Returns on Stimulus Package Hopes

The greenback dropped against majority of its peers on Monday, except for safe-haven Japanese yen as global stocks rallied due to return of risk appetite on renewed optimism that U.S. lawmakers will reach a deal on the coronavirus aid package after comments from U.S. House speaker Nancy Pelosi over the weekend together with optimism that U.S. President Donald Trump would be discharged from the hospital soon. (Dow ended the day at 28,148, up by 465 points or 1.68%)

Reuters reported U.S. House Speaker Nancy Pelosi on Sunday said progress was being made on coronavirus relief legislation to respond to the economic fallout from a pandemic that has killed more than 207,000 Americans and thrown millions out of work.
“We’re making progress,” Pelosi told CBS. Pelosi, a Democrat, and Treasury Secretary Steven Mnuchin talked every day last week and met in person on Wednesday in an effort to negotiate a new bipartisan aid package. The president was improving, although doctors were monitoring the condition of his lungs after he received supplemental oxygen. They said he could be sent back to the White House as soon as Monday.

On the data front, Reuters reported the Institute for Supply Management (ISM) said on Monday its non-manufacturing activity index rose to a reading of 57.8 last month from 56.9 in August. That put the index just above its 57.3 level in February.

Versus the Japanese yen, although price briefly dropped to 105.29 in New Zealand, price gained to 105.60 in Asian morning on weekend comments from Pelosi together with optimism that President Trump may be discharged from hospital soon. The pair continued to trade with a firm undertone and rose to session highs at 105.79 in New York due to rally in U.S. stocks and Treasury yields before stabilising.

The single currency found renewed buying at 1.1707 in New Zealand and gained to 1.1735 in Asian morning before retreating to 1.1720 in early European morning. However, the pair then rallied to a 13-day high of 1.1797 in New York morning due to return of risk sentiment before weakening to 1.1772 on profit-taking.

The British pound went through a volatile session. Price retreated to 1.2917 in New Zealand before rebounding to 1.2954 in Asia on return of risk sentiment but only to fall to session lows at 1.2900 in early European morning on cross-selling in sterling. However, cable then erased its losses and rallied in tandem with euro to a 2-week high at 1.2991 in New York morning on usd’s weakness before retreating to 1.2965 on profit-taking and then swung sideways.

In other news, Reuters reported the COVID-19 pandemic has made sealing a post-Brexit trade relationship with Britain more urgent than before and failing to get a deal would be irresponsible, Germany’s Foreign Minister Heiko Maas said on Monday. Speaking after a meeting European Union’s chief Brexit negotiator Michel Barnier, Maas said the EU wanted to be constructive and was still aiming for a deal.

2) AUD/USD Buoyed by US Fiscal Stimulus Hopes and Improving Health of President Trump

The Australian dollar crept higher through trade on Monday, buoyed by improving market sentiment and a broader USD correction. With little of note on the Domestic docket as most of the country enjoy labour day long weekend the AUD continued its correlation with risk demand, dragged higher by a bounce in equities amid hopes a US coronavirus rescue package will be released before the election and President Trump’s condition improves. Markets latched onto comments from Senior Democrats and Republicans from Friday, suggesting partisan differences had been set aside, allowing both parties to build a suitable and meaningful rescue plan. The AUD pushed toward 0.72, touching intraday highs at 0.7191 before edging marginally lower into this morning’s open. The Australian Dollar has bounced of September lows and appears well bid above 0.70 US cents as attentions turn to today’s RBA policy meeting. While the majority of the market expects board members will maintain the current policy setting calls for a a5 basis point rate cut have been increasing in recent weeks and markets will be keenly attuned to any dovish signal. A surprise cut or the suggestion rates will ease in November will weigh on the AUD ahead of tonight’s budget.

The USD and JPY were the big losers through trade on Monday as improving sentiment, amplified demand for risk and prompted a shift away from haven assets. President Trump’s improving health eased concerns the Presidential election may need to be delayed while helping firm challenger Joe Biden’s position in the polls. Markets are beginning to price in a Biden/Harris win and as the margin in the polls grows, concerns of a protracted post-election legal battle fade. The Dollar fell three tenths of a percent as markets chased equities higher.

The Euro outperformed on Monday, rallying half a percent to touch a two-week high at 1.1775. An adjustment in September PMI numbers and broader US dollar weakness helped fuel demand for the single currency as attentions turn to Commentary from ECB President Christine Lagarde on Wednesday for any insight suggesting the Bank will adjust its current policy setting in response to a new wave of COVID 19 infections and lockdowns. The Euro enjoyed strong gains through the 2nd quarter as aggressive stimulus measures and improving COVID 19 conditions bolstered expectations Europe could rebound quickly. Case numbers are however rapidly on the rise and while governments have been slow to implement aggressive stay at home measures consumer activities are none-the-less changing weighing on the recovery and likely dampening Euro upside through the short to medium term.

The Great British Pound edged higher, up 0.3% and pushing back toward 1.30, having touched intraday highs at 1.2985. Markets largely ignored commentary from Bank of England policy marker Haskell, suggesting the Bank stood ready to adjust the current policy setting and possibly introduce negative interest rates should further stimulus be required. Markets instead are focused on fading hopes an 11th hour Brexit deal will be reached. With the deadline fast approaching, markets have pinned their hopes on a new round of talks aimed at bridging the gaps currently preventing a deal. Failure to compromise will weigh heavily on the Pound.

3) XAU/USD: Gold’s Path of Least Resistance is up Ahead of Powell’s Speech

With the US House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin pushing hard for an additional $1.5 trillion fiscal stimulus to support the economic recovery, the sentiment on the global markets remained upbeat all through Monday. The US dollar, therefore, lost its safe-haven appeal, as gold (XAU/USD) prices rallied in tandem with the stocks. The bright metal hit two-week highs just shy of the $1920 mark before ending the day around $1912 levels. Further, optimism about US President Donald Trump’s potential discharge from the medical center also pressured the greenback while rendering gold-supportive.

Attention remains on the US stimulus talks likely to be continued this Tuesday, as the fundamentals continue to play second fiddle. Trump’s coronavirus updates will be also closely followed for fresh incentives. Speech by the US Federal Reserve (Fed) Chair Jerome Powell will be eyed, as he is due to speak about the US economic outlook at the National Association of Business Economics annual meeting.

Gold looks to extend Monday’s rally, having carved out a potential bull flag formation on the hourly chart.

A bull flag is a bullish continuation pattern, with the validation likely to occur on an hourly closing above the falling trendline resistance at $1913.51. The pattern target is measured at $1940.

The hourly Relative Strength Index (RSI) has turned lower but holds well above the midline, at 53.11, allowing for more upside.

To the downside, the falling trendline support at $1906.51 is likely to offer an immediate reprieve to the bulls. A break below which the $1900 mark will be put at risk.

4) GBP/USD: Sustained Move Beyond 1.3000 Mark to Pave the Way for Additional Gains

The GBP/USD pair gained some strong follow-through traction on the first day of a new trading week and was supported by a combination of factors. The British pound was underpinned by renewed optimism over a possible Brexit deal, especially after the UK Prime Minister Boris Johnson and the European Commission President Ursula von der Leyen agreed in a phone call on Saturday to step up negotiations on a post-Brexit deal to close significant gaps related to fisheries and government subsidies.

The sterling further benefitted from an upward revision of the UK Services PMI, which was finalized at 56.1 for September as against the 55.1 preliminary estimates. Apart from this, the emergence of some fresh selling around the US dollar further contributed to the pair’s overnight positive move. The positive news about the US President Donald Trump’s health boosted investors’ confidence and triggered a strong rally in the equity markets, which, in turn, dented the greenback’s safe-haven status.

The USD remained depressed and failed to gain any respite from stronger-than-expected US ISM Non-Manufacturing PMI. In fact, the gauge unexpectedly jumped to 57.8 in September as against consensus estimates pointing to a reading of 56.2. Nevertheless, the pair settled near the top end of its daily trading range and edged higher during the Asian session on Tuesday. The uptick pushed the pair to near three-week tops, with bulls now awaiting a sustained move beyond the key 1.3000 psychological mark.

Market participants now look forward to the release of the UK Construction PMI for some impetus. Later during the early North American session, a scheduled speech by the Fed Chair Jerome Powell might influence the USD price dynamics and produce some meaningful trading opportunities.

From a technical perspective, the overnight positive move pushed the pair beyond an immediate strong resistance near the 38.2% Fibonacci level of 1.3482-1.2676 recent downfall. A subsequent move beyond the 1.3000 mark might now be seen as a fresh trigger for bullish traders and 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, any meaningful pullback now seems to find immediate support near the 1.2925 horizontal zone. This is closely followed by the 1.2900 mark ahead of the 23.6% Fibo. level, around the 1.2865 region. Failure to defend the mentioned support levels might prompt some technical selling and turn the pair vulnerable to break through the 1.2840-35 intermediate support. The downward trajectory could further drag the pair below the 1.2800 mark, towards testing the next major support near the 1.2765-60 horizontal support.

5) EUR/USD: Bulls seize control above one-month-old descending channel

The global risk sentiment got a strong lift from the positive news about the US President Donald Trump’s health. The risk-on flow undermined the US dollar’s perceived safe-haven status and assisted the EUR/USD pair to regain strong positive traction on the first day of a new trading week. The shared currency was further supported by encouraging data from the Eurozone. In fact, Retail Sales in the Union rose 4.4% MoM in August, well above expectation. Adding to this, the Eurozone Services PMI was finalized at 48.0 in September as against the preliminary estimate of 47.6, though signalled contraction. Separately, the Eurozone Sentix Investor Confidence Index edged lower to -8.3 in October, from -8.0, albeit was still better than expectations of -9.8.

From the US, the ISM Non-Manufacturing PMI unexpectedly jumped to 57.8 in September as against consensus estimates pointing to a reading of 56.2. The USD, however, failed to gain any respite from the stronger data, instead remained depressed on the back of the upbeat market mood. The already stronger risk sentiment got an additional boost after Trump returned to the White House following a three-night hospital stay due to coronavirus infection. A broad-based USD weakness lifted the pair to fresh two-week tops during the Asian session on Tuesday, with bulls now awaiting a sustained move beyond the 1.1800 mark ahead of the ECB President Christine Lagarde’s scheduled speech. Apart from this, the Fed Chair Jerome Powell’s comments will also be looked upon for some meaningful trading opportunities.

From a technical perspective, the overnight positive momentum pushed the pair beyond a resistance marked by the top end of a one-month-old descending trend-channel. Some follow-through buying beyond the 1.1815 region – marking the 50% Fibonacci level of the 1.2011-1.1612 downfall – will add credence to the bullish breakout and pave the way for additional gains. The pair might then accelerate the momentum towards the 61.8% Fibo. level, around the 1.1865 region, before eventually aiming back to reclaim the 1.1900 round-figure mark.

On the flip side, the trend-channel resistance breakpoint, around the 1.1755-50 region, which coincides with 100-period SMA on the 4-hourly chart, now seems to protect the immediate downside. Any subsequent slide might be seen as a buying opportunity near the 1.1720 region, which, in turn, should help limit the downside near the 23.6% Fibo. level support, around the 1.1700 mark. Failure to defend the mentioned support levels will negate any near-term positive bias and turn the pair vulnerable to slide back towards the recent swing lows support, around the 1.1615-10 region.