07-Jun-2021

1) GBP/USD Drops Toward 1.4100 Amid US Dollar Rebound
2) EUR/USD Eases Below 1.2150 As US Dollar Rises With Yields
3) AUD/USD Struggles For Direction, Stuck In A Range Below Mid-0.7700s
4) XAU/USD’s Upside Appears Capped Below $1900, With All Eyes On US CPI

 

 

1) GBP/USD Drops Toward 1.4100 Amid US Dollar Rebound

GBP/USD remains pressured toward 1.4100 as the US dollar rebounds on Yellen’s taper talk. Brexit concerns and UK reopening uncertainty hurts the pound. US President Biden is ready to interfere in the Brexit issue.

Pound/dollar is suffering from downside momentum on the four-hour chart and has slipped below the 50 and 100 simple moving averages once again. While it trades above the 200 SMA, bears are gaining strength.

Some support awaits at last week’s trough of 1.4080, followed by 1.4050, which is where the 200 SMA hits the price. A critical cushion is at 1.4010.

Resistance awaits at 1.4160, the confluence of the 50 and 100 SMAs. It is followed by 1.41, which held GBP/USD down twice last week, and then by 1.4250.

About 40% more transmissible – that is the latest assessment about the Delta variant of COVID-19 first identified in India. Health minister Matt Hancock revealed this latest worrying finding and stressed that the 40% comparison is in relation to the Alpha variant, aka the Kent or British strain.

After vaccines crushed coronavirus figures, the spread of Delta has triggered a spike in infections, prompting Germany and France to require quarantines from those arriving from the UK. The bigger question is about “Freedom Day” – will Britain return to normal on June 21 as planned? Hancock’s latest comments cast more doubts and weigh on sterling.

The US Treasury Secretary also spoke in London – at the end of the G-7 finance ministers meeting – and also pushed GBP/USD lower. Yellen, who was Chair of the Federal Reserve until three years ago, said that a return to higher rates would be a “plus” for the US economy and for the Fed. Treasury yields advanced in response, supporting the dollar.

The greenback is still recovering from downbeat US Nonfarm Payrolls figures released on Friday. The world’s largest economy gained only 559,000 jobs in May, on top of a meager 12,000 upward revision for April. With some 7.6 million Americans out of work, the Fed would likely wait before tapering its bond buys. At least that was the thinking on Friday.

However, the NFP also showed a surprising increase in wages, 0.7% MoM, pointing to price pressures down the line. Markets will likely correct some of the dollar’s losses on Friday and also respond positively to Yellen’s comments, at least on Monday.

 

2) EUR/USD Eases Below 1.2150 As US Dollar Rises With Yields

EUR/USD is trading below 1.2150, on the wrong foot starting out a big week. Yellen’s taper hints lift the US dollar alongside the Treasury yields. Focus remains on the US CPI and ECB decision due later this week.

Euro/dollar is capped by a downtrend resistance line that was formed in early June and dropped under the 50 and 100 simple moving averages on the four-hour chart. With downside momentum also pressuring the pair, bears are in the lead.

Some support awaits at 1.2130, a swing low from late May, followed by 1.2105, a clear separator of ranges that is the current monthly low. The next levels to watch are 1.2055 and 1.2015.

Some resistance is at 1.2185, Friday’s peak, followed by 1.220 and 1.2155, which held EUR/USD down in the past week.

Higher rates would a “plus” for the US – these comments by Treasury Secretary Janet Yellen are already supporting the dollar. More may be in store. Yellen has clout due to her current and also former job as Chair of the Federal Reserve. It is no the first time that she provided remarks related to her former job, but she apologized for any misunderstanding after her previous comments. She is not doing so now.

Higher borrowing costs in response to more robust inflation support the greenback and counter the blow that the currency received from Friday’s Nonfarm Payrolls. The American economy gained only 559,000 jobs in May, below 664,000 expected and on top of a disappointing increase in April.

That sent the dollar down ahead of the weekend and allowed EUR/USD to jump from near 1.21 to above 1.2150. However, that NFP also contained a silver lining – earnings rose by 0.7%, more than projected – and most importantly, signaling an increase in prices down the line. When workers have more money in their pockets, the consumer more.

US Consumer Price Index figures for May are due out only on Thursday, but Yellen’s comments help refocus the conversation. Another event due that day is the European Central Bank’s rate decision.

The Frankfurt-based institution will likely maintain its policy unchanged as the old continent emerges from the coronavirus crisis after stumbling through the winter. Business sentiment figures have been upbeat and Monday’s release of the Sentix Investor Confidence will likely support that view.

 

3) AUD/USD Struggles For Direction, Stuck In A Range Below Mid-0.7700s

The AUD/USD pair extended its sideways consolidative price action through the early European session and remained confined in a range below mid-0.7700s.

The pair struggled to capitalize on Friday’s strong intraday positive move of nearly 100 pips and witnessed subdued/range-bound moves on the first day of a new trading week. As investors looked past the softer US monthly jobs report, the US dollar found some support from a modest uptick in the US Treasury bond yields. This, in turn, was seen as a key factor that kept a lid on any meaningful upside for the AUD/USD pair.

It is worth recalling that the headline NFP print showed that the US economy added 559K new jobs in May as against 650K anticipated. The data tempered expectations that the Fed will tighten monetary policy sooner rather than later. That said, concerns about rising inflationary pressure acted as a tailwind for the US bond yields ahead of this week’s release of the latest US consumer inflation figures on Thursday.

Apart from this, mixed Chinese Trade Balance data and a softer tone around the US equity futures further held traders from placing any aggressive bullish bets around the perceived riskier Aussie. In USD terms, China’s trade surplus fell to $45.53 billion in May from $50.5 billion previous while imports and exports both missed market estimates. This was seen as another factor that capped gains for the AUD/USD pair.

There isn’t any major market-moving economic data due for release from the US on Monday. Hence, the broader market risk sentiment and the US bond yields will continue to play a key role in influencing the USD price dynamics. This, in turn, might provide some impetus to the AUD/USD pair and allow traders to grab some short-term opportunities.

 

4) XAU/USD’s Upside Appears Capped Below $1900, With All Eyes On US CPI

Gold price (XAU/USD) rebounded firmly from two-week lows of $1856 on Friday, staging a solid comeback after the US Nonfarm Payrolls disappointed with 559K in May. Markets believed the NFP miss would lift the pressure of the Fed to hike interest rates sooner, as the data point that the economy is not overheating. The US dollar was smashed across the board alongside the Treasury yields while the dismal data buoyed the stocks and bullion. The NFP report came to the rescue of the gold bulls, who were beaten by the reports that India and China offered discounts due to a covid-related dip in consumption. Also, pre-NFP positioning in the dollar pressured gold price. Despite the stellar performance on Friday, the gold price ended the week in the red, below $1900.

Gold price extended last week’s dismal performance into a fresh week this Monday, tempered by US Treasury Secretary Janet Yellen’s comments over the weekend, which revived tapering expectations and lifted the yields. The US dollar index stalled its bounce amid a mixed market mood and taper talks. Gold price also feels the heat of the tussle between the White House and Republicans over the $1.7 trillion infrastructure spending plan. Attention now turns towards the US CPI report, in order to gauge the Fed’s next monetary policy path.

Gold’s four-hour chart shows that the price is challenging the upward-sloping 100-simple moving average (SMA) support at $1884, having faced rejection at the 50-SMA of $1896 on a couple of occasions.

Acceptance below that latter could expose the $1870 static support, below which the two-week lows could be retested.

The Relative Strength Index (RSI) edges lower below the midline, suggesting that there is additional room for declines.

Alternatively, a sustained break above the 50-SMA resistance is likely to threaten the falling trendline hurdle at $1900.

All in all, gold’s path of least resistance appears to the downside in the near term.