10-Nov-2020

1) Dollar Pares Initial Losses and Ends Higher On Rising US Yields
2) XAU/USD: Gold Defends Critical $1850 Support, Not Out Of The Woods Yet
3) EUR/USD: Possible False Breakout Setup Warrants Caution for Bulls
4) GBP/USD: Brexit Trade Deal Hopes Favour Bulls, Sustained Move Beyond 1.3200 Awaited

1) Dollar Pares Initial Losses and Ends Higher On Rising US Yields

Although the greenback initially weakened against the majority of its peers (except the Japanese yen) on Monday due to return of risk sentiment on encouraging news of a Covid-19 vaccine, USD gained in the New York session on the back of rising U.S. Treasury yields.

Reuters reported Pfizer Inc on Monday said its experimental vaccine was more than 90% effective in preventing COVID-19 based on initial data from a large study, a major victory in the fight against a pandemic that has killed over 1 million people, roiled the world’s economy and upended daily life.    Pfizer and German partner BioNTech are the first drugmakers to show successful data from a large-scale clinical trial of a coronavirus vaccine. The companies said they have so far found no serious safety concerns and expect to seek U.S. emergency use authorization later this month.

Versus the Japanese yen, the dollar traded with a firm bias in Asia and gained to 103.75 in early European morning on active JPY-selling. The pair then jumped ahead of New York open on news of successful covid-19 vaccine trials and then rose to a 19-day high at 105.64 in New York on USD’s broad-based strength due to a rally in U.S. yields before retreating to 105.30 on profit-taking.

The single currency traded sideways in Asia before edging down to 1.1866, then 1.0861 in the European session. Despite briefly rising to a 2-month high at 1.1919 in New York morning on the return of risk sentiment on news of a Covid-19 vaccine, price erased intra-day gains and tumbled to session lows at 1.1796 in New York on rising U.S. yields together with cross-selling of euro especially vs sterling before recovering to 1.1836.

The British pound swung wildly in hectic trading as despite trading with a firm bias in Asia and rising to 1.3199 at European open, the price dropped to 1.3121. However, cable then rallied in-tandem with the euro on the return of risk sentiment to a 2-month high at 1.3207 in New York morning but only to fall again to session lows at 1.3119 on USD’s broad-based strength. The pair then staged a strong rebound to 1.3176 due to cross-buying in sterling.

In other news, Reuters reported the European Union is redoubling its efforts to reach a deal on a trade deal with Britain this week, the EU’s top negotiator said, listing three conditions were needed to get an agreement. Michel Barnier said on Twitter the future relationship agreement had to respect the autonomy of the 27-nation bloc and Britain and provide effective governance and ways to enforce what has been agreed. The deal also had to provide “robust guarantees of free and fair trade and competition based on shared high standards” and these would have to evolve coherently over time.

2) XAU/USD: Gold Defends Critical $1850 Support, Not Out Of The Woods Yet

Gold (XAU/USD) plunged 5% and hit the lowest in six weeks at $1850 in Monday’s trading. The sell-off ensued after Pfizer Inc hailed the success of its COVID-19 vaccine trial and lifted the global stocks alongside Treasury yields on expectations of solid economic recovery. The American pharma giant said its COVID-19 vaccine, developed with German partner BioNTech SE, was more than 90% effective in preventing infection. The rally in Treasury yields fuelled the demand for the US dollar and weighed heavily on the yellow metal, as markets reassessed the need for additional stimulus from the Fed and Congress.

Gold is attempting a dead cat bounce so far this Tuesday, heading back towards the $1900 mark, as the Treasury yields retrace some of the previous gains and stall the dollar’s advance. The market mood has turned tepid probably on reports that China’s COVID-19 vaccine trial halted in Brazil due to death while the producer Sinovac is investigating the cause of the halt.

Amid a lack of significant macro news from the US docket in the day ahead, the broader market sentiment and dollar’s price action will be closely followed by gold traders. Also, a speech by President-elect Joe Biden, due at 1900 GMT, will remain in focus.

Gold challenges the bearish 21-hourly moving average (HMA) hurdle at $1887 on its road to recovery from multi-week troughs.

The hourly Relative Strength Index (RSI) has edged higher but remains in the bearish zone, suggesting the case for a rebound before the downside resumes.

Recapturing 21-HMA is critical for the bulls, with the next upside resistance seen at the horizontal 200-HMA at $1902.

On the flip side, acceptance below the key support at $1849, September 28 low, could revive the correction from record highs of $2075.

3) EUR/USD: Possible False Breakout Setup Warrants Caution for Bulls

The EUR/USD pair kicked off the new week on a positive note and climbed to over two-month tops, around the 1.1920 region, albeit struggled to capitalize on the move. Joe Biden’s victory in a nail-biting US presidential election kept the US dollar bulls on the defensive, which was seen as a key factor behind the early uptick.

Adding to this, a promising development over a potential vaccine for the highly contagious coronavirus disease provided an additional boost to the already upbeat market mood. Pfizer and BioNTech announced that a large-scale clinical trial showed their experimental vaccine was more than 90% effective in preventing COVID-19.

This was seen as a major victory in the fight against the highly contagious disease and revived hopes for a swift global economic recovery. The strong risk-on flow triggered a massive rally in the US Treasury bond yields, which, in turn, prompted investors to unwind their bearish USD positions and exerted some pressure on the major.

The pair dived around 125 pips from daily swing highs and momentarily slipped back below the 1.1800 mark, though showed some resilience at lower levels. The latest optimism turned out to be short-lived and was evident from a pullback in the equity markets. Investors remain skeptical about the efficacy and the length of immunity provided by the vaccine.

The cautious mood was further reinforced by a fresh leg down in the US bond yields, which undermined the greenback and assisted the pair to regain some positive traction during the Asian session on Tuesday. Market participants now look forward to the release of the German ZEW Survey for some impetus. On the other hand, moves in the US bond market and the broader market risk sentiment will influence the USD price dynamics, which should further assist traders to grab some meaningful opportunities.

From a technical perspective, the overnight sharp retracement might have turned the recent move beyond a two-month-old trading range as a false breakout. That said, it will still be prudent to wait for some follow-through selling below the 1.1800-1.1795 region before confirming that the pair might have topped out in the near-term. The pair might then turn vulnerable to accelerate the slide back towards testing the 1.1700 mark. The downward trajectory could further get extended towards 100-day SMA support, currently near the 1.1650-45 region.

On the flip side, the 1.1855-60 region, which is closely followed by the 1.1880-85 support zone might now act as immediate resistance. A sustained strength beyond, leading to a subsequent move above the overnight swing high, around the 1.1920 region, has the potential lift the pair beyond the 1.1945-40 supply zone, towards reclaiming the key 1.2000 psychological mark.

4) GBP/USD: Brexit Trade Deal Hopes Favour Bulls, Sustained Move Beyond 1.3200 Awaited

The GBP/USD pair failed to capitalize on last week’s strong positive move and seesawed between tepid gains/minor losses on the first day of a new trading week. The pair edged higher during the early part of the trading action on Monday and was being supported by a softer tone surrounding the US dollar. The Democratic candidate Joe Biden’s victory in a nail-biting US presidential election eliminated some of the uncertainties. Meanwhile, the possibility of a split Congress fueled speculations that the Fed will be forced to ease further to support the COVID-hit economy, which kept the USD bulls on the defensive.

However, concerns about key sticking points in the Brexit talks – the so-called level-playing field, fisheries and state-aid rules – kept a lid on any further gains for the pair. Apart from this, a strong intraday USD short-covering move further contributed towards capping the upside for the major. A promising development over a potential vaccine for the highly contagious coronavirus disease triggered a massive rally in the US Treasury bond yields, which, in turn, helped revive the USD demand. The pair, however, defied broad-based USD strength, instead took cues from encouraging Brexit headlines.

Britain and the European Union resumed crucial negotiations in London on Monday or a post-Brexit free trade deal. Reports indicated that the UK was open to a sensible compromise on fishing and that there was goodwill on both sides to progress. Adding to this, the EU’s chief Brexit negotiator Michel Barnier said they are redoubling their efforts to reach an agreement on the future EU-UK partnership. Nevertheless, the pair ended nearly unchanged for the day and remained below the 1.3200 round-figure mark through the Asian session on Tuesday.

As investors await further Brexit updates, Tuesday’s release of the UK monthly employment details will be looked upon for some impetus. On the other hand, the broader market risk sentiment, along with the US bond yields will influence the USD price dynamics and further assist traders to grab some meaningful opportunities.

From a technical perspective, nothing seems to have changed much for the pair and bulls might still wait for some follow-through buying beyond the 1.3200 mark before placing fresh bets. Above the mentioned levels, the pair seems more likely to aim to test the 1.3275 horizontal resistance before eventually darting towards the 1.3300 mark. The momentum could further get extended and push the pair back towards early September daily closing highs resistance, around the 1.3380-85 region, ahead of the 1.3400 level.

On the flip side, the 1.3100 round-figure mark now seems to have emerged as strong support. Some follow-through selling, leading to a subsequent slide below the 50% Fibonacci level of the 1.3482-1.2676 downfall, around the 1.3080 region, will negate the bullish outlook. The subsequent technical selling might turn the pair vulnerable to slide further towards the key 1.3000 psychological mark en-route the 1.2980 region, or 38.2% Fibo. level.