09-Nov-2020

1) Dollar Falls Broadly Due To Risk-On Sentiment Despite U.S. Election Uncertainty
2) EUR/USD: Breakout Occurs On Biden’s Victory, 1.2000 Is The Next Relevant Bullish Target
3) GBP/USD: Brexit Updates, Bailey’s Speech Awaited For Fresh Bullish Impetus
4) XAU/USD: Gold Remains Poised For Additional Gains, $1973 In Sight

 

 

1) Dollar Falls Broadly Due To Risk-On Sentiment Despite U.S. Election Uncertainty

The greenback fell across the board and hit a 2-month month low on Friday as investors awaited the results of the U.S. Presidential election and on concerns that a potentially Republican-controlled Senate would make it difficult to pass a larger coronavirus relief package, however, market risk-on sentiment drove the dollar lower.

Reuters reported U.S. employers hired the fewest workers in five months in October, offering the clearest evidence yet that the end of fiscal stimulus and exploding new COVID-19 infections were sapping momentum from the economic recovery.

Nonfarm payrolls increased by 638,000 jobs last month after rising by 672,000 in September, the Labor Department said in its closely watched employment report on Friday. That was the smallest gain since the jobs recovery started in May and left employment still well below its peak in February.

The unemployment rate fell to 6.9% from 7.9% in September. Economists polled by Reuters had forecast payrolls advancing by 600,000 jobs in October and the jobless rate dipping to 7.7%.

Versus the Japanese yen, dollar met renewed selling at 103.76 in Asian morning and dropped to an intra-day low at 103.18 in Europe before staging a rebound to 103.71 in New York morning after the release of U.S. jobs report. The pair then retreated again to 103.20 in New York, a price last traded at 103.33 near the close.

Although the single currency dropped to session lows at 1.1796 in Asian morning, price erased its intra-day losses and rallied to a 2-week high of 1.1890 at New York open on USD’s broad-based weakness before retreating to 1.1852 on profit-taking. Euro swiftly erased intra-day loss and climbed back to 1.1889.

The British pound gained to 1.3157 in Australia before retreating to 1.3113 in Asia, then 1.3102 in the European morning. The cable then dropped to session lows at 1.3094 in New York morning before rising to a 2-week high at 1.3177 in New York on USD’s weakness together with cross-selling of sterling especially vs euro.

In other news, Reuters reported Bank of England Deputy Governor Ben Broadbent said on Friday that policymakers had to consider whether negative interest rates might have counterproductive effects during times of stress on banks’ balance sheets.    In such a scenario, there could be a risk that banks would cut lending to make up for costs and lower margins due to negative interest rates, Broadbent said. “Then the question is: are those pressures enough to mean that these mitigating effects – the downside risks of cutting rates below zero – outweigh the benefits?” Broadbent said in a presentation organized by regional agents of the central bank.

On the data front, Reuters reported U.S. wholesale inventories were higher than initially estimated in September as sales barely rose, government data showed on Friday.    The Commerce Department said wholesale inventories gained 0.4% in September, instead of dipping 0.1% as estimated last month. Stocks at wholesalers increased by 0.5% in August. The component of wholesale inventories that goes into the calculation of gross domestic product rose 0.4% in September.    Inventories were down 3.9% in September from a year earlier.

 

2) EUR/USD: Breakout Occurs On Biden’s Victory, 1.2000 Is The Next Relevant Bullish Target

The EUR/USD pair opened with a modest bullish gap on the first day of a new trading week and refreshed multi-week tops during the Asian session. The US dollar remained depressed on the back of the Democratic candidate Joe Biden’s victory in a nail-biting US Presidential election, which assisted the pair to build on last week’s solid rebound from the 1.1600 round-figure mark. The possibility of a split congress fueled speculations that the Fed will have to ease further to support the economy amid the near-term risk of rising COVID-19 infection. This, in turn, was seen as a key factor that continued exerting downward pressure on the greenback.

Apart from this, the prevalent risk-on environment further undermined the USD’s relative safe-haven status. The USD failed to gain any respite from Friday’s mostly upbeat US monthly jobs report. In fact, the headline NFP showed that the US economy added 638K new jobs in October as compared to 600K expected. Moreover, the previous month’s reading was also revised higher to 672K as against 661K reported earlier. Further details revealed a significant drop in the unemployment rate, to 6.9% from 7.9% previous, albeit failed to impress the USD bulls or hinder the pair’s ongoing positive momentum to the highest level since mid-September.

There isn’t any major market-moving economic data due for release on Monday, either from the Eurozone or the US. That said, a scheduled speech by the ECB President Christine Lagarde might influence the shared currency. This, along with the broader market risk sentiment, will also be looked upon for some meaningful trading opportunities.

From a technical perspective, the pair now seems to have confirmed a near-term bullish breakthrough in a near two-month-old trading range. Some follow-through buying beyond the 1.1900 mark will reinforce the constructive set-up and pave the way for a move beyond the 1.1945-40 supply zone, towards reclaiming the key 1.2000 psychological mark.

On the flip side, immediate support is now pegged near the 1.1860-50 region. Any subsequent dip might now be seen as a buying opportunity and remain limited near the 1.1810-1.1800 horizontal support. However, a convincing breakthrough the mentioned barriers might prompt some technical selling and turn the pair vulnerable to retest the 1.1700 mark.

 

3) GBP/USD: Brexit Updates, Bailey’s Speech Awaited For Fresh Bullish Impetus

The GBP/USD pair seesawed between tepid gains/minor losses and finally settled nearly unchanged, around mid-1.3100s on the last trading day of the week. The pair did witness some intraday selling, albeit sustained selling around the US dollar helped limit the downtick, rather attracted some dip-buying near the 1.3100 round-figure mark. The USD bulls seemed rather unimpressed by Friday’s mostly upbeat US monthly jobs report, which showed that the unemployment rate fell to 6.9% from 7.9% previously. Meanwhile, the headline NFP came in to show that the US economy added more-than-anticipated, 638K new jobs in October, and the previous month’s reading was also revised higher to 672K as against 661K reported earlier.

Despite the supporting factor, the pair struggled to gain any meaningful traction amid persistent Brexit-related uncertainties. It is worth reporting that British and EU negotiators are yet to find a compromise on key sticking points – the so-called level-playing field, fisheries, and state-aid rules. Talks are set to resume this week as both sides try to reach an agreement amid significant differences. Another source of conflict between the two sides is Britain Prime Minister Boris Johnson’s determination to press ahead with the Internal Market Bill. Peers on Monday will vote on the controversial legislation, which would override clauses in the Brexit Withdrawal Agreement related to Northern Ireland.

That said, the Democratic candidate Joe Biden’s victory in a nail-biting US Presidential election fueled speculations that the Fed will have to ease further to support the economy amid the near-term risk of rising COVID-19 infection. This, in turn, continued weighing on the greenback and assisted the pair to regain positive traction during the Asian session on Monday. The pair climbed to one-month tops and was last seen hovering just below the 1.3200 mark. In the absence of any major market-moving economic releases, investors will take cues from a scheduled speech by Bank of England Governor Andrew Bailey and chief economist Andy Haldane, wherein the key focus will remain squarely on talks about negative rates. This, along with Brexit-related headlines, will influence the British pound and produce some meaningful trading opportunities.

From a technical perspective, the pair was looking to build on the momentum beyond the 61.8% Fibonacci level of the 1.3482-1.2676 downfall. A sustained move beyond the 1.3200 mark will be seen as a fresh trigger for bullish traders and pave the way for additional gains. The pair might then aim to test the 1.3275 horizontal resistance before eventually darting towards the 1.3300 round-figure mark. The momentum could further get extended and pushed the pair back towards early September daily closing highs resistance, around the 1.3380-85 region, ahead of the 1.3400 round-figure mark.

On the flip side, any meaningful dip below the 1.3145-40 region might continue to attract some buying around the 1.3100 mark. Some follow-through selling, leading to a subsequent slide below the 1.3080 region (50% Fibo. level) might prompt some technical selling and negate the bullish outlook. The pair might then accelerate the fall back towards the key 1.3000 psychological mark en-route the 1.2980 region, or 38.2% Fibo. level.

 

4) XAU/USD: Gold Remains Poised For Additional Gains, $1973 In Sight

After the spectacular 4% rally last week, Gold (XAU/USD) started out a fresh week on a strong footing, holding close to the highest levels in two-months above $1960 this Monday. American media networks called a Biden victory in the presidential election over the weekend, which sent the risk assets spiraling through the roof despite a split Congress already priced-in by the market.

Markets believe that a divided government could likely refrain from the regulatory changes and higher taxes while the President-election Joe Biden could push for additional fiscal stimulus, with a deal most likely seen in December. The Fed is also anticipated to do more to support the economic recovery. Therefore, with more funds in the market, the inflation-hedge gold is likely to benefit, strengthening the recent bullish case.

Although the rising coronavirus cases globally, with the total tally topping 10 million in the US, remain a cause for concerns, which could limit the downside in the safe-haven US dollar, in turn capping the gains in the yellow metal. The sentiment on Wall Street will also remain in focus for fresh gold trades.

The path of least resistance for the bright metal appears to the upside. However, the rising wedge hurdle on the hourly chart at $1965 remains a tough nut to crack for the XAU bulls.

A sustained move above the latter could open doors towards September 18 highs of $1973.64. Acceptance above which could bring the $2000 level back insight.

The spot trades above all the major hourly moving averages (HMA) while the Relative Strength Index (RSI) trends higher at 64.47, suggesting that the bullish bias remains intact.

To the downside, the bulls need to defend the 21-HMA at $1954, below which the rising trendline support at $1947 could be tested. Further down, the upward-sloping 50-HMA at $1941 also remains on sellers’ radars.