09-Sep-2020

1) EUR/USD: Seems Vulnerable Below 1.1800 Mark Ahead Of ECB On Thursday
2) GBP/USD: Bears Remain In Control On Fears Of A No-Deal Brexit
3) XAU/USD: Torn Between Vaccine Woes And Dollar Strength, Awaits A Clear Direction

1) EUR/USD: Seems Vulnerable Below 1.1800 Mark Ahead Of ECB On Thursday

The EUR/USD pair added to the previous day’s modest losses and witnessed some follow-through selling on Tuesday. The downtick marked the sixth consecutive day of a negative move and was sponsored by a strong pickup in the US dollar demand. As traders returned after the US Labor Day holiday, the greenback drove some haven flows amid a rout in the equity markets. Against the backdrop of increasing risk of a no-deal Brexit, the global risk sentiment further took a hit after AstraZeneca delayed testing of a coronavirus vaccine.

On the other hand, the shared currency remained depressed on the back of the ECB’s concerns over the exchange rate level and seemed rather unimpressed by an upward revision of the Eurozone GDP. The Eurostat reported that the economy contracted by -11.8% during the second quarter of 2020, less-than -12.1% estimated previously. Nevertheless, the pair prolonged its recent pullback from 28-month tops – levels beyond the key 1.2000 psychological mark – and dropped to near three-week lows during the Asian session on Wednesday.

Meanwhile, the downside seems limited, at least for the time being, as investors might refrain from placing any aggressive bets ahead of the ECB monetary policy update on Thursday. Heading into the key event risk, the pair is more likely to remain confined in a range in absence of any major market-moving economic releases, either from the Eurozone or the US.

From a technical perspective, the overnight sustained weakness below the 1.1800 mark might have confirmed a near-term bearish breakthrough a one-month-old ascending channel. That said, bears might still wait for some follow-through selling below mid-1.1700s before placing fresh bets. The pair might then accelerate the slide towards the 1.1700 round-figure mark. The latter coincides with August monthly swing lows, below which the pair seems all set to extend the ongoing corrective slide.

On the flip side, the channel support breakpoint, around the 1.1800-1.1815 region, now seems to act as immediate resistance. Any subsequent positive move is likely to confront a stiff resistance and remain capped near the 1.1850-60 horizontal zone. A sustained strength beyond might trigger a short-covering move and push the pair back above the 1.1900 mark, towards the 1.1935-40 supply zone.

2) GBP/USD: Bears Remain In Control On Fears Of A No-Deal Brexit

The bearish pressure surrounding the British pound picked up the pace on Tuesday and dragged the pair back below the key 1.3000 psychological mark for the first time since early August. Markets were spooked after the UK Prime Minister Boris Johnson warned that Britain would end the negotiations if there was no progress on a deal by mid-October. This, in turn, added to market worries that the UK could crash out of the EU at the end of the transition period on December 31. The not so comforting Brexit-related headlines spooked investors and raised concerns that a hard split would cripple the UK economic growth. Investors stepped up bets that the BoE will cut rates and push then into the negative territory, which further took its toll on the British pound.

On the other hand, the US dollar drove some strong haven flows on the back of a sell-off in the US equity markets. A broad-based USD strength further contributed to the pair’s steep decline. The strong downward momentum took along some short-term trading stops placed near the 1.3130-25 region. The subsequent fall below the 1.3060-50 horizontal support aggravated the bearish pressure and pushed the pair to six-week lows during the Asian session on Wednesday. The pair was last seen hovering around the 1.2930 region and in the absence of any major market-moving economic releases, either from the UK or the US, remains at the mercy of headlines coming out of the ongoing penultimate round of Brexit negotiations.

From a technical perspective, the overnight break below the 1.3000 mark and a subsequent weakness below August monthly swing lows might have already set the stage for additional weakness. With technical indicators on the daily chart still far from being in the oversold territory, the pair seems vulnerable to break below the 1.2900 mark and accelerate the slide further towards a previous strong resistance near the 1.2815-10 region.

On the flip side, attempted recovery move might now confront fresh supply near the key 1.3000 psychological mark. Some follow-through buying could prompt a short-covering move and lift the pair back toward the 1.3050-60 horizontal zone en-route the 1.3100 mark ahead of the trend-line resistance breakpoint, around the 1.3125-30 region.

3) XAU/USD: Torn Between Vaccine Woes And Dollar Strength, Awaits A Clear Direction

Gold (XAU/USD finished Tuesday with modest gains, having return to its recent trading range around $1930 after the wild swings. The bright metal slipped to the lowest level in two weeks at $1906 in the first half of the day amid unabated US dollar demand across the board. However, the bulls returned with pomp and show after the US indices tumbled amid sell-off in tech stocks and worries over the coronavirus vaccine. Pharma company AstraZeneca announced a halt in its vaccine trials over safety concerns, which dashed hopes of a swift recovery from the pandemic and weighed soured the risk sentiment. The omnipresent US-China tensions, this time over the US plans to ban cotton products, and US fiscal deadlock also aggravated the risk-off mood.

So far this Wednesday, gold extends its range play around $1930, divided between concerns over the vaccine and a broadly bid US dollar. Meanwhile, mounting no-deal Brexit fears and dovish expectations from the European Central Bank (ECB) monetary policy decision, due on Thursday, also keep the gold traders on the edge. The sentiment on Wall Street will emerge as a key catalyst in absence of relevant US macro news this Wednesday.

On the daily chart, gold continues to traverse within a symmetrical triangle pattern since early August and now looks primed for a range breakout.

Over the past month, the price has remained trapped between the 21-day Simple Moving Average (DMA) to the upside while the 50-DMA cushions the downside.

Therefore, investors await a strong catalyst to dive out of the range in either direction. The 14-day Relative Strength Index (RSI) has turned absolutely flatlined since the start of this week, although holds a mild bearish bias around 48.50.

A daily closing below the rising trendline support at $1925 will confirm the triangle pattern and open floors for a test of the $1900 mark. The next downside cap is seen at $1863 (August 12 low).

Alternatively, recapturing the 21-DMA at $1946 on a daily closing basis is critical to negate the ongoing bearish bias.