10-Jun-2021

1) EUR/USD Looks Depressed Below 1.2200 Ahead Of ECB, US Inflation
2) GBP/USD Slides Further Below 1.4100 Mark, Four-Week Lows
3) USD/CAD Consolidates In A Range Above 1.2100 Mark, US CPI Awaited
4) Gold Price Remains Pressured Amid Firmer US Dollar Amid Cautious Optimism

 

 

1) EUR/USD Looks Depressed Below 1.2200 Ahead Of ECB, US Inflation

EUR/USD remains on the back foot below 1.2200 ahead of a busy docket. The US dollar shrugs off weaker Treasury yields. The ECB eyed for the economic outlook. The US CPI needs a stronger-than-forecast print to keep the dollar afloat.

Euro/dollar has dipped back below the 50 and 100 simple moving averages on the four-hour chart and momentum has flattened out. The pair trades above the 200 SMA. All in all, bears have taken back some ground, but the pair has been flat for some time now.

Some support is at the daily low of 1.2160, followed by 1.2150 and 1.21, support lines on the way up.

Resistance is at 1.22, the round number that held it down last week, followed by 1.2220, Wednesday’s peak, and then by 1.2255 and 1.2266.

The big day has come and some investors are already revealing their tensions. After several sessions of calm, the dollar has been on the rise ahead of the release of US Consumer Price Index figures for May. The specter of spiraling inflation has begun spooking some assets such as stocks and the dollar.

However, Treasury yields have gone the other way. Returns on 10-year bonds have dipped under 1.50%, showing markets are not fully buying the theory that price rises are coming and with it a tapering of bond-buying by the Federal Reserve. The world’s most powerful central bank convenes next week and is set to remain silent until that day.

After Nonfarm Payrolls fell short of estimates, a not-so-horrible inflation figure could convince markets that the Fed is on course to sustain its $120 billion/month purchases untouched. More greenbacks mean a weaker currency.

Tapering of bond buys is high on the agenda also on the other side of the pond. The European Central Bank is forecast to leave its policies unchanged on Thursday the deposit rate at -0.50% and the total of its Pandemic Emergency Purchase Program (PEPP) at €1.85 trillion. However, there is an open question about the current pace of buying.

Back in March, the ECB announced an acceleration in purchases due to rising yields and a still-fragile economic recovery. The past three months have seen a massive vaccination campaign in the old continent and a return to normal. Is highly accommodative monetary policy still needed?

Return to a normal pace of purchases could boost the euro, but there are reasons to expect the Frankfurt-based institution to continue supporting the economy. The mix of virus variant fears and lower inflation in the eurozone only 2% on the headline and a meager 0.9% in Core CPI may keep ECB President Christine Lagarde and her colleagues from acting.

The ECB announces its decision at 11:45 GMT, and if it refrains from cutting back on purchases, the euro could dip. At 12:30 GMT, the US publishes its CPI data, and Lagarde kicks off her press conference. A mix of a non-scary inflation figure and upgraded ECB growth forecasts could trigger a bounce in EUR/USD.

While these are the main events of the day and the week, it is essential to note that leaders of the G-7 convene in London and any surprising announcement from President Joe Biden and others could rock markets. However, the leaked communique suggests no market-moving declarations are on the cards.

 

2) GBP/USD Slides Further Below 1.4100 Mark, Four-Week Lows

The GBP/USD pair witnessed some heavy selling during the early European session and dived to four-week lows, around the 1.4075-70 region in the last hour.

Following a brief consolidation through the first half of the trading action on Thursday, the pair met with some fresh supply and extended the previous day’s fall from the vicinity of the 1.4200 mark. The British pound continues to be weighed down by the EU-UK collision over Norther Ireland protocol and talks that further easing of lockdown measures in the UK may be postponed.

Talks between UK Brexit Minister David Frost and European Commission vice-president Maros Sefcovic to resolve differences over the Brexit deal broke up without a breakthrough on Wednesday. In a further escalation of a dispute over the Northern Ireland protocol, the European Union warned of swift and firm action if the UK fails to implement its post-Brexit obligations.

This comes on the back of speculations that the UK may delay plans to end restrictions fully on June 21 in light of the spread of the so-called Delta variant. The combination of factors continued acting as a headwind for the sterling. This, along with a modest US dollar strength, exerted some downward pressure on the GBP/USD pair and contributed to the ongoing decline.

Meanwhile, the latest leg of a sudden drop over the past hour or so could be attributed to some technical selling below the 1.4100 mark. A subsequent fall below the monthly swing lows, around the 1.4080 region might have already set the stage for additional weakness. That said, investors might refrain from placing fresh bets ahead of the US consumer inflation figures.

 

3) USD/CAD Consolidates In A Range Above 1.2100 Mark, US CPI Awaited

The USD/CAD pair lacked any firm directional bias and remained confined in a narrow band through the first half of the European session. The pair was last seen trading around the 1.2110-15 region, nearly unchanged for the day.

The pair struggled to capitalize on the previous day’s goodish rebound from the vicinity of mid-1.2000s, or weekly lows and witnessed a subdued/range-bound price action on Thursday. That said, a combination of factors extended some support and assisted the USD/CAD pair to hold steady above the 1.2100 mark.

The US dollar gained follow-through traction amid some repositioning trade ahead of the US consumer inflation figures, due later during the early North American session. Apart from this, a modest pickup in the US Treasury bond yields further benefitted the greenback and acted as a tailwind for the USD/CAD pair.

On the other hand, a softer tone in the oil market undermined the commodity-linked loonie and was seen as another factor lending support to the USD/CAD pair. WTI crude oil witnessed some profit-taking after Wednesday’s EIA report indicated weaker-than-expected fuel demand at the start of the summer driving season in the US.

Investors, however, seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the US consumer inflation figures. The CPI report will be an important macro data that would set the tone for the June FOMC meeting and influence the USD. This, in turn, might provide a fresh directional impetus to the USD/CAD pair.

 

4) Gold Price Remains Pressured Amid Firmer US Dollar Amid Cautious Optimism

Gold price (XAU/USD) fell for the second straight day on Wednesday, as a global sell-off ensued on increased nervousness ahead of Thursday’s European Central Bank (ECB) monetary policy decision and US Consumer Price Index (CPI) data. The risk-off market mood dragged the Treasury yields lower, although helped lift the US dollar across the board at gold’s expense. Escalating US-China tensions over an alleged Beijing’s tech threat and uncertainty over President Joe Biden’s infrastructure stimulus plans also weighed on the investor’s sentiment. However, the dollar’s strength remained the key catalyst behind the decline in the gold price.

Gold price is extending the previous decline, undermined by the dollar’s demand. The greenback holds the higher ground, despite the market optimism, as investors resort to repositioning ahead of the all-important ECB announcement and US inflation release. These key events will shed light on the pace of global recovery and policymakers’ thinking about paring back stimulus. If the US CPI print comes in hotter than the consensus of a 0.4% rise in May, it will ramp up the Fed’s tapering expectation, which will render negative for the non-yielding gold. The ECB could also hint towards dialing back of the emergency bond-buying program.

Gold’s four-hour chart paints a bearish picture, as the price has confirmed a symmetrical triangle breakdown in the US last session.

The Relative Strength Index (RSI) points south below the midline, allowing room for more declines.

Therefore, sellers could target the immediate support at the horizontal (orange) trendline connecting previous lows at $1881.

A breach of the latter could trigger a drop towards the June 4 low of $1856. Ahead of that, a demand area around $1865 could offer some reprieve to the bulls.

Meanwhile, any recovery attempt could face stiff resistance around the $1891-$1895 region, where the 21, 50, and 100-simple moving averages (SMA) collide.

Further up, the triangle resistance at $1900 will challenge the bullish commitments. The previous month’s high at $1913 is the level to beat for the optimists.