10-Mar-2021

1) EUR/USD: Bears Target 1.18 As Bond Auction May Trigger Fresh Dollar Strength
2) NZD/USD Trades With Modest Losses Around Mid-0.7100s
3) USD/CAD: Confined In A Familiar Trading Range Ahead Of BoC/US CPI
4) XAU/USD: Gold Remains At The Mercy Of US Bond Yields, US CPI Eyed

 

 

1) EUR/USD: Bears Target 1.18 As Bond Auction May Trigger Fresh Dollar Strength

Turnaround Tuesday? That is over now, as EUR/USD performed one of its typical dead-cat bounces and is heading to new lows. US ten-year bond yields have resumed their gains on Wednesday, allowing the dollar to gain fresh ground – and more may be in store.

That relief rally in Wall Street was partially triggered by Chinese authorities’ intervention to shore up stocks on Tuesday – a feat that did not repeat itself on Wednesday. The more cautious mood is now favoring the safe-haven dollar as tensions mount ahead of Wednesday’s heavyweight events.

First, Consumer Price Index figures for February are set to show a pick up in inflation, especially in headline prices fueled by rising oil prices. While Core CPI has likely remained in check last month, any tick to the upside may carry the greenback higher.

The more significant event in America’s auction of new ten-year Treasuries. Investors have been glued to this global benchmark as a guide for the next moves. Tuesday’s three-year offering was smooth, resulting in robust demand and pushing returns lower. However, demand for longer-term debt may be different.

At the time of writing, the ten-year yield is hovering around 1.54%, above the lows but below 1.60% which causes stocks to shiver. If investors seize on the new issuance of debt, yields could slip toward 1.50% and allow EUR/USD to resume its recovery. However, there are greater chances that the ten-year auction follows the recent seven-year one – resulting in weak demand, higher returns, and a consequent surge in the dollar.

The bond auction is due at around 18:00 GMT, around the time that the US House of Representatives is set to approve the Senate’s version of the covid relief package. President Joe Biden will likely sign the bill into law shortly afterward, unleashing $1.9 trillion in stimulus funds. The plan has been one of the upside triggers for yields and the dollar, but its passage is fully priced in.

The old continent continues struggling with coronavirus, with Italy bearing the brunt of the recent uptick in cases. Europe’s vaccination schemes remain sluggish, especially in comparison to America’s accelerated drive. Alaska has become the first state to offer jabs to anyone aged 16 or more.

Euro/dollar is suffering from downside momentum on the four-hour chart and trades below the 50, 100 and 200 Simple Moving Averages. Moreover, the Relative Strength Index has risen above the 30 level – exiting oversold conditions.

Support awaits at the daily low of 1.1868, followed by the 2021 trough of 1.1836. A weak cushion awaits at 1.1815, with stronger support at 1.18 – a psychologically significant level, followed by 1.1750. All were in play in late 2020.

Some resistance is at the daily high of 1.1902, followed by 1.1915, Tuesday’s high point. It is followed by 1.1950 and 1.1990.

 

2) NZD/USD Trades With Modest Losses Around Mid-0.7100s

The NZD/USD pair traded with a mild negative bias heading into the European session and was last seen hovering near mid-0.7100s, just above daily lows touched in the last hour.

The pair failed to capitalize on the previous day’s goodish rebound from the 0.7100 mark, instead met with some fresh supply and was pressured by a combination of factors. The US dollar was back in demand on Wednesday and recovered the overnight losses amid some stability in the US Treasury bond yields.

The USD was further supported by the upbeat US economic outlook, bolstered by the impressive pace of COVID-19 vaccinations and a massive US fiscal spending plan. The House of Representatives is expected to provide the final approval to US President Joe Biden’s $1.9 trillion pandemic relief package.

Apart from this, a softer risk tone around the equity markets provided an additional boost to the safe-haven greenback. This was seen as another factor weighing on the perceived riskier kiwi and contributed to the offered tone surrounding the NZD/USD pair, though the downside seemed limited.

Market participants see a real risk of an overheated US economy and higher inflation on the back of the planned spending by the Bide Administration. Given that inflation remains a hot topic, investors now seemed reluctant to place aggressive bets ahead of Wednesday’s release of the US CPI figures.

The data, along with a critical ten-year bond-auction in the US, will now play a key role in influencing the USD price dynamics ahead of next week’s FOMC monetary policy meeting. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

 

3) USD/CAD: Confined In A Familiar Trading Range Ahead Of BoC/US CPI

The USD/CAD pair extended its two-way price action on Tuesday and remained confined in a familiar trading range held over the past two weeks or so. A combination of factors exerted some downward pressure and dragged the pair to three-day lows. Expectations that the Fed could take some action to curb the rapid rise in long-term borrowing cost led to a modest pullback in the US Treasury bond yields. This, in turn, prompted the US dollar bulls to take some profits off the table. Apart from this, an uptick in crude oil prices underpinned the commodity-linked loonie and contributed to the selling bias.

That said, the optimistic US economic outlook helped limit any deeper losses for the greenback. Investors remain hopeful that the successful COVID-19 vaccine rollouts and massive US fiscal spending will lead to a powerful rebound in the economy. The reflation trade has been fueling speculations for a possible uptick in the US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. This, along with a late slide in oil prices, assisted the pair to rebound from sub-1.2600 levels and gain some strong positive traction during the Asian session on Wednesday.

Given that inflation has become a hot topic in the market, Wednesday’s release of the latest US CPI figures will now play a key role in influencing the USD price dynamics. The report is scheduled to be released later during the early North American session and will be accompanied by the Bank of Canada (BoC) monetary policy decision. The Canadian central bank is widely expected to leave the benchmark interest rate unchanged at 0.25% and hence, the key focus will be on the accompanying policy statement. Any hawkish tilt might provide a strong lift to the Canadian dollar, though the full impact may not be immediately seen ahead of a critical ten-year bond-auction in the US.

From a technical perspective, the recent price action constitutes the formation of a rectangle and warrants some caution before placing any directional bets. Moreover, neutral technical indicators on the daily chart haven’t been supportive of any firm’s near-term direction. This, in turn, makes it prudent to wait for a sustained breakthrough in the trading range in order to determine the next leg of a directional move.

In the meantime, any subsequent positive move beyond the 1.2700 mark might continue to face stiff resistance near the 1.2740-50 heavy supply zone. Some follow-through strength has the potential to lift the pair towards the 1.2800 mark. The latter coincides with a short-term descending trend-line extending from late November 2020, which if cleared decisively will be seen as a fresh trigger for bullish traders. This would set the stage for an extension of the recent bounce from multi-year lows and allow bulls to challenge YTD tops, around the 1.2880 region.

On the flip side, the 1.2655-50 region now seems to act as a key pivotal point for intraday traders. Any meaningful slide below the mentioned area might still be seen as a buying opportunity and remain limited near the 1.2600-1.2590 support zone. That said, sustained weakness below the 1.2580-75 region might prompt some aggressive technical selling. The pair might then turn vulnerable to retest the key 1.2500 psychological mark before eventually dropping to multi-year lows, around the 1.2470-65 region touched on February 25.

 

4) XAU/USD: Gold Remains At The Mercy Of US Bond Yields, US CPI Eyed

Gold witnessed some aggressive short-covering move from nine-month lows and rallied around $40, or over 2% on Tuesday. The strong move up marked the biggest one-day rise since January 4 and was sponsored by a combination of factors – lower bond yields and weaker US dollar. Expectations that the Fed could take some action to curb the rapid rise in long-term borrowing cost led to a modest pullback in the US Treasury bond yields and extended some support to the non-yielding yellow metal. Retreating US bond yields prompted the USD bulls to take some profits off the table, which provided an additional boost to the dollar-denominated commodity.

The XAU/USD finally settled near the top end of its daily trading range, albeit lacked any strong follow-through buying. The underlying bullish sentiment in the financial markets turned out to be a key factor that kept a lid on any further gains for the safe-haven precious metal. The global risk sentiment remained well supported by expectations that successful COVID-19 vaccine rollouts and massive US fiscal spending will lead to a powerful rebound in the economy. The House of Representatives is expected to provide the final approval to a much-awaited $1.9 trillion pandemic relief package proposed by US President Joe Biden.

Meanwhile, some investors see a real risk of an overheated US economy and higher inflation in the back of the planned spending by the Bide Administration. Given that gold is considered as a hedge against inflation, Wednesday’s release of the US CPI report will now play a key role in influencing the near-term trajectory. In the meantime, the broader market risk sentiment, the USD price dynamics, and the US bond yields will be looked upon for some meaningful trading opportunities.

From a technical perspective, the overnight recovery might still be categorized as a corrective bounce from oversold conditions and runs the risk of fizzling out rather quickly. Hence, any subsequent positive move might still be seen as a selling opportunity near the $1740 region. This, in turn, should cap the upside for the commodity near the $1760-65 strong horizontal support breakpoint. That said, a sustained move beyond will suggests that the metal has bottomed out and set the stage for some meaningful recovery in the near-term.

On the flip side, the $1700 mark now seems to protect the immediate downside. This is followed by support near the $1685-83 region, which if broken will be seen as a fresh trigger for bearish traders. The XAU/USD might then accelerate the fall towards June 2020 swing lows, around the $1670 level before eventually dropping to the next relevant support near the $1650 area.