10-Sep-2020

1) AUD Recovers Losses As Rout On Equities Abates
2) EUR/USD: Dovish ECB Awaited For Bearish Confirmation
3) XAU/USD: Bulls Take A Breather, Await ECB For Additional Upside?

1) AUD Recovers Losses As Rout On Equities Abates

The Australian dollar rallied through trade on Wednesday, recouping losses and pushing back toward 0.73 US cents. Having struggled to maintain any upward momentum throughout the domestic session the risk-off backdrop abated overnight allowing the AUD to follow equities and other risk assets higher. Having touched intraday lows below 0.72 the AUD pushed through 0.7250 to touch 0.7290. With little of note driving the move it is clear sentiment continues to govern direction, while underlying macroeconomic fundamentals continue to take a back seat. With investors responding to headlines rather than data sets there is heightened likelihood of ongoing volatility across currency markets as we move into the final quarter. We still expect the AUD to hold onto recent gains and test new highs as positive sentiment continues to fuel demand.

Attentions today domestic inflation expectations and US unemployment claims as markers of economic health. A break back above 0.73/0.7310 could help fuel another run toward 0.74.

The US dollar slipped off four-week highs on Wednesday amid improved risk sentiment and a Euro upside. The singe currency found support Tuesday ahead of today’s ECB policy meeting. Reports emerged ECB policy makers were confident in the state of the European recovery and optimistic the regions recovery is on track. With little change expected in regional forecasts we expect minimal changes in the official outlook, allowing the ECB to maintain the current program of QE. With the risk of a dovish surprise removed the Euro pushed back through 1.18 to touch intraday highs at 1.1831 before edging lower into this morning open.

The Great British Pound struggled to respond to the improve risk backdrop as fears new British legislation on post Brexit plans would derail Brexit talks. Despite a statement from EU official confirming they would not suspend talks at this point the pound failed to break back above 1.30. As talks continue we anticipate heightened GBP volatility with investors adjusting expectations for a trade agreement.

Attentions today remain squarely affixed to the ECB press conference with little else of note on the macroeconomic docket, while equity performance and broader market sentiment will continue to drive direction.

2) EUR/USD: Dovish ECB Awaited For Bearish Confirmation

The EUR/USD pair remained depressed through the first half of the trading action on Wednesday and dropped to four-week lows, around mid-1.1700s. News that AstraZeneca paused trials for its coronavirus vaccine weighed on investors’ sentiment and drove some haven flows toward the US dollar, which, in turn, exerted some pressure on the major. The greenback, however, struggled to preserve its early gains, instead witnessed some fresh selling at higher levels amid a strong rebound in the US equity markets. This coupled with a report that the European Central Bank will adopt a more optimistic tone on its economic outlook prompted some short-covering move around the shared currency.

Bloomberg, citing sources with knowledge of the matter, said the ECB will revise its 2020 GDP expectations in its updated projections higher amid stronger private consumption. The pair recovered around 80 pips intrada, albeit lacked any strong follow-through. Given that officials have shown concerns over the common currency’s recent appreciation, investors seemed reluctant to place any aggressive bets ahead of the much-awaited ECB monetary policy meeting. Nevertheless, the pair finally settled with modest gains, snapping six consecutive days of the losing streak and held steady comfortably above the 1.1800 mark through the Asian session on Thursday.

The ECB is scheduled to announce its decision later today and is widely expected to keep its monetary policy setting unchanged. This will be followed by the post-meeting press conference, where investors will closely monitor any comments on the euro. Apart from this, the spotlight will be on the ECB’s new economic projections, which will play a key role in driving the shared currency in the near-term and provide a fresh directional impetus for the major.

From a technical perspective, the pair this week confirmed a rising channel breakdown, though bulls showed some resilience near 200-period EMA on the 4-hourly chart. This makes it prudent to wait for some strong follow-through selling below the 1.1760-50 region before positioning for any further near-term depreciating move. The pair might then accelerate the fall further towards August monthly swing lows support, around the 1.1700-1.1695 region. Failure to defend the 1.1700 handle will be seen as a fresh trigger for bearish traders and set the stage for a further near-term depreciating move, possibly towards challenging the 1.1500 mark.

On the flip side, any subsequent positive move beyond the 1.1855-60 horizontal zone is likely to confront a stiff resistance near the 1.1900 mark. This is followed by the 1.1935-40 supply zone, which if cleared decisively will negate any near-term bearish bias and assist bulls to make a fresh attempt to push the pair beyond the key 1.2000 psychological mark. The latter coincides with the top end of the mentioned channel and should now act as a key pivotal point for the pair’s next leg of a directional move.

3) XAU/USD: Bulls Take A Breather, Await ECB For Additional Upside?

Gold (XAU/USD) closed higher for the second straight day on Wednesday, having staged a solid $30 bounce intraday. Gold bounced along with the US stocks amid improved market mood, which diminished the haven demand for the US dollar. The tech rally resumed after the recent correction, driving the Wall Street indices northwards. Further, the Bloomberg report citing that the European Central Bank (ECB) forecasts leak showed more confidence in the outlook boosted the euro at the expense of the greenback. Meanwhile, expectations that the US Congress will reach the much-awaited fiscal stimulus deal lifted the metal, as markets looked past news that AstraZeneca halted its vaccine trials over safety concerns.

All eyes now remain on the ECB monetary policy decision due later on Thursday amid increased dovish expectations, which could benefit the yieldless gold. The central bank is likely to stand pat on its policy, although could leave doors open for stimulus expansion in its December meeting amid negative inflation and concerns over the euro strength. A dovish ECB outcome could bode well for the equities and exacerbate the pain in the dollar, in turn, rendering gold-supportive.

Gold firmed up on Wednesday, confirming Tuesday’s bullish Doji reversal from 50- day Simple Moving Average (DMA) spotted on the daily chart. Despite the rejection above $1950 mark, the spot managed to close the day above the critical 21-DMA, now at $1948.

The bulls remain hopeful, although acceptance above the falling trendline (symmetrical triangle) resistance at $1958 is needed to extend the bullish reversal. A break above the last could open doors towards Sept 2 high of $1973.34.

Meanwhile, the bullish bias will likely remain intact so long as the price holds above the robust cap around $1916-$1910, where the upward-sloping 50-DMA and rising trendline support coincide.

The 14-day Relative Strength Index (RSI) trades flat but holds above the midline, supporting the case for the further upside.