11-Aug-2021

1) EUR/USD Defends 1.1700 Ahead Of US Inflation
2) GBP/USD Remains Pressured Towards 1.3800, US Inflation Eyed
3) XAU/USD Up Little Around $1,735 Area, Lacks Follow-Through Ahead Of US CPI

1) EUR/USD Defends 1.1700 Ahead Of US Inflation

EUR/USD remains sidelined around five-month lows above 1.1700  ahead of the US inflation. The pair defends the 1.1700 thresholds, as bears take a breather amid a steady US dollar and the cautious market mood. Firmer Treasury yields could cap the upside attempts.

A horizontal line comprising the 2021 trough, around 1.1700, questions the EUR/USD pair’s downside amid oversold RSI conditions. It should be noted, however, that the corrective pullback needs to cross the immediate horizontal hurdle surrounding 1.1760 to revisit the 1.1800 round figure. In a case wherein the quote drops below 1.1700, a 100-pip fall targeting the late 2020 lows close to 1.1600 can’t be ruled out.

The USD bulls seem to have hit a bump as policymakers jostle over the key debt limit even as they’re yet to cross two more hurdles before announcing the $1.2 trillion infrastructure aid plan. Furthermore, Reuters news suggesting that the European Union will not change its safe travel list this week, allowing non-essential travel from the United States to continue for the time being despite a surge in COVID cases there, helps the EUR a bit versus its US counterpart.

Amid these plays, The US Dollar Index (DXY) prints a four-day winning streak to poke July’s high around 93.20. In doing so, the greenback gauge seems to track the firmer US Treasury yields while cheering the downbeat stock futures.

It’s worth noting that comments from US Atlanta Federal Reserve President Raphael Bostic, Richmond Fed President Thomas Barkin, and Chicago Fed President Charles Evans contrast to those of the European Central Bank (ECB) policymakers and challenge the EUR/USD moves.

Hence, the pair traders will keep their eyes on the US inflation figures for July, with the headline figure likely to ease to 5.3% YoY from 5.4%, to reconfirm the latest taper tantrums that also favor the USD.

2) GBP/USD Remains Pressured Towards 1.3800, US Inflation Eyed

GBP/USD is extending its bearish momentum towards 1.3800 this Wednesday. The pair eyes deeper losses amid renewed Brexit concerns, a broadly firmer US dollar, and mixed sentiment. US CPI awaited.

From a technical perspective, the overnight move-up faced rejection near the 1.3870 horizontal support breakpoint. This, along with a downward sloping trend-line resistance, constituted the formation of a descending triangle on short-term charts. Apart from this, the formation of a double-top near the 1.3980-1.4000 area suggests that the recent strong rebound from the lowest level since early February has run out of steam. Hence, a subsequent fall below the 1.3800 mark, towards testing the next relevant support near the 1.3730-25 region, remains a distinct possibility.

The latter marks the 23.6% Fibonacci level of the 1.4249-1.3572 downfall, which if broken decisively would turn the pair vulnerable to break below the 1.3700 mark. The downward trajectory might then drag the pair back towards the 1.3620-15 intermediate support en-route the 1.3600 round figure and July monthly swing lows, around the 1.3570 region.

On the flip side, the 1.3870 support-turned-resistance might continue to cap any attempt recovery move. Any subsequent move up might be seen as a selling opportunity near the 1.3900 mark and cap the pair near the 1.3910-15 confluence hurdle, comprising of 50% Fibo. level and the 100-day SMA.

3) XAU/USD Up Little Around $1,735 Area, Lacks Follow-Through Ahead Of US CPI

COVID-19 jitters assisted gold to gain some positive traction on Wednesday. Rising bets for an early Fed taper, rising US bond yields capped any the upside. Stronger USD also acted as a headwind for the metal ahead of the US CPI data.

The XAU/USD, so far, has struggled to capitalize on Monday’s rebound from the flash crash to the lowest level since late March and has been oscillating in a range over the past two trading sessions. Concerns about the economic fallout from the fast-spreading Delta variant of the coronavirus extended some support to the safe-haven precious metal.

That said, expectations for an early tapering of the Fed’s massive monetary stimulus acted as a headwind for the non-yielding gold and capped the upside. The incoming US macro data, especially Friday’s blockbuster NFP report, marked another step towards the Fed’s goal of substantial further progress in the labour market recovery. This, in turn, forced investors to bring forward the likely timing for policy tightening. Moreover, the Fed officials have also started to guide the market towards an early tapering of the massive pandemic-era stimulus and higher interest rates as soon as 2022.

In fact, Atlanta Fed President Raphael Bostic said on Monday that the Fed could begin tapering between October and December, or earlier if there is another month or two of strong job gains. Adding to this, Boston Fed President Eric Rosengren noted that the US central bank should announce in September that it will start reducing the pace of its monthly purchases of Treasury and mortgage bonds this fall. Separately, Chicago Fed President Charles Evans said on Tuesday that the economy is on track to satisfy the Fed’s threshold to begin tapering its $120 billion in monthly asset purchases. Evans, however, suggested he was not ready to support announcing a tapering of bond purchases in September.

Nevertheless, the repricing of a sooner than expected move by the Fed pushed the yield on the benchmark 10-year US government bond to the highest level since July 14, closer to the 1.37% threshold. This, in turn, provided a goodish lift to the US dollar, which was seen as another factor that acted as a headwind for dollar-denominated commodities, including gold. The market focus now shifts to the release of the US consumer inflation figures, which will influence expectations about the Fed’s next policy action and provide a fresh directional impetus to the XAU/USD.