11-Dec-2020

1) Dollar Falls Broadly On Return of Risk Appetite Due To U.S. Stimulus Optimism
2) XAU/USD:  Key $1850 Hurdle to Limit XAU/USD Bulls Amid US Stimulus Deadlock
3) GBP/USD: Seems Vulnerable Ahead of Sunday’s Deadline For Brexit Trade Talks
4) EUR/USD: Seems Poised To Build On the Post-ECB Positive Move

1) Dollar Falls Broadly On Return of Risk Appetite Due To U.S. Stimulus Optimism

The greenback ended the day lower against the majority of its peers Thursday on the return of risk sentiment due to optimism that Covid-19 vaccines will be rolled out soon and that U.S. lawmakers will agree on a coronavirus relief package. Sterling dropped across the board on renewed concerns after EU and UK leaders failed to agree on a Brexit deal in Brussels late Wednesday.

Reuters reported U.S. House of Representatives Speaker Nancy Pelosi said on Thursday that a bipartisan group of lawmakers has made “great progress” in talks aimed at hammering out an agreement to deliver COVID-19 relief to American families and businesses. Pelosi, who views the bipartisan talks as the path forward for Congress to enact a new “emergency supplemental” package of coronavirus aid, told reporters that she still needs to see a legislative text from the group. “But I think they’ve made great progress,” Pelosi said. “I think the values and the priorities that they’ve established are what we need to do right away.”

On the data front, Reuters reported U.S. initial claims for state unemployment benefits totaled a seasonally adjusted 853,000 for the week ended Dec. 5, compared to 716,000 in the prior week, the Labor Department said on Thursday. Economists polled by Reuters had forecast 725,000 applications in the latest week. Labor market distress is keeping inflation muted. In a separate report on Thursday, the Labor Department said its consumer price index rose 0.2% in November after being unchanged in October.

Versus the Japanese yen, the dollar found renewed buying after the retreat from Wednesday’s 104.40 high to 104.20 in Australia and rose to 104.49 in Asia. The pair then ratcheted higher to 104.57 in European morning on cross-selling in JPY. However, the price then weakened to session lows of 104.18 in late New York trading.

The single currency ratcheted higher from 1.2075 in Australia to 1.2100 in Asia and then to 1.2108 in Europe on cross-buying in euro before retreating to 1.2082. However, the pair later rallied to session highs of 1.2158 in New York after the European Central Bank kept its interest rates unchanged but expanded its PEPP before retreating to 1.2111 on profit-taking. Price last traded at 1.2136 near the close.

Reuters reported in view of the economic fallout from the resurgence of the pandemic, today the Governing Council recalibrated its monetary policy instruments as follows: First, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00 percent, 0.25 percent, and -0.50 percent respectively. The Governing Council decided to increase the envelope of the pandemic emergency purchase program (PEPP) by 500 billion euros to a total of 1,850 billion euros. They also decided to extend the reinvestment of principal payments from maturing securities purchased under the PEPP until at least the end of 2023.

The British pound went through a highly volatile session as the Brexit deadline approaches. Although cable recovered to 1.3412 in Australia, the pair spiked to 1.3320 on news of deadlock in the latest dinner meeting in Brussels between EU President and the UK PM. Despite staging a rebound to 1.3389 in Asian morning, price later tumbled to session lows of 1.3245 ahead of New York open before rebounding in tandem with euro to 1.3320 in New York and later moved narrowly.

Reuters reported British Prime Minister Boris Johnson and the European Union’s chief executive gave themselves until Sunday for last-ditch negotiations on a post-Brexit trade deal after failing to narrow differences during a “frank discussion” over dinner in Brussels. “Huge gaps remain between the two sides, and it is still unclear whether these can be bridged,” a senior source in the British prime minister’s office said in a statement. The two sides agreed that a decision on whether a deal is possible before Britain finally leaves the EU’s orbit on Jan. 1 would be taken by the end of the weekend.

2) XAU/USD:  Key $1850 Hurdle to Limit XAU/USD Bulls Amid US Stimulus Deadlock

Gold (XAU/USD) witnessed technical selling at the long-held support now resistance of $1850 on Thursday, finishing the day with modest losses at around $1835. Expectations of the US Food and Drug Administration’s (FDA) approval of Pfizer’s coronavirus vaccine and no signs of additional fiscal stimulus in the near-term kept the bearish pressure intact on gold. However, broad-based US dollar weakness amid the vaccine optimism and weak US jobs data capped the downside in the metal.

So far this Friday, gold is treading water within the familiar range amid mixed markets, as the Brexit and US stimulus deadlock offset the optimism over the covid vaccine progress. The US FDA voted overwhelmingly to recommend the emergency use of Pfizer’s vaccine, although the authorization will take place in the coming days. Meanwhile, the persistent growth in the COVID-19 cases globally remains a cause for the market’s concern ahead of the US PPI and Michigan Consumer Sentiment data.

Gold wavers in an ascending triangle formation on the hourly chart, with a convincing break below the rising trendline support of $1833 to validate the pattern.

The bears could then look to test the measured target at $1808.

At the time of writing, gold is clinging on to the 200-hourly moving average (HMA) at $1837, where the 21-HMA coincides.

The hourly Relative Strength Index (RSI) holds flat but below the midline, suggesting that the downside appears more compelling.

To the upside, the bearish 50-HMA is likely to offer immediate resistance at $1842, above which the $1850 level will get challenged. That level is the confluence of the horizontal 100-HMA and trendline resistance.

A daily closing above the $1850 hurdle is needed to negate the near-term bearish bias.

3) GBP/USD: Seems Vulnerable Ahead of Sunday’s Deadline For Brexit Trade Talks

The GBP/USD pair came under some fresh selling pressure on Thursday and extended the previous day’s retracement slide from weekly tops. A key summit between the UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen ended with no apparent progress. Officials cited that both sides remain far apart on key issues like fisheries and level playing field. Negotiators now have time until the end of the week to hammer out a compromise deal. Meanwhile, British PM Johnson warned on Thursday there was a strong possibility that the UK and the EU would fail to strike a deal. The not so optimistic developments dampened prospects for a post-Brexit trade deal, which, in turn, was seen as a key factor that took its toll on the British pound.

Apart from this, some cross-driven weakness stemming from the post-ECB rally in the EUR/GBP and some technical selling below the 1.3300 round-figure mark further contributed to the intraday downfall. The pair dived to an intraday low level of 1.3245, though a broad-based US dollar weakness helped limit further losses. The greenback witnessed some selling following the release of worse than expected Initial Weekly Jobless Claims data, which added to market worries about the economic fallout from the second wave of coronavirus infections. In fact, the number of Americans filing for unemployment-related benefits jumped to 853K during the week ending December 5, up sharply from the previous week’s upwardly revised reading of 716K. The pair managed to rebound around 50 pips from daily lows and gained some traction during the Asian session on Friday.

That said, a slight deterioration in the global risk sentiment might extend some support to the greenback’s safe-haven status and keep a lid on any meaningful positive move for the major. In the absence of any major market-moving economic releases from the UK, developments surrounding the Brexit saga will continue to play a dominant role in driving the sentiment surrounding the sterling. Traders on Friday will further take cues from a scheduled speech by Governor Andrew Bailey. Later during the early North American session, the US economic docket – featuring the releases of the Producer Price Index (PPI) and revised Michigan Consumer Sentiment Index – will be eyed for some impetus. The data, along with the US stimulus headlines, will influence the USD price dynamics and produce some meaningful trading opportunities on the last day of the week.

From a technical perspective, the emergence of some fresh selling and a subsequent slide back below the 1.3300-1.3290 horizontal support added credence to last week’s false breakout through over two-month-old ascending trend-channel. That said, bearish traders might still wait for some follow-through selling below weekly swing lows, around the 1.3225 region, before positioning for any further depreciating move. The pair could then break below the 1.3200 mark and accelerate the fall towards the 1.3170-65 confluence support. The mentioned region comprises of 50-day SMA and the lower boundary of the trend channel, which if broken decisively will confirm a near-term bearish breakdown and turn the pair vulnerable to prolong its ongoing corrective slide.

On the flip side, immediate resistance is now pegged near the 1.3340-50 horizontal zone, above which a bout of short-covering could lift the pair back towards the 1.3400 mark. Any further move up might continue to meet with some fresh supply near mid-1.3400s. That said, some follow-through buying has the potential to push the pair back towards the key 1.3500 psychological mark. The latter coincides with the trend-channel resistance and keep a lid on any further gains for the major. Only a sustained breakthrough will negate any near-term bearish bias and pave the way for the resumption of the recent strong upward trajectory witnessed over the past two-and-half months or so.

4) EUR/USD: Seems Poised To Build On the Post-ECB Positive Move

A combination of supporting factors assisted the EUR/USD pair to regain positive traction on Thursday and stall its recent pullback from a two-and-half-year top set in the previous week. Investors have been betting on stronger global economic growth amid the recent optimism over the rollout of vaccines for the highly contagious coronavirus disease. In the latest development, the US authorities voted overwhelmingly to endorse the emergency use of Pfizer’s COVID-19 vaccine. This, in turn, prompted some follow-through selling around the safe-haven US dollar and was seen as one of the key factors that extended some initial support to the major.

The intraday buying around the shared currency picked up pace after the European Central Bank (ECB), as was widely expected, left interest rates unchanged at the December meeting. Adding to this, the ECB increased the size of its Pandemic Emergency Purchase Program (PEPP) by €500 billion and also extended the program until at least March 2022. In the post-meeting press conference, the ECB President Christine Lagarde reiterated that the recovery remains uncertain and subdued inflation pressure will likely take longer to recover. Given that the additional stimulus was already priced in, the ECB did little to surprise the market and provided a modest lift to the euro.

Meanwhile, the USD selling aggravated following the release of worse than expected Initial Weekly Jobless Claims data. In fact, the number of Americans filing for unemployment-related benefits jumped to 853K during the week ending December 5, up sharply from the previous week’s upwardly revised reading of 716K. The data added to market worries about the economic fallout from the second wave of coronavirus infections and further contributed to the bearish sentiment surrounding the buck. Separately, the headline US CPI rose 0.2% MoM in November and the yearly rate stayed unchanged at 1.2%, albeit did little to provide any respite to the USD bulls.

As investors looked past Thursday’s key event/data, a cautious mood around the US equity markets extended some support to the greenback’s safe-haven status. The pair witnessed a modest pullback from daily swing tops, though lacked any follow-through selling, instead caught some fresh bids during the Asian session on Friday. The pair have now moved back closer to weekly tops as market participants now look forward to the final German CPI print for a fresh impetus. The US economic docket features the release of the Producer Price Index (PPI) and revised the Michigan Consumer Sentiment Index. This along with the US stimulus headlines will influence the USD price dynamics and produce some meaningful trading opportunities on the last day of the week.

From a technical perspective, the pair now seems to have confirmed a breakout through a short-term descending trend-channel resistance. The mentioned channel constituted the formation of a bullish continuation flag pattern on short-term charts and supports prospects for a further near-term appreciating move. A subsequent move beyond YTD tops, around the 1.2175-80 region, will reinforce the bullish outlook. The pair might then surpass the 1.2200 mark and head towards testing the 1.2235-40 resistance zone. Some follow-through buying has the potential to push the pair further towards the 1.2300 mark en-route March 2018 monthly closing highs resistance, around the 1.2315 region.

On the flip side, any meaningful pullback now seems to find decent support near the 1.2100 mark and any subsequent fall might be seen as a buying opportunity. This, in turn, should help limit the downside near the lower boundary of the mentioned channel, currently near the 1.2050-45 region. Only a sustained breakthrough the latter will negate the near-term positive outlook and turn the pair vulnerable to challenge the key 1.2000 psychological mark.