11-Sep-2020

1) EUR/USD: Post-ECB Positive Move Fizzles Out Rather Quickly, German/US CPI Eyed
2) GBP/USD: Bears Eyeing A Break Below 200-DMA/61.8% Fibo. Confluence Support
3) XAU/USD Bears Return Amid Dollar Comeback, Eyes On US CPI

1) EUR/USD: Post-ECB Positive Move Fizzles Out Rather Quickly, German/US CPI Eyed

The EUR/USD pair built on the previous day’s bounce from the vicinity of mid-1.1700s, or near one-month lows and gained some follow-through traction on Thursday. The shared currency got a strong boost after not so dovish, rather hawkish ECB monetary policy update. As was widely expected, the European Central Bank left all the monetary policy measures unchanged in September and upgraded the near-term growth outlook. The ECB was upbeat about the economic developments and noted that the incoming data since the last policy meeting in July suggest a strong rebound in activity, broadly in line with expectations. Adding to this, the ECB President Christine Lagarde, during the post-meeting press conference, said that there was no need to over-react to the euro’s recent appreciation, which pushed the pair to its highest level in over two years earlier this month.

On the other hand, the US dollar remained depressed through the major part of the trading action on Thursday and further contributed to the pair’s intraday positive momentum. However, a sharp turnaround in the US equity markets drove some haven flows towards the greenback. This, in turn, kept a lid on any runaway rally for the major, instead prompted some fresh selling at higher levels. The pair retreated over 100 pips from levels beyond the 1.1900 mark and finally settled with only modest gains. Despite the sharp pullback, the pair managed to defend the 1.1800 mark and managed to regain some positive traction during the Asian session on Friday. The pair was last seen hovering just below mid-1.1800s as market participants now look forward to the final German CPI print for some impetus.

The US economic docket highlights the release of the latest consumer inflation figures for August, scheduled at 12:30 GMT. The data, along with the broader market risk sentiment, 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’s inability to capitalize on the post-ECB positive move points to the prevalent selling interest at higher levels. The lack of any strong follow-through buying favours bearish traders and supports prospects for the resumption of the recent corrective slide. However, it will be prudent to wait for some follow-through selling below the 1.1750 strong horizontal support before positioning for any further depreciating move. Below the mentioned support, the pair is likely to accelerate the fall towards August monthly swing lows, around the 1.1700-1.1695 region. Failure to defend the 1.1700 mark 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, immediate resistance is now pegged near the 1.1900 level 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 back above the key 1.2000 psychological mark. Some follow-through buying will negate any near-term bearish bias and set the stage for the resumption of the prior/well-established bullish trend.

2) GBP/USD: Bears Eyeing A Break Below 200-DMA/61.8% Fibo. Confluence Support

The GBP/USD pair failed to capitalize on its early uptick, instead met with some fresh supply near the 1.2865 region and drooped to fresh seven-week lows during the early European session on Friday. The intraday positive move was supported by a weaker US dollar, which was being weighed down by the emergence of some fresh buying around the shared currency and the deadlocked over the new US fiscal stimulus measures. It is worth recalling that the US Senate on Thursday rejected a Republican bill that would have provided around $300 billion in new coronavirus aid. Democrats voted to block the legislation on the grounds that the package was too small to tackle the scale of the downturn amid the coronavirus pandemic.

However, growing fears of a hard Brexit continued undermining the British pound and kept a lid on any meaningful recovery. Britain unveiled draft legislation, which acknowledged that some powers conferred by the legislation might be inconsistent with international law. The European Union took a firm stance and threatened to pursue legal action against the UK over breach of the Brexit Withdrawal Agreement (BWA) if it doesn’t drop the so-called Internal Market Bill. In addition, the EU signalled that breaking the BWA will lead to a no-deal Brexit. The UK insisted that it was still committed to the agreement but needed to clarify certain points and the main focus is on preserving the 1998 Good Friday Agreement.

Given that investors are preoccupied with the developments surrounding the Brexit saga, Thursday’s better-than-expected UK manufacturing data failed to impress the GBP bulls or provide any meaningful impetus to the major. In fact, the UK Industrial Production increased by 5.2% MoM in July and Manufacturing Production rose 6.3% MoM. Separately, the monthly UK GDP report showed that the economy recorded a growth of 6.6% in July, reaffirming a continued rebound amid the further reopening of the economy. Market participants now look forward to the release of the US Consumer Inflation figures, which might influence the USD price dynamics and produce some trading opportunities on the last day of the week.

From a technical perspective, the pair’s inability to find any support after major sell-off suggests that the recent bearish pressure might still be far from being over. However, bearish traders are likely to wait for some follow-through selling below the very important 200-day SMA, around the 1.2735 region, before positioning for any further depreciating move. The mentioned support coincides with the 61.8% Fibonacci level of the 1.2252-1.3482 strong positive move. A convincing breakthrough might then turn the pair vulnerable to break below the 1.2700 mark and accelerate the fall further towards the 1.2640-20 strong horizontal support.

On the flip side, the 1.2865-70 region (50% Fibo. level) now seems to act as immediate resistance. Any subsequent recovery might still be seen as a selling opportunity and remain capped near the 1.2900 level. That said, some follow-through buying might prompt some short-covering move and lift the pair back towards the key 1.3000 psychological mark – nearing the 38.2% Fibo. level.

3) XAU/USD Bears Return Amid Dollar Comeback, Eyes On US CPI

Having witnessed volatile trades on Thursday, Gold (XAU/USD) settled the day in the red, once again below the $1950 mark. Gold rallied to the highest levels in six days to $1966 after the ECB’s optimistic forecasts and a lack of significant concern on the euro strength push the euro higher and downed the US dollar.  The haven demand for the greenback quickly resurfaced following a sell-off of technology shares on Wall Street, triggering a fresh $20 drop in gold to near $1945 region. A US stimulus bill failure in the Senate also dented the market mood and bolstered the dollar comeback.

Heading into the US Consumer Price Index (CPI) release later on Friday, the dollar clings onto the recovery gains amid mixed Asian equities and higher Treasury yields, exerting the bearish pressure on gold. Disappointing US inflation figures could temper the global market sentiment, boosting the dollar at the expense of the yellow metal. US CPI is seen lower at 0.3% MoM in August while the core CPI figure is expected to drop to 0.2% in the reported month.

Gold failed to deliver a daily closing above falling trendline resistance as well as the critical 21- day Simple Moving Average (DMA), currently at $1947. Thus, the price continues to range within a symmetrical triangle, with the downside more compelling after Thursday’s Doji candlestick. The Doji suggests that the recent buying momentum may have faded.

Meanwhile, the daily Relative Strength Index (RSI) trades flat at the midline, indicating a lack of clear directional bias. A test of the 50-DMA at $1920 cannot be ruled out in the day ahead.

On the hourly chart, the price has spotted a head-and-shoulders breakdown after it closed the hour below the neckline at $1941. The sellers now look to the pattern target at $1919.

Ahead of that the horizontal 100-hourly Simple Moving Average (HMA) at $1936.50 could offer immediate support.

Alternatively, the confluence of the 50 and 200-HMAs at $1944 could cap the immediate pullbacks. Acceptance above the latter could call out for a test of the horizontal 21-HMA at $1949.