12-Nov-2020

1) EUR/USD: Could Possibly Slide Back To 100-DMA, Around 1.1700 Mark
2) Global Equities Take A Breather Following Massive Vaccine-Related Moves
3) XAU/USD: Gold Faces A Double Whammy, $1850 Support At Risk?

1) EUR/USD: Could Possibly Slide Back To 100-DMA, Around 1.1700 Mark

Following the previous session’s two-way/directionless price moves, the EUR/USD pair witnessed some fresh selling on Wednesday and refreshed weekly lows. The shared currency started losing ground after Bank of Spain chief economist, Oscar Arce said that the ECB must introduce additional stimulus in December to reduce the risk of deflation in the eurozone. The ECB President Christine Lagarde’s comments on the policy outlook added to the selling bias and momentarily dragged the pair below mid-1.1700s.

While delivering her opening remarks at the ECB Forum on Central Banking, Lagarde downplayed the optimism on a recovery in the wake of recent positive vaccine news and reiterated that developments in the exchange rate may have a negative impact on the path of inflation. She further added that the Pandemic Emergency Purchase Program and Targeted Longer-Term Refinancing Operations (TLTROs) have proven to be effective tools and will therefore remain the main tools for adjusting the central bank’s monetary policy.

Apart from this, a goodish pickup in the US dollar exerted some additional pressure and contributed to the intraday slide. The USD uptick, however, lacked any obvious fundamental catalyst and remained limited amid worries about the economic fallout from the continuous surge in new COVID-19 cases in the United States. Moreover, the imposition of stricter restrictions in several US states now seems to have revived hopes for a substantial fiscal stimulus, which, in turn, held the USD bulls from placing aggressive bets.

The pair managed to rebound over 30 pips from the daily swing lows, albeit struggled to capitalize on the move and remained on the defensive through the Asian session on Thursday. A modest pullback in the equity markets drove some haven flows towards the greenback and was seen as a key factor weighing on the major. Market participants now look forward to the final version of German CPI print for October and September Eurozone Industrial Production data for some impetus during the first half of the trading action.

The US economic docket highlights the releases of the latest consumer inflation figures and the usual Initial Weekly Jobless Claims. The data, along with the broader market risk sentiment, will influence the USD price dynamics and produce some meaningful trading opportunities later during the early North American session.

From a technical perspective, the pair on Wednesday showed some resilience below the 50% Fibonacci level of the 1.1603-1.1920 post-US election rally. That said, a false breakout set-up and an acceptance below the 1.1800-1.1780 congestion zone favours bearish traders. Hence, a subsequent fall to the 61.8% Fibo., around the 1.1725 region, en-route the 1.1700 mark, looks a distinct possibility. The latter coincides with 100-day SMA support, which if broken decisively will set the stage for a slide towards testing the lower boundary of a short-term trading range, around the 1.1600 round-figure mark.

On the flip side, immediate resistance is now pegged near the 1.1800 mark (38.2% Fibo. level). A sustained move beyond might lift the pair to the 1.1840-50 region (23.6% Fibo. level), which is closely followed by the 1.1875-80 supply zone. Above the mentioned barriers, a fresh bout of a short-covering move should pave the way for a move towards the 1.1945-40 resistance zone. Bulls might eventually aim back to reclaim the key 1.2000 psychological mark in the near-term.

2) Global Equities Take A Breather Following Massive Vaccine-Related Moves

Pfizer and BioNTech’s announcement on Monday that their Covid-19 vaccine was more than 90% effective in preventing the virus has led to big market moves so far this week. While the rally in global equities is remarkable, that isn’t what has captured my interest. It is the big selloff in FANG+ internet platform stocks and the reallocation of funds into economic sensitive sectors that has been more fascinating. The NYSE FANG+ index declined 3.2% on Monday and fell by another 2.5% on Tuesday. Meanwhile, Banks, Travel and Energy stocks have all seen double-digit gains over the first two days of the week.

Long term bond yields in the US and most other developed nations have risen by more than 10 basis points, which also supports the move into cyclical stocks and the selling of industries that have benefited the most from the pandemic.

However, this trend seems to have reversed on Wednesday with Tech companies contributing the most to the 0.76% gains in the S&P 500, while Basic Materials, Energy, and Financial stocks all closed in negative territory.

The vaccine-related rotation has quickly faded as investors have realized that the pandemic won’t disappear as fast as it arrived. While the vaccine remains the best news received since the virus spread, life won’t return to normal in a matter of days or weeks. It largely depends on when a widespread vaccination campaign becomes available and how fast economic activity returns to pre-pandemic levels. Lockdowns and social restrictions remain in place for many nations through the winter season, particularly in Europe, and so we will continue to rely on stay-at-home companies for some time.

If the second wave hitting Europe and the third wave in the US isn’t as dangerous as the first one, we may still see adjustments in investor’s portfolios by reducing Tech exposure and tilting towards economic sensitive stocks. But this won’t be in a straight line, and won’t necessarily lead to another a more prolonged selloff in Tech. After all, Covid-19 may have already started major structural changes in the way we do business and many of those differences may prove to be permanent.

A risk that is being totally ignored at the moment is a US constitutional crisis. You only have to look at President Trump’s Twitter account to see what I mean. The lame-duck president continues to reject the outcome of the election and doesn’t seem willing to concede or stand down. However, with no evidence thus far of his claim of illegitimate votes, the markets are ignoring his tweets and actions. If Trump’s legal attacks result in a delay of certifying the election results, then we may see this tail risk priced into equities and other asset classes.

3) XAU/USD: Gold Faces A Double Whammy, $1850 Support At Risk?

Gold’s (XAU/USD) extended its downside consolidation phase on Wednesday and fell over 1%, having closed the day well above the key $1850 level. Gold faced a double whammy amid a broadly stronger US dollar, as its haven demand remained intact due to surging coronavirus cases in the US. On the other hand, vaccine optimism lifted expectations of a quicker economic turnaround and boosted the appeal of the risker assets at the expense of the non-yielding gold. Further, a less urgent need for a fiscal stimulus also remained a drag on the precious metal.

Looking ahead, the narrative is unlikely to change, as markets are pricing in the COVID-19 vaccines to be rolled out by the year-end, which could drive the higher-yielding Treasury yields higher and therefore, the greenback. The risk remains to the downside for gold traders even if the virus situation worsens internationally. The focus also shifts to the fundamentals, with the US weekly jobless claims and CPI due on the cards alongside speeches by the Heads of the key global central banks, the Fed, the ECB, and the BOE.

Gold’s hourly chart confirmed a symmetrical triangle breakdown on Wednesday. The price is attempting a minor recovery but remains vulnerable amid a bearish crossover spotted on the said timeframe.

The 100-hourly moving average (HMA) pierced the horizontal 200-HMA from above, suggesting that the downside appears more compelling and a retest of the critical $1850 support is likely on the cards. A breach of the last could see the $1800 level at risk.

Alternatively, 50-HMA at $1875 offers immediate resistance, with the $1901 level emerging as the tough nut to crack.