15-Sep-2020

1) Dollar Falls On Improved Risk Sentiment Due To Rise In Global Equities
2) GBP/USD: Boris Prevents Pound From Advancing, Time For A Fresh Dive?
3) EUR/USD: Bulls Seem Non-Committed Ahead Of FOMC On Wednesday
4) XAU/USD Eyes $1980 Amid Weaker Dollar, Focus Shifts To Wednesday’s FOMC

 

 

1) Dollar Falls On Improved Risk Sentiment Due To Rise In Global Equities

The greenback remained on the back foot in Asia and Europe and ended lower across the board on Monday due to return of risk sentiment on rise in global stocks together with weakness in U.S. Treasury yields.

Versus the Japanese yen, dollar met renewed selling at 106.19 (Reuters) in New Zealand and fell to 105.92 in European morning on renewed usd’s weakness. Later, the pair tumbled to a 13-day low of 105.56 in New York due to weakness in U.S. Treasury yields before rebounding to 105.73 on short-covering.

The single currency found renewed buying at 1.1831 (Reuters) in New Zealand and later rose to session highs at 1.1887 in New York morning due to return of risk appetite on rise in global equities before retreating to 1.1860 on profit-taking.

Although the British pound dipped to 1.2778 in New Zealand, renewed buying interest emerged and cable rose to 1.2883 in Europe on usd’s broad-based weakness due to improved risk sentiment before retreating to 1.2853 at New York open but only to rise again to session highs of 1.2919 in New York morning. Then pair then weakened to 1.2841 near New York closing.

Reuters reported Britain’s plan to break the Brexit divorce treaty through an Internal Market Bill is a protection against any attempts by the European Union to use the “stick” of Northern Ireland against Britain, Prime Minister Boris Johnson said on Monday.

 

2) GBP/USD: Boris Prevents Pound From Advancing, Time For A Fresh Dive?

The Brexit bill passes the first hurdle – creating a wall of resistance for the pound. While the US dollar has been on the back foot across the board, GBP/USD has been unable to rise as the controversial legislation may derail a deal between the EU and the UK.

Prime Minister Boris Johnson’s controversial Internal Markets bill – which knowingly violates the Brexit accord he signed only last year – passed the first vote with a majority of 77 MPs.

After 30 of the PM’s Conservative MPs abstained and two voted against the legislation, others may follow. That provides hope to pound bulls, yet it cannot be taken for granted. Johnson’s landslide victory in December means he has a good chance of turning the bill into law in next week’s final vote.

Brussels laid down an ultimatum to London – rescind the bill by the end of the month or face sanctions. The legislation unwinds Johnson’s consent to creating a separate customs regime for Northern Ireland from the rest of the UK, which allows for refraining from having a border between NI to the Republic of Ireland, which is part of the bloc.

Free movement of people and goods is essential for maintaining the Good Friday peace agreement in the green island. US House Speaker Nancy Pelosi stated that Congress would reject any trade deal with the UK if peace is at risk.

GBP/USD has yet to hit new cycle lows – thanks to dollar weakness. The safe-have greenback is on the back foot after China published upbeat industrial output and retail sales figures for August. Consumption has topped pre-pandemic levels, showing that the world’s second-largest economy is back on track.

Investors also continue cheering hopes for obtaining a coronavirus vaccine as several projects continue in full force.

UK labor market statistics are mixed. The unemployment rate rose from 3.9% to 4.1% in July – still a low level, sustained by the government’s furlough scheme. Jobless claims increased by 73,700 in August, better than expected.

The Bank of England is will take employment, the virus situation, and Brexit uncertainty into consideration when it announces its rate decision on Thursday. Investors await a fresh assessment of the economy.

Tension is also mounting ahead of the Federal Reserve’s announcement on Wednesday. The world’s most powerful central bank is expected to leave rates unchanged and publish new economic forecasts. Jerome Powell, Chairman of the Federal Reserve, already laid out a new policy framework last month and may try not rocking the boat – yet markets are sensitive.

Preview: How the Fed could drown markets while trying not to rock the boat

Overall, Brexit concerns are depressing sterling while other factors are playing second-fiddle in moving the pound. A worsening of the general mood could find a vulnerable pound.

The downtrend continues – with the latest upswing looking like a necessary correction before the next dive. The Relative Strength Index on the four-hour chart has risen above 30, exiting oversold conditions and allowing for more falls. The 50 Simple Moving Average is extending its downfall after crossing below the 100 and 200 SMAs, and momentum remains negative.

Some support awaits at the daily low of 1.2847, followed by September’s trough of 1.2765. The next liens to watch are 1.2715 and 1.2665, dating back to early in the summer.

Resistance is at 1.2920, Monday’s high, followed by 1.3045, a stubborn cap from last week. Further above, 1.3150 and 1.3180 await cable.

 

3) EUR/USD: Bulls Seem Non-Committed Ahead Of FOMC On Wednesday

The EUR/USD pair advanced for the fifth consecutive session on Tuesday amid the prevalent selling bias surrounding the US dollar, weighed down by fading prospects for the next round of the US fiscal stimulus measures. Apart from this, the upbeat market mood – as depicted by a strong rally in the equity markets – further undermined the greenback’s relative safe-haven status. The global risk sentiment got a strong boost on the first day of a new trading week after AstraZeneca announced the resumption of the phase-3 trials for its COVID-19 vaccine candidate. The risk-on flow remained unabated through the Asian session on Tuesday, rather picked up pace following the release of upbeat Chinese data.

On the other hand, the shared currency continued benefitting from the ECB’s relatively optimistic view of the region’s economic recovery. The ECB also talked down the euro’s recent appreciation and further impressed bullish traders. Despite the supporting factors, the pair remained well within a familiar trading range as investors remain cautious ahead of this week’s key central bank events, in particular the FOMC decision on Wednesday. Given that the Fed Chair Jerome Powell unveiled a shift toward greater tolerance of inflation, the key focus will be on the updated economic/inflation projections and fresh clues that interest rates will stay lower for a longer period of time.

In the meantime, Tuesday’s release of the Eurozone and German ZEW Survey will be looked upon for some impetus. The US economic docket features the release of the Empire State Manufacturing Index and Industrial Production data, which could influence the USD price dynamics and produce some trading opportunities. Apart from this, some repositioning trade might further contribute to infuse some volatility around the major.

From a technical perspective, any subsequent positive move beyond the 1.1900 mark is likely to confront a stiff resistance near the 1.1935-40 supply zone. Sustained strength above will negate any near-term bearish bias and push the pair back above the 1.2000 mark. Some follow-through buying beyond YTD tops should pave the way for an extension of the recent bullish trajectory. Bulls might then aim to reclaim the 1.2100 mark before eventually lifting the pair further towards the 1.2190-1.2200 zone.

On the flip side, the 1.1850 region now seems to protect the immediate downside. This is followed by the 1.1800 mark, which if broken might turn the pair vulnerable to accelerate the fall back towards the 1.1750 strong horizontal support. A convincing breakthrough the mentioned support will be seen as a fresh trigger for bearish traders and drag the pair further towards August monthly swing lows, around the 1.1700-1.1695 region.

 

4) XAU/USD Eyes $1980 Amid Weaker Dollar, Focus Shifts To Wednesday’s FOMC

Gold (XAU/USD) built on Monday’s 1% rally after a steady start on Tuesday, reaching fresh nine-day highs at $1967. The US dollar was dumped across the board amid an improvement in the risk-sentiment, courtesy of the vaccine hopes, upbeat Chinese data and renewed US-Sino trade optimism. The Chinese activity numbers came in stronger than the estimates, suggesting the economic recovery is gathering steam. Also, news that China extended tariffs exemptions on some of the US good imports further fuelled the market optimism.

Traders now look forward to the US Industrial Production data and the sentiment on Wall Street for fresh trading impetus. Dovish Federal Reserve (Fed) expectations ahead of Wednesday’s monetary policy decision could also bode well for the XAU bulls.

A bull flag confirmation on the hourly chart calls for a test of $1979 in the sessions ahead. The price broke through the pattern resistance at $1957 and rallied $10 to surpass last Thursday’s high of $1966.54.

The hourly Relative Strength Index (RSI) peeps into the overbought territory, currently at 71.20, suggesting extra room for the upside. The bullish crossover of 21-hourly Simple Moving Average (HMA) and 50-HMA overnight adds credence to the fresh leg higher in the bright metal.

The path of least resistance is to the upside, as the next target for the bulls awaits at $1970. The price trades above all the major HMAs.

To the downside, Monday’s high of $1962 will offer immediate support on any pullbacks. A break below which the aforementioned pattern resistance now cushion could limit the losses. The next cap is seen at the bullish 21-HMA at $1955.

Acceptance below the latter could intensify the bearish pressure, opening floors towards the upward-sloping 50-HMA, now at $1949.