14-Sep-2020

1) Gold: XAU/USD Bulls Cheer Dollar Weakness, Favorable Technicals
2) EUR/USD: Bulls At The Mercy Of USD Price Dynamics Ahead Of Fed Meeting
3) GBP/USD: Break below 200-DMA/61.8% Fibo. to pave the way for further weakness
4) Dollar Ends Flat In Choppy Friday Trading, Sterling Tanks To 6-Week Lows On Brexit Deadlock

1) Gold: XAU/USD Bulls Cheer Dollar Weakness, Favorable Technicals

Gold (XAU/USD) started out the week on the front foot, taking cues from the mild gains booked last week. The yellow metal took on the $1950 barrier on Monday, as the bulls received a boost on the dual fronts. The US dollar retreated across the board after the vaccine optimism lifted the equities. Over the weekend, AstraZeneca and Oxford University announced that they are set to resume coronavirus vaccine clinical trials in the UK after a week’s pause due to safety concerns. Meanwhile, fresh Iran-US geopolitical tensions alongside the omnipresent US-Sino concerns reinforced gold’s safe-haven demand.   Politico reported that Iran is reportedly plotting to kill a US ambassador, in retaliation to the killing of Qassim Soleimani.

In the day ahead, the broader market sentiment and geopolitical developments will continue to influence gold, in absence of relevant US economic releases. However, traders eagerly await the US Federal Reserve (Fed) monetary policy decision due later on Wednesday for fresh direction in gold.

On the hourly chart, the price charted a descending triangle breakout in the last hour after it closed the hour above the falling trendline (pattern) resistance at $1949.

The next barrier on buyers’ radar is the Friday high of $1955, a break above which will put $1960 at risk. Buying interest could accelerate above the latter, opening doors towards Thursday’s high of $1966 en route the pattern target at $1978. The hourly Relative Strength Index (RSI) has turned flat, still holds above the midline, allowing for more gains.

To the downside, a failure to close Monday above the $1950 barrier could negate the bullish bias. The bulls are needed to defend the critical support at $1940, the confluence of the 100 and 200-hourly Simple Moving Averages (HMA). A break below which the next key support at $1937 will be attacked.

2) EUR/USD: Bulls At The Mercy Of USD Price Dynamics Ahead Of Fed Meeting

The EUR/USD pair caught some fresh bids on the last day of the week and was being supported by the emergence of some fresh selling around the US dollar. Doubts over the next round of the US fiscal stimulus measures turned out to be one of the key factors that undermined the greenback. 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. Democratic prevented the bill from advancing as they have been pushing for far more funding amid the coronavirus pandemic.

Conversely, the shared currency continued benefitting from not so dovish (rather hawkish) ECB policy update. The ECB 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 said that there was no need to over-react to the euro’s recent appreciation. The euro bulls seemed rather unaffected and largely shrugged off not so optimistic comments by the ECB Chief Economist Philip Lane, saying that the recent appreciation of the common currency has dampened the inflation outlook.

On the economic data front, the headline US CPI rose MoM in August as compared to 0.3% expected. Adding to this, the yearly rate accelerated to 1.3% from 1.0% previous. The core CPI (excluding energy and food costs) improved to 1.7% YoY from 1.6% in the previous month. The hotter-than-expected US consumer inflation figures failed to impress the USD bulls or provide any meaningful impetus to the major. Despite the supporting factor, the uptick lacked any strong bullish conviction and the pair finally settled nearly unchanged for the week, forming an indecisive Doji candlestick pattern.

Meanwhile, news that AstraZeneca resumed its phase-3 trial revived hopes for a coronavirus vaccine and provided a strong lift to the global risk sentiment. This, in turn, dented the greenback’s relative safe-haven status and assisted the pair to regain some positive traction on the first day of a new trading week. However, the upside is likely to remain limited amid cautiousness ahead of the latest FOMC monetary policy meeting. The Fed is scheduled to announce its policy decision on Wednesday, which will now play a key role in influencing the near-term USD price dynamics and provide some fresh directional impetus to the major.

From a technical perspective, nothing seems to have changed much for the pair and the lack of any strong follow-through buying favours bearish traders. That said, it will still be prudent to wait for a sustained weakness below the 1.1750 strong horizontal support before positioning for any further depreciating move 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 an extension of the recent corrective slide from levels beyond the key 1.2000 psychological mark.

On the flip side, any meaningful positive move might now confront stiff resistance near the 1.1900 mark. This is followed by the 1.1935-40 supply zone, which if cleared decisively will negate any near-term bearish bias. Bulls might then make a fresh attempt to push the pair back above the 1.2000 mark. Some follow-through buying will negate any near-term bearish bias and pave the way for the resumption of the prior/well-established bullish trend.

3) GBP/USD: Break below 200-DMA/61.8% Fibo. to pave the way for further weakness

The GBP/USD pair seesawed between tepid gains/minor losses on Friday and consolidated its recent slump to seven-week lows. The US dollar remained depressed on the back of the deadlocked over the new US fiscal stimulus measures. 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 economic downturn led the coronavirus pandemic. This, in turn, was seen as a key factor lending some support to the major.

However, growing fears of a hard Brexit continued undermining the British pound and kept a lid on any meaningful positive move for the major. Given that investors remain preoccupied with the developments surrounding the Brexit saga, Friday 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. The figures reaffirmed a continued rebound in the economy amid the further reopening of the lockdown measures.

Nevertheless, the pair suffered its worst weekly decline since March and recorded its lowest weekly close since mid-July. However, bulls, so far, have managed to defend the very important 200-day SMA amid sustained selling around the USD. News that AstraZeneca resumed its phase-3 trial revived hopes for a coronavirus vaccine and provided a strong lift to the global risk sentiment, which further dented the greenback’s relative safe-haven status. This, in turn, prompted some short-covering move during the Asian session on Monday as the focus now shifts to a debate on the UK’s Internal Market Bill in the House of Commons.

It is worth recalling that Britain unveiled draft legislation last week, 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 bill. In addition, the EU signalled that breaking the BWA will lead to a no-deal Brexit. Hence, the incoming headlines will play a key role in influencing the sentiment surrounding the sterling and infuse a fresh bout of volatility amid absent relevant market-moving economic releases, either from the UK or the US.

From a technical perspective, the pair has managed to find some support ahead of important confluence support – comprising of 200-day SMA and the 61.8% Fibonacci level of the 1.2252-1.3482 strong positive move. Bearish traders might wait for a sustained break through the mentioned support, around the 1.2735-30 region, before positioning for any further slide. The pair might then weaken further below the 1.2700 mark and accelerate the fall further towards the 1.2640-20 strong horizontal support.

On the flip side, any meaningful recovery might now confront immediate resistance near the 1.2865-70 region (50% Fibo. level). This is followed by the 1.2900 mark, which might cap the upside. That said, some follow-through buying might a fresh wave of the short-covering move and push the pair back towards the key 1.3000 psychological mark – nearing the 38.2% Fibo. level.

4) Dollar Ends Flat In Choppy Friday Trading, Sterling Tanks To 6-Week Lows On Brexit Deadlock

The greenback pared intra-day losses made in Asia and European morning and ended flat against its G5 peers on Friday. Better-than-expected U.S. consumer price index as well as short-covering ahead of weekend supported the dollar. Cable weakened to fresh 6-week lows as lastest round of Brexit talks this week ended in deadlock.

On the data front, Reuters reported the U.S. Labor Department said on Friday its consumer price index rose 0.4% last month. The CPI advanced 0.6% in June and July after declining in the prior three months as business closures to slow the spread of the coronavirus depressed demand.

In the 12 months through August, the CPI increased 1.3% after gaining 1.0% in July. Economists polled by Reuters had forecast the CPI rising 0.3% in August and climbing 1.2% year-on-year.

Versus the Japanese yen, dollar moved broadly sideways in lackluster Friday’s session as focus was on euro and sterling. Price rebounded from 106.09 at Asian open to 106.26 in European morning before retreating to 106.07 in New York afternoo due to falling U.S. Treasury yields and then moved narrowly.

The single currency rebounded at 1.1812 in Australia to 1.1841 in Asia and then rallied to session highs at 1.1874 in Europe on cross-buying in euro before retreating in tandem with cable to 1.1827 in New York afternoon, price last traded at 1.1845 at the close.

The British pound went through a volatile session. Cable found renewed buying at 1.2795 at Asian open and rose to 1.2863 in European morning before tumbling to a fresh 6-week low at 1.2763 on continued fear over no-deal Brexit. Despite briefly rising again to 1.2866, the pair later retreated to 1.2775 in New York.

Reuters reported big areas remain unresolved in Britain’s negotiations with the European Union, a senior British negotiating source said on Friday, flagging fisheries as one of the outstanding issues.

In other news, Reuters reported the European Parliament will not grant its necessary approval to any new EU-UK trade deal unless Britain fully implements its earlier divorce deal with the bloc, an official familiar with a looming statement by European lawmakers told Reuters.