15-Sep-2021

1) GBP/USD Rises Above 1.38 After UK CPI Beats With 3.2% Yoy
2) EUR/USD Pressured Near 1.18 Amid Worries About China
3) XAU/USD Remains On The Defensive Near $1800 Mark
4) NZD/USD Rebounds From Two-Week Lows, Back Around 0.7100 Mark
5) USD/CAD Struggles For Direction, Stuck In A Range Below 1.2700 Mark

 

 

1) GBP/USD Rises Above 1.38 After UK CPI Beats With 3.2% Yoy

GBP/USD is trading above 1.38 after the UK reported an annual increase of 3.2% in headline consumer prices, above 2.9% expected. Earlier, dollar strength pressured the currency pair.

Pound/dollar is suffering from downside momentum on the four-hour chart but trading above the 100 and 200 Simple Moving Averages. The failure to hold above the quadruple top of 1.3895 sent the pair back to the middle of the all-too-familiar 1.3725-1.3895 range, where it seems balanced.

Support awaits at 1.3790, the daily low, and then by 1.3725 mentioned earlier. Further down, the next lines to watch are 1.3680 and 1.3635.

The cable is capped at 1.3850, ahead of the 1.3895 level mentioned earlier. Further above, Tuesday’s swing high of 1.3915 is the next line to watch.

The quadruple top has crumbled – yet only temporarily. GBP/USD’s move above the stubborn 1.3895 level has proved temporary and so has dollar weakness in response to weaker than expected US inflation figures. On the other side of the pond, UK consumer prices beat estimates – building a fundamental case for bulls.

The greenback first advanced in response to the meager 4% YoY increase in the US Core Consumer Price Index (Core CPI) for August. The 0.1% MoM was the lowest since February and vindicates Federal Reserve Jerome Powell’s stance that inflation is transitory.

However, some suspect that the cooldown in prices is due to falling demand, and such concerns of a cooldown weigh on sentiment – boosting the safe-haven dollar. Disappointing Chinese data also dampened the mood, adding to worries of weaker global growth. That mood may change when investors return to their erstwhile instincts of “buy the dip.”

GBP/USD has dropped due to second thoughts about weak US inflation and could rise on parallel UK data. The headline UK CPI jumped from 2% to 3.2% YoY in August, beating estimates of 2.9%. Core CPI also jumped above estimates, reaching 3.1%.

Will that tip the scales toward a rate hike? Bank of England Governor Andrew Bailey said that the Monetary Policy was split on the question of raising borrowing costs has reached its time, and these figures could push it to act sooner rather than later. GBP/USD could rise in response to mere speculation about such a move.

Overall, based on inflation figures only, GBP/USD has room to rise. There are additional factors, such as lingering Brexit issues, uncertainty about US infrastructure spending, and covid, where Britain has fewer cases on a per population basis than the US.

 

2) EUR/USD Pressured Near 1.18 Amid Worries About China

EUR/USD is trading near 1.18, down from the highs as the safe-haven dollar gains ground. Worries about Chinese growth and uncertainty about Fed policy weigh on sentiment despite weaker US inflation.

Euro/dollar has dropped below the 100 Simple Moving Average on the four-hour chart but is holding above the 200 SMA. While momentum remains to the downside, it is not strong. Overall, the picture is mixed.

Some support awaits at the daily low of 1.18. It is followed by the September trough of 1.1770, followed by 1.1740, 1.1725, and 1.1690.

Resistance awaits at 1.1845, Tuesday’s peak, followed by 1.1860, 1.1885, and 1.1910.

Blame China – a trick applied by American politicians of all colors may explain dollar resilience in face of weak US inflation figures. However, as with political tricks, it does not tell the whole story and the narrative is ever-changing.

The US Core Consumer Price Index (Core CPI) missed expectations with 4% YoY in August against 4.2% expected. The climb down in costs of used cars explains part of the cooling and initially sent the dollar down. Lower inflation means less pressure on the Federal Reserve to taper down its bond-buying scheme. The bank buys $120 billion per month.

Fed Chair Jerome Powell’s insistence that inflation is transitory as a result of the rapid reopening has been vindicated. However, underlying prices remain elevated, and the debate about the direction of inflation and the broader economy remains uncertain. Some fear a “stagflationary shock” where higher prices deter buyers and eventually kill demand and cause a slowdown.

News from Beijing is also taking its toll. Retail sales in the world’s second-largest economy grew by only 2.5% YoY and industrial output advanced by 5.3%, both under expectations. China’s ongoing backlash against its tech companies and most recently gambling ones – is adding to the gloom and supporting the safe-haven dollar. North Korea’s firing of long-range missiles for the second time also adds to concerns.

Not necessarily. Wall Street investors are conditioned to “buy the dip” and the prospects of more Fed dollars support additional gains. In turn, the greenback has room to retreat.

In the old continent, there are reasons to be optimistic at least according to European Central Bank President Christine Lagarde, who said that she foresees a return to pre-pandemic output levels sooner than later. Moreover, European COVID-19 cases are falling while vaccinations are rising having an advantage over the US.

 

3) XAU/USD Remains On The Defensive Near $1800 Mark

Gold struggled to capitalize on the previous day’s post-US CPI strong move up from two-week lows and faced rejection near the very important 200-day SMA on Wednesday.

Gold struggled to capitalize on the previous day’s post-US CPI strong move up from two-week lows and faced rejection near the very important 200-day SMA on Wednesday. The modest intraday pullback dragged the XAU/USD to fresh daily lows during the early European session, though lacked follow-through below the $1,800 mark. A positive risk tone, along with a modest uptick in the US Treasury bond yields, acted as a headwind for the non-yielding yellow metal, though a combination of factors helped limit the downside.

Tuesday’s sofer-than-expected US consumer inflation figures eased fears for an earlier tapering by the Fed. Apart from this, worries about the fast-spreading Delta variant and a global economic slowdown extended some support to traditional safe-haven assets, including gold. The market concerns were further fueled by Wednesday’s disappointing Chinese macro data, which underscored recent signs of slackening economic momentum in the world’s second-largest economy. This, in turn, warrants some caution for bearish traders.

 

4) NZD/USD Rebounds From Two-Week Lows, Back Around 0.7100 Mark

The NZD/USD pair recovered over 25 pips from two-week lows touched this Wednesday and climbed back closer to the 0.7100 mark during the early European session.

The pair found some support near the 0.7075-70 region on Wednesday and stalled the overnight pullback from the post-US CPI swing highs to mid-0.7100s. Despite rebounding US Treasury bond yields, the US dollar struggled to preserve/capitalize on its modest intraday gains. This, in turn, was seen as a key factor that assisted the NZD/USD pair to attract fresh buying at lower levels.

That said, any meaningful upside still seems elusive amid expectations for an imminent Fed taper announcement later this year. The sofer US CPI report released on Tuesday suggested that the big surge in inflation this year may have peaked and eased fears for an earlier tapering by the Fed. Investors, however, seem convinced that the Fed would begin rolling back its pandemic-era stimulus in 2021. This should act as a tailwind for the greenback and cap gains for the NZD/USD pair.

Apart from this, worries about the fast-spreading Delta variant and a global economic slowdown might further hold bulls from placing aggressive bets around the perceived riskier kiwi. The market concerns were further fueled by Wednesday’s disappointing Chinese macro data, which underscored recent signs of slackening economic momentum in the world’s second-largest economy. Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further gains.

Market participants now look forward to the US economic docket, featuring the releases of the Empire State Manufacturing Index, Industrial Production figures, and Capacity Utilization Rate. This, along with the US bond yields, will influence the USD later during the early North American session. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair.

 

5) USD/CAD Struggles For Direction, Stuck In A Range Below 1.2700 Mark

The USD/CAD pair lacked any firm directional bias and seesawed between tepid gains/minor losses heading into the European session. The pair was last seen trading in the neutral territory, around the 1.2700 mark, just below multi-day tops touched earlier this Wednesday.

A combination of diverging forces failed to assist the USD/CAD pair to capitalize on the overnight solid bounce from the 1.2600 mark, instead led to a subdued/range-bound price action on Wednesday. Bullish crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair. That said, a modest US dollar strength extended some support and helped limit any meaningful decline.

Tuesday’s softer-than-expected US CPI report suggested that the big surge in inflation this year may have peaked and eased fears for an earlier than expected tapering by the Fed. This was evident from the steep decline in the US Treasury bond yields, which prompted some intraday selling around the USD and weighed on the USD/CAD pair. However, a turnaround in the US equity markets revived demand for the safe-haven USD.

Investors remain worried about a global economic slowdown amid the spread of the highly contagious Delta variant of the coronavirus. The concerns were further fueled by Wednesday’s disappointing Chinese macro data, which underscored recent signs of slackening economic momentum in the world’s second-largest economy. This, along with a modest rebound in the US bond yields, extended some support to the greenback.

Despite weaker inflation figures, investors still seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus later this year. This was reinforced by an uptick in the US Treasury bond yields, which should benefit the USD. That said, might wait for a sustained move beyond the 1.2700 mark before placing aggressive bets around the USD/CAD pair ahead of the Canadian CPI report, due later during the North American session.