16-Mar-2021

1) GBP/USD Drops Towards 1.3800 After BOE Bailey’s Comments
2) EUR/USD Clings To Modest Gains Above 1.1900 Ahead Of ZEW
3) AUD/USD Refreshes Session Low Amid A Pickup In USD Demand
4) GBP/JPY: Flirts With Three-Day Lows, Just Above 151.00 Mark
5) USD/JPY Consolidates Above 109.00 Mark, US Retail Sales Eyed For Fresh Impetus

 

 

1) GBP/USD Drops Towards 1.3800 After BOE Bailey’s Comments

GBP/USD trades below 1.3850, dropping for the third straight day despite the US dollar weakness. Bailey says the BOE will continue bond purchases this year. Europe’s covid vaccine concerns add to the weight on the spot.

From a technical perspective, the overnight slide dragged the pair below a one-week-old ascending trend-line support and might have already set the stage for further weakness. The bearish bias is reinforced by the fact that technical indicators on the daily chart have just started drifting into the negative territory. Hence, a subsequent fall towards the 1.3800 mark, en-route monthly swing lows near the 1.3780-75 region, now looks a distinct possibility. Some follow-through selling will set the stage for an extension of the recent sharp pullback from multi-year tops set on February 24.

On the flip side, any attempted recovery move might now confront resistance near the 1.3900 mark. This is closely followed by the 1.3925-30 horizontal barrier, which if cleared decisively might push the pair back towards the 1.4000 mark. A sustained move beyond will negate any near-term bearish bias and allow bulls to aim back to reclaim the 1.4100 mark with some intermediate hurdle near the 1.4070 zone.

The GBP/USD pair extended last week’s rejection slide from the key 1.4000 psychological mark and dropped to three-day lows on Monday. The intraday slide of around 100 pips was exclusively sponsored by some follow-through US dollar buying, which remained well supported by the recent sharp rise in the US Treasury bond yields. Investors remain optimistic about the prospects for a relatively faster US economic recovery from the pandemic. This, along with expectations for a possible uptick in US inflation, pushed the yield on the benchmark 10-year US government bond to over one-year tops last week.

On the other hand, the British pound was pressured by the fact that the European Union launched legal action against the UK over its alleged violation of the Brexit divorce deal on trading arrangements with Northern Ireland. Bulls seemed unimpressed, rather shrugged off the Bank of England Governor Andres Bailey’s comments, saying that the recent rise in yields was consistent with an improvement in the economic outlook. Bailey further added that the economy is expected to get back to pre-pandemic size around the end of this year and that inflation will get back towards the 2% target in the next two or three months.

On the economic data front, the Empire State Manufacturing Index surpassed expectations and improved to 17.4 in March from 12.1 previous. The data remained supportive of the bid tone surrounding the USD, which, so far, remained unaffected by a modest pullback in the US bond yields. Expectations that the Fed could take some action to curb the sharp rise in long-term borrowing cost provided some respite to bond traders. This, in turn, might hold the USD bulls from placing aggressive bets ahead of a two-day FOMC monetary policy meeting. Nevertheless, the pair remained depressed for the third consecutive session on Tuesday.

In the absence of any major market-moving economic releases from the UK, the USD price dynamics will play a key role in driving the intraday movement. Later during the early North American session, traders are likely to take cues from the release of the US monthly Retail Sales figures. This, along with the US bond yields, might influence the USD and further contribute to producing some trading opportunities around the major.

 

2) EUR/USD Clings To Modest Gains Above 1.1900 Ahead Of ZEW

EUR/USD manages to regain positive traction above 1.1900 ahead of the European open. The retreat in the US bond yields weigh on the USD and remain supportive of the uptick. Investors look forward to US Retail Sales for some impetus ahead of the FOMC meeting.

Euro/dollar bounced off the 1.1905 level twice – creating a double-bottom. Can it keep up? Momentum on the four-hour chart has turned to the downside while the currency pair is struggling to hold onto the 50 Simple Moving Average on the four-hour chart.

Below 1.1905, the next cushion is at 1.1865, followed by 1.1836, which is the 2021 trough.

Some resistance awaits at the daily high of 1.1940, followed by 1.1965 and then 1.1990, which worked both as resistance and support so far in March.

Is the only way down? The current calm in markets is one preceding a storm – and it is impossible to find one bullish argument in favor of EUR/USD. The only question seems to be one of timing – before or after the Federal Reserve’s decision?

Vaccine issues: All of Europe’s large countries followed Germany in suspending the rollout of AstraZeneca’s COVID-19 vaccines after several cases of blood clots related to the inoculations. As millions of doses have been successfully administered in Europe, the UK, and elsewhere, some suspect that a specific batch is a culprit. On the other hand, the European Medicines Agency dismisses these concerns.

For markets, any delay in Europe’s vaccinations – which had already been advancing at a snail’s pace – the meaning is a postponement in the economic recovery. That is a key downside driver for the euro.

Moreover, the Astra crisis comes just as Italy is undergoing a new lockdown, and Germany is worried by an exponential increase in coronavirus cases. That compares with acceleration in US immunization and an ongoing downtrend in infections there.

The German ZEW Economic Sentiment is set to show ongoing optimism about a vaccine-led recovery as it has probably been unable to capture the recent developments. The survey was also mostly taken before the weekend’s regional elections, which dealt a blow to Chancellor Angela Merkel’s center-right party. Political uncertainty may also weigh on the common currency.

On the other side of the pond, tension is growing toward the Federal Reserve’s decision on Wednesday. Will the world’s most powerful central bank release subtle hints of raising rates earlier than expected. The Fed will likely walk a fine line between acknowledging the economic improvement without scaring investors of rising borrowing costs. The “dot-plot” of new forecasts – including for rate hikes – is set for minor upgrades.

The dollar let go of some of its gains as US ten-year yields dropped below 1.60% – but that looks temporary. Stock investors are gradually getting used to higher returns on safe US debt and seem to fear rapid moves – but not the general direction of travel.

Ahead of the Fed, US Retail Sales figures will be closely watched on Tuesday. The data for February is forecast to show a minor drop after a leap back in January – driven partially by the previous stimulus checks. Nevertheless, the power of the US consumer cannot be underestimated – another upside surprise may come.

 

3) AUD/USD Refreshes Session Low Amid A Pickup In USD Demand

The AUD/USD pair broke down of its intraday consolidative trading range and refreshed daily lows, around the 0.7725-20 region during the early European session.

Following a rather muted reaction to the release of the RBA meeting minutes, the pair witnessed some fresh selling and was pressured by a combination of factors. Investors turned caution following the suspension of the Oxford/AstraZeneca coronavirus vaccine in several European nations. This acted as a key headwind for the perceived riskier Aussie.

On the other hand, the US dollar remained well supported by the prospects for a relatively faster US economic recovery. Apart from this, a sudden pick-up in the US Treasury bond yields provided an additional boost to the greenback. This was seen as a key factor behind the AUD/USD pair’s latest leg of decline over the past hour or so.

The upbeat US economic outlook was bolstered by the passage of a massive $1.9 trillion stimulus package. The reflation trade has been fueling speculations for a possible uptick in US inflation, which, in turn, pushed the yield on the benchmark 10-year government bond back above 1.6%, closer to over one-year tops touched last week.

Despite the pullback, the AUD/USD pair remains well within the previous day’s trading range. Investors now seemed reluctant to place any aggressive bets ahead of this week’s major event risk – the FOMC monetary policy meeting. That said, sustained weakness below the 0.7700 mark is likely to pave the way for a further intraday downfall.

In the meantime, market participants will look forward to the US monthly Retail Sales data for some impetus later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities around the AUD/USD pair.

 

4) GBP/JPY: Flirts With Three-Day Lows, Just Above 151.00 Mark

The GBP/JPY cross dropped to three-day lows during the early European session, with bears now awaiting some follow-through selling below the 151.00 round-figure mark.

The overnight slide below confluence support near mid-151.00s was seen as a key trigger for bearish traders and prompted some follow-through selling on Tuesday. The mentioned region comprised of over two-week-old ascending trend-line and 100-hour SMA, which should now act as a key pivotal point for short-term traders.

Meanwhile, RSI (14) on the 1-hourly chart is already flashing slightly oversold conditions. Moreover, oscillators on the 4-hourly chart are still holding in the bullish territory and have eased from the overbought zone on the daily chart. This, in turn, supports prospects for the emergence of some dip-buying at lower levels.

Hence, it will be prudent to wait for some follow-through selling before confirming that the GBP/JPY cross has topped out and positioning for any meaningful corrective slide. The 200-hour SMA, around the 150.90-85 region, might protect the immediate downside, which if broken should pave the way for additional weakness.

The GBP/JPY cross might then accelerate the downfall towards challenging the key 150.00 psychological mark. The momentum could further get extended towards the next relevant support near the 149.70-65 horizontal zone.

On the flip side, the mentioned confluence support breakpoint now seems to act as immediate strong resistance. This is closely followed by the recent daily closing highs near the 150.70-80 region. A sustained move beyond will negate any near-term bearish bias and set the stage for an extension of the recent strong upward trajectory.

 

5) USD/JPY Consolidates Above 109.00 Mark, US Retail Sales Eyed For Fresh Impetus

The USD/JPY pair consolidated its recent strong gains to multi-month tops and remained confined in a range, comfortably above the 109.00 mark through the first half of the European session.

Following the recent strong positive move of around 450 pips, investors now seemed to have moved on the sidelines and await fresh catalysts from this week’s key central bank events. The Fed will announce its policy decision on Wednesday and the BoJ is scheduled to meet on Friday.

In the meantime, a combination of diverging factors failed to provide any meaningful impetus and led to a subdued/range-bound price action on Tuesday. The prevalent cautious mood extended some support to the Japanese yen and kept a lid on any meaningful upside for the USD/JPY pair.

The suspension of the Oxford/AstraZeneca coronavirus vaccine in several European nations acted as a headwind for perceived riskier assets. Spain, Germany, France, and Italy temporarily halted the rollout of the COVID-19 vaccine on the back of reports of possible serious side effects.

On the other hand, the prospects for a relatively faster US economic recovery from the pandemic continued underpinning the US dollar and helped limit the downside for the USD/JPY pair. The upbeat US economic outlook was further bolstered by the passage of a massive stimulus package.

Meanwhile, the reflation trade has been fueling speculation about an uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. Hence, the outcome of a two-day FOMC meeting will help determine the USD/JPY pair’s near-term trajectory.

Traders now look forward to the release of the US monthly Retail Sales data. Apart from this, the US bond yields will influence the USD price dynamics. This, along with the broader market risk sentiment, might produce some short-term trading opportunities around the USD/JPY pair.