18-Aug-2020

1) GBP/USD: Seems Poised To Gains Further, Focus Shifts To Brexit Negotiations
2) EUR/USD: Bulls Await A Sustained Move Beyond 1.1915 Double-Top Resistance
3) Gold Price: XAU/USD’s Path Of Least Resistance Appears To The Upside
4) Australian Dollar Jumps Back Through 0.72 As US Weakness Resumes

1) GBP/USD: Seems Poised To Gains Further, Focus Shifts To Brexit Negotiations

The GBP/USD pair lacked any firm directional bias on the first day of a new week and seesawed between tepid gains/minor losses, around the 1.3100 mark. Sustained US dollar selling bias, coupled with improving sentiment around the upcoming Brexit talks extended some support to the major. It is worth recalling that Britain’s chief negotiator David Frost had said last Thursday that a Brexit agreement can be reached in September, which was seen as one of the key factors underpinning the British pound. On the other hand, the USD remained depressed amid the uncertainty over the next round of the US fiscal stimulus measures. Adding to this, sliding US Treasury bond yields and the upbeat market mood further weighed on the already weaker greenback.

The USD bulls failed to gain any respite from Monday’s release of the Empire State Manufacturing Index, which tumbled to 3.7 in August from the 17.2 previous and missed consensus estimates by a big margin. Meanwhile, the global risk sentiment remained well supported by the latest optimism about a potential vaccine for the highly contagious coronavirus disease. Investors further cheered the postponement of the US-China trade deal review meeting, which left the phase one deal intact, at least for now. The risk-on flow seemed rather unaffected by the Trump administration’s latest move to further tighten restrictions on China’s Huawei Technologies, aimed at cracking down on its access to commercially available chips.

The USD bearish pressure remained unabated on Tuesday and pushed the pair to 1-1/2-week tops, around the 1.3145 region during the Asian session. The market focus now shifts to the resumption of the bilateral trade negotiations in Brussels later today. The incoming Brexit-related headlines will play a key role in influencing the pound and produce some meaningful trading opportunities. Given that the two sides remain committed to reaching a deal, any positive development might be enough to provide an additional boost to the sterling and assist the pair to prolong its well-established bullish trend, extending from late June swing lows to mid-1.2200s.

From a technical perspective, any subsequent positive move is likely to confront resistance near monthly swing highs, around the 1.3185 region. Some follow-through buying beyond the 1.3200 mark now seems to pave the way for additional gains, possibly towards reclaiming the 1.3300 level with some intermediate resistance near the 1.3255-60 horizontal zone.

On the flip side, any meaningful pullback to the 1.3100 mark might now be seen as a buying opportunity. This, in turn, should help limit the downside near the 1.3035 region. That said, a convincing breakthrough, leading to a subsequent fall below the key 1.3000 psychological mark will negate the positive outlook. The pair could then accelerate the fall towards the 1.2900 mark before eventually dropping to the next major support near the 1.2815-10 region.

2) EUR/USD: Bulls Await A Sustained Move Beyond 1.1915 Double-Top Resistance

The EUR/USD pair built on last week’s bounce from the 1.1700 neighbourhood and remained well supported by sustained US dollar selling bias. The political deadlock over the next round of the US fiscal stimulus measures has been fueling worries about the US economic recovery. This, in turn, forced investors to continue dumping the greenback, which was further pressured by sliding US Treasury bond yields, weaker US macro data and receding safe-haven demand. In fact, the New York Fed’s Empire State Manufacturing Index tumbled to 3.7 in August from 17.2 previous and missed consensus estimates by a big margin.

Meanwhile, the global risk sentiment remained well supported by the latest optimism over a potential vaccine for the highly contagious coronavirus diseases. Investors further cheered the postponement of the US-China trade deal review meeting, which left the phase one deal intact. The upbeat market mood seemed rather unaffected by the Trump administration’s latest move to further tighten restrictions on China’s Huawei Technologies, aimed at cracking down on its access to commercially available chips.

The risk-on flow undermined the greenback’s relative safe-haven status against its European counterpart and remained supportive, pushing the pair to over one-week tops during the Asian session on Tuesday. The pair was last seen trading just below the 1.1900 mark. In the absence of any major market-moving economic releases from the Eurozone, the USD price dynamics will continue to act as an exclusive driver of the pair’s momentum. The US economic docket features the release of Building Permits and Housing Starts.

Tuesday’s US economic data is likely to pass unnoticed and do little to provide any meaningful impetus to the major as the key focus remains on the latest FOMC meeting minutes, scheduled for release on Wednesday.

From a technical perspective, the pair is now approaching the double-top resistance near the 1.1915 region. This is followed by the top end of a near one-week-old ascending trend-channel, around the 1.1940-45 region. Above the mentioned barriers, bulls are likely to lift the pair further towards the key 1.2000 psychological mark. Some follow-through buying should pave the way for an extension of the momentum and assist the pair to aim towards reclaiming the 1.2100 mark.

On the flip side, the 1.1845-40 region marks the lower boundary of the mentioned channel and should protect the immediate downside. A convincing break below might prompt some technical selling and accelerate the fall towards the 1.1740-35 horizontal zone before the pair eventually drops to challenge the 1.1700 strong horizontal support.

3) Gold Price: XAU/USD’s Path Of Least Resistance Appears To The Upside

Gold (XAU/USD) resumed its recovery from three-week lows on Monday, gaining nearly $40 to settle the day near $1986. The latest rally came on the heels of the persistent bearish mood in the US dollar against its main competitors. The greenback faced a triple whammy, in light of the slumping US Treasury yields, fiscal deadlock and concerns over the economic recovery, given the continued rise in the coronavirus cases in the US. Meanwhile, the risk-on action Wall Street amid a rally in the tech stocks, further, dulled dollar’s safe-haven appeal, as investors shrugged-off US-China tensions over the Huawei issue.

The yellow metal, however, spiked $30 in a matter of 30 minutes on reports that the legendary investor Warren Buffet’s Berkshire Hathaway revealed a 20.9 million-share stake in Q2 in Barrick Gold.

Looking ahead, the bright metal will continue to draw support from broad-based US dollar weakness amid falling Treasury yields and nervousness ahead of Wednesday’s FOMC minutes. The benchmark 10-year US Treasury yields drop 1% to hover around 6.77%, in multi-day lows, at the time of writing. Meanwhile, any escalation on the US-China front could bode well for the safe-haven gold. The focus will be on the US housing data for fresh cues on the economy, especially after the disappointing US Retail Sales and regional manufacturing data undercut the nascent economic rebound.

Gold has charted a bull pennant breakout on the hourly chart earlier in the Asian session this Tuesday. The pattern got confirmed after the price took out the critical resistance at $1985.50, which is the convergence of the 200-hourly Simple Moving Averages (HMA) and falling trendline (pattern) resistance.

The bulls look to regain the critical $2000 barrier, a break above which will call for a test of the August 11 high at $2030.

For the buyers to take on the record highs of $2075, a sustained breakthrough above the $2050 level is critical. That level is the intersection of the August 10 high and psychological level. The hourly Relative Strength Index (RSI) flirts with the overbought territory, with further scope of upside.

Alternatively, the previous resistance-turned-support at $1985.50 will limit the immediate downside. The next cushion awaits at the rising trendline (pattern) support at $1982 below which the bullish 21-HMA at $1976 could be tested.

The bears need an hourly closing below the upward-sloping 100-HMA at $1958 to negate the near-term bullish bias. Note that Monday’s rally picked up pace only after the price closed above the 100-HMA, then at $1941, on the hourly chart.

4) Australian Dollar Jumps Back Through 0.72 As US Weakness Resumes

The Australian dollar surged back through 0.72 US cents through trade on Monday, lead higher following a jump in equities and an improvement in risk sentiment. Having struggled to break above 0.7170 through much of the domestic session the AUD rallied overnight touching intraday highs at 0.7225. A continuation in US dollar weakness was the primary driver as softer than expected regional manufacturing data and a dip in business confidence cast doubts over the strength of any US economic recovery to date.

Attentions this week turn to the Fed and the minutes from its last meeting. With the AUD failing to break resistance at 0.7230/40 any shift in the policy outlook, in particular a shift in the average inflation target, could add heightened pressure on real interest rates and provide the catalyst to push the AUD nearer 0.73. Our focus today turns to RBA minutes. Governor Lowe outlined the Banks position and decision-making process to the House of Representatives Committee on Economics on Friday, and we expect little deviation from this message. Watch resistance on moves approaching 0.724 with support in play on dips toward 0.7130.

The Japanese yen outperformed through trade on Monday while the US dollar resumed its downward trend and the Pound wobbled amid renewed Brexit talks. The US dollar lost ground against a basket of major counterparts as a risk on move drove the traditional safe haven index below 93 to 92.817. A continuation in US dollar selling and broader weakness allowed the JPY to mark a new one week high, breaking back below 106. Doubts over the stability of the US recovery and heightened political concerns exacerbated the dollar sell off. With Democrats and Republicans focus shifting away from Fiscal stimulus talks to their respective party conventions and the official naming of candidates there is a diminishing optimism a government COVID 19 relief package will be available before September leaving millions of Americans with crucial benefits for a least a month, worsening the divide created by the Pandemic and pushing the US even deeper into recession.

Attention remain with the FED and its meeting minutes due tomorrow. Having maintained the status quo investors will be seeking any sign the Federal Open Market Committee is preparing to amend its policy platform, particularly an adjustment to average inflation targets. A dovish review will likely add further pressure on the already embattled dollar.

Sterling remained range round through much of Monday as investors brace for more volatility ahead of new trade talks between the UK and EU. Officials are racing to find a compromise before the end of 2020 when the UK will be set adrift from the common market, relinquishing all preferential trade agreements. Unless a deal can be struck Sterling faces significant headwinds. The UK was one of the worst hit European country by the Pandemic and has suffered the biggest economic contraction fo any G7 nation. Failure to secure favourable ongoing trade conditions could be catalyst to break the back of the recent GBP run and force a correction back toward 1.20.