18-Mar-2021

1) GBP/USD: Dovish FOMC-Led Rally Falters Ahead Of 1.4000, Focus Shifts To BoE
2) XAU/USD: Move Beyond $1760-65 Hurdle To Pave The Way For Additional Gains
3) AUD/USD: Targets 0.7900 Amid Inverse Head-And-Shoulders Breakout
4) USD/CAD Struggles Near Multi-Year Lows, Below 1.2400 Mark
5) EUR/USD Bounces Back Towards 1.20 Ahead Lagarde’s Speech

 

 

1) GBP/USD: Dovish FOMC-Led Rally Falters Ahead Of 1.4000, Focus Shifts To BoE

The GBP/USD pair witnessed a dramatic turnaround on Wednesday and rallied 120 pips from the daily swing lows near mid-1.3800s after the Fed announced its policy decision. As was widely expected, the FOMC left the benchmark rate unchanged in the 0%-0.25% range and said it would continue with $120 billion monthly bond purchases. The accompanying monetary policy statement downplayed speculations that an improvement in the outlook could force the Fed to wind back its stimulus.

The Fed maintained its ultra-dovish tone and the so-called “dot plots” indicated that policymakers were in no rush to raise interest rates at least through 2023. This, in turn, triggered a massive US dollar selloff and prompted some aggressive short-covering move around the major. The momentum pushed the pair further beyond mid-1.3900s, or fresh weekly tops, albeit lacked any follow-through buying and ran out of steam during the Asian session on Thursday.

The Fed predicted a V-shaped recovery in the US and now sees the economy growing 6.5% this year. This would mark the largest annual jump in GDP since 1984 and a whopping 2.3% upgrade from its projection in December. Adding to this, inflation is expected to exceed the Fed’s 2% target and rise 2.4% this year. The upbeat outlook allowed the yield on the benchmark 10-year US government bond to hold steady near the highest level since January 2020 and helped revive the USD demand. This was seen as a key factor that prompted some selling around the major.

That said, the downside is likely to remain limited as investors might refrain from placing aggressive bets, rather prefer to wait on the sidelines ahead of the Bank of England meeting later this Thursday. Given that no change is expected in interest rates or the pace of stimulus, the market focus will be on the central bank’s assessment of the state of the economy. The BoE is more likely to emphasize the condition for tightening monetary policy, which will play a key role in influencing the British pound and provide some meaningful impetus.

Later during the early North American session, the US macro data will also be looked upon for some trading opportunities. Thursday’s US economic docket features the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. This, along with the US bond yields and the broader market risk sentiment, should offer some cues to intraday traders.

From a technical perspective, the overnight strong momentum assisted the pair to break through a near one-month-old descending trend-line resistance. This could be seen as a fresh trigger for bulls and supports prospects for additional gains. That said, the lack of any follow-through warrants some caution and makes it prudent to wait for a sustained move beyond the key 1.4000 psychological mark before positioning for any further appreciating move. The latter coincides with the 50% Fibonacci level of the 1.4243-1.3779 corrective slide, which if cleared decisively should lift the pair towards the 1.4070 region (61.8% Fibo.) en-route the 1.4100 mark.

On the flip side, any meaningful slide now seems to find decent support near the 1.3900 round-figure mark. Failure to defend the mentioned level will negate any near-term positive bias and drag the pair further below mid-1.3800s. The pair could then slide back towards the 1.3800 neighborhood, below which bearish traders might aim to challenge monthly swing lows, around the 1.3780 region.

 

2) XAU/USD: Move Beyond $1760-65 Hurdle To Pave The Way For Additional Gains

Gold built on the previous session’s positive move and edged higher through the Asian session on Thursday. The momentum pushed the commodity back closer to monthly tops and was sponsored by a dovish-sounding FOMC policy statement. The FOMC on Wednesday downplayed speculations that an improvement in the outlook could force the central bank to unwind its stimulus. The so-called “dot plots” indicated that the Fed was in no rush to raise interest rates at least through 2023. This, in turn, triggered a massive sell-off around the US dollar and provided a goodish lift to the dollar-denominated commodity.

The XAU/USD, which is often used as a hedge against inflation, further benefitted from the fact that the Fed expects inflation to exceed the 2% target and rise 2.4% this year. The Committee also upgraded its assessment of the current state of the economy and the median GDP forecast stood at 6.5% for the current year. This would mark the largest annual jump in GDP since 1984 and a whopping 2.3% upgrade from its estimates in December. The upbeat outlook remained supportive of the underlying bullish sentiment in the financial markets and capped any further gains for the safe-haven precious metal.

Meanwhile, policymakers made no mention of the recent surge in long-term borrowing cost, nor any effort to combat those movements. This allowed the yield on the benchmark 10-year US government bond to hold steady near the highest level since January 2020, which was seen as another factor that acted as a headwind for the non-yielding yellow metal. This makes it prudent to wait for some strong follow-through buying before confirming that the recent corrective slide from multi-year tops touched in August 2020 has run its course and positioning for any further appreciating move in the near-term.

From a technical perspective, the overnight move beyond the $1740-42 supply zone might have set the stage for some additional gains. A subsequent strength above previous strong support now turned resistance near the $1760-65 horizontal zone will reaffirm the bullish outlook. The XAU/USD might then accelerate the momentum towards the $1785-88 intermediate resistance before eventually aiming back to reclaim the $1800 mark.

On the flip side, dips toward the mentioned $1742-40 resistance breakpoint might now be seen as a buying opportunity. This, in turn, should help limit the downside near the $1730 region. This coincides with a one-and-half-week-old ascending trend-line support, which if broken decisively will negate any near-term positive bias. The commodity might then turn vulnerable to break below the $1700 mark and challenge multi-month lows, around the $1677-76 region set earlier this month.

 

3) AUD/USD: Targets 0.7900 Amid Inverse Head-And-Shoulders Breakout

AUD/USD challenges two-week highs above 0.7800, looking to extend the Federal Reserve (Fed) decision-backed rally towards the 0.7900 mark.

The Aussie witnessed a big figure surge after the Fed reaffirmed its dovish stance on the monetary policy, pushing back the rate hike expectations well into 2023. The Fed’s dovishness weighed heavily on the US dollar, which lifted AUD/USD well beyond the 0.7800 thresholds.

The additional upside in the spot could be attributed to the strong Australian employment report released earlier in the Asian session. The data showed that the jobless rate dropped to 5.8% last month. Markets predicted the unemployment rate to hold steady at 6.3% in the reported month.

Next of relevance for the major remains the US weekly jobless claims data, although the dynamics in the Treasury yields and the greenback will continue to play a pivotal role.

As observed on the four-hourly chart, the Aussie has confirmed an inverse head-and-shoulders (H&S) formation, which is a bullish reversal pattern.

The dovish Fed verdict prompted the spot to break through the pattern neckline, then at 0.7780, on a candlestick closing basis.

Therefore, the bulls remain poised for a fresh rally towards the 0.7900 mark, with a test of the measured pattern target at 0.7980 due on the cards in the near-term.

The relative strength index (RSI) looks northwards while probing the overbought territory, suggesting that there is additional room to the upside.

Adding credence to a potential move higher, the Aussie confirms a bull cross, as the 21-simple moving average (SMA) rises above the horizontal 200-SMA.

It’s also worth noting that the price trades above all the major averages on the given timeframe.

Any retracement could see initial support at 0.7776, the pattern neckline resistance now support.

A breach of the last would expose the downward-sloping 100-SMA at 0.7766. The last line of defense for the AUD bulls is seen at 0.7754, the confluence of the 21 and 200-SMAs.

 

4) USD/CAD Struggles Near Multi-Year Lows, Below 1.2400 Mark

The USD/CAD pair remained depressed through the early European session and was last seen hovering near three-year lows, around the 1.2380 region.

The pair added to the previous day’s post-FOMC slump of over 90 pips and edged lower during the first half of the trading action on Thursday. The downtick dragged the USD/CAD pair to the lowest level since February 2018, though a combination of factors helped limit any further losses. As investors digested Wednesday’s dovish FOMC statement, elevated US Treasury bond yields eased the bearish pressure surrounding the US dollar. Apart from this, a modest pullback in crude oil prices might undermine the commodity-linked loonie and extend some support to the USD/CAD pair.

The Fed reiterated that it was in no rush to raise interest rates at least through 2023 and also upgraded its economic projections. The median GDP forecast stood at 6.5% for the current year, while inflation is expected to exceed the Fed’s 2% target and rise 2.4% this year. The policymakers made no mention of the recent sharp surge in long-term borrowing cost, nor any effort to combat those movements. This, in turn, allowed the yield on the benchmark 10-year US government bond to hold steady near the highest level since January 2020, just above 1.65%.

Meanwhile, oil prices edged lower for the fifth consecutive session amid a sustained build in US crude inventories. The EIA report on Wednesday showed a build of 2.396 million barrels for the week to Mar. 5, marking a fourth straight week of builds. This comes amid concerns that the suspension of COVID-19 vaccine rollouts in Europe and a spike in newly reported cases could hurt fuel demand recovery. This, however, did little to provide any respite to the USD/CAD pair or stall the ongoing downfall, at least for the time being.

Moving ahead, market participants now look forward to the US economic docket – featuring the releases of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. This, along with the US bond yields, might influence the USD. Apart from this, oil price dynamics might further assist traders to grab some short-term opportunities around the USD/CAD pair.

 

5) EUR/USD Bounces Back Towards 1.20 Ahead Lagarde’s Speech

EUR/USD trades above 1.1950, resuming the post-FOMC strong advance towards 1.2000. The upbeat US economic outlook helped revive the USD demand and exerted some pressure. Speeches by ECB President Lagarde and US economic data awaited.

From a technical perspective, the emergence of some fresh selling ahead of the 1.2000 mark now seemed to constitute the formation of a bearish double-top chart pattern. This might inspire bearish traders and turn the EUR/USD pair vulnerable to slide back to the 1.1900 mark before eventually dropping to the 200-day SMA.

The FOMC announced its policy decision on Wednesday and stuck to its ultra-dovish tone, reiterating that it was in no rush to raise interest rates at least through 2023. The announcement triggered a massive US dollar sell-off and assisted the EUR/USD pair to rally nearly 100 pips from the 1.1885 region.

Meanwhile, concerns that the suspension of the COVID-19 vaccine in Europe will hinder fragile Eurozone economic recovery further held bulls from placing aggressive bets around the shared currency. That said, any further slide is likely to remain limited ahead of the ECB President Christine Lagarde’s scheduled speech.

Thursday’s US economic docket features the releases of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless claims. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus. Traders will further take cues from the BoE decision for some cross-driven movement.