18-Sep-2020

1) Australian Dollar Steady Despite Positive Employment Figures
2) EUR/USD: Investors Seemed Reluctant From Placing Fresh Directional Bets
3)  GBP/USD: Brexit Optimism Offset BoE Negate Rate Talks, 1.3000 Holds The Key For Bulls

1) Australian Dollar Steady Despite Positive Employment Figures

The Australian Dollar was under renewed pressure yesterday despite an impressive employment print during Thursday morning. Opening at the 73 US cent handle, volatility was seen into the lead up to the unemployment print which saw the headline rate improve to 6.8% in August, comfortably beating initial expectations of 7.7%.

The Initial rally was seen in favour for the local currency from 0.7270, reaching an intraday high of 0.7310. Healthy employment gains were also seen, increasing by 110,000 jobs vs a -35,000 consensus, albeit led by part-jobs.

The tide quickly turned though losing all gains during the afternoon play as risk appetite waned. Flows back into the US dollar were seen and equities were also sold off as the ASX 200 closed 1.22% lower.

The Australian dollar recovered overnight and opens this morning at 0.7312. We expect support levels to hold on moves approaching 0.7260, while any upward push will likely meet resistance at 0.7350.

Equities were under pressure again dragging risk-based currencies with it. Tech stocks were the main catalyst for falls as the Nasdaq shed 1.48% overnight and the S&P 500 was down 0.85%. Investors sold on the lack of further QE plan updates by the Federal Reserve in the latest FOMC statement released on Thursday morning.

The US Dollar index was lower overnight (-0.2%) as a number of economic releases in the United States did little to move the needle in currency markets. Unemployment claims came in slightly below expectations as 860,000 American Citizens filed for first time claims and represents a modest shift lower. The Philly Fed Manufacturing Index grew at a slightly higher pace in September despite falling from 17.2 in August to 15 this month. The positive reading suggests that market conditions are slightly improving.

Across the Atlantic, the Bank of England also held their latest Monetary meeting, leaving interest rates at record lows as expected at 0.1%. The Great British Pound fell initially a full cent to 1.2865 as policy makers noted they would consider all options including negative interest rates in the future to combat uncertainty due to COVID-19. Eventual losses were stretched, and cable ended square at 1.2975.

On the docket today is the latest Retail Sales print in the United Kingdom overnight. Preliminary Consumer Sentiment and Inflation expectations are also due for release this evening in the United States.

2) EUR/USD: Investors Seemed Reluctant From Placing Fresh Directional Bets

The EUR/USD pair witnessed a dramatic intraday turnaround on Thursday and rallied over 100 pips from 50-day SMA support, or five-week lows. The US dollar built on the post-FOMC short-covering move and continued gaining traction through the first half of the trading action on Thursday. It is worth recalling that the Fed on Wednesday gave no indications of additional stimulus and also offered an upbeat assessment of the US economic recovery. Adding to this, a weaker risk tone further boosted the greenback’s relative safe-haven status and contributed to the pair’s early slide.

Despite the supporting factors, the USD struggled to preserve its early gains, rather witnessed some fresh selling at higher levels. The intraday USD downtick picked up pace following the release of unimpressive US macro data. In fact, Initial Weekly Jobless Claims for the week ended September 11 fell to 860K from 893K in the previous week but missed consensus estimates pointing to a reading of 850K. Separately, the Philly Fed Manufacturing Index edged lower to 15 in September from 17.2 previous, while Building Permits and Housing Starts both fell short of market expectations.

The pair finally settled near the top end of its daily trading range, snapping two consecutive days of the losing streak, albeit lacked any strong follow-through. The pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range through the Asian session on Friday. In the absence of any major market-moving economic releases from the Eurozone, the pair remains at the mercy of the USD price dynamics. Later during the early North American session, the release of the Michigan Consumer Sentiment Index for September will be looked upon for some trading impetus on the last day of the week.

From a technical perspective, the overnight sharp rebound from 50-day SMA points to the emergence of some fresh buying interest. However, the lack of any strong follow-through buying warrants some caution for bullish traders. Hence, any subsequent positive move is more likely to confront a stiff resistance near the 1.1900 mark. That said, some follow-through buying might trigger some near-term short-covering move and push the pair further beyond the 1.1935-40 supply zone, towards reclaiming the key 1.2000 psychological mark.

On the flip side, the 1.1800 mark now seems to protect the immediate downside, below which the pair could slide back to the 1.1750 horizontal support. Sustained weakness below, leading a subsequent breakthrough the 1.1735 area (50-DMA), could accelerate the fall further towards August monthly swing lows, around the 1.1700-1.1695 region. Failure to defend the 1.1700 mark might now turn the pair vulnerable to prolong the recent corrective slide towards the 1.1600 round-figure mark.

3)  GBP/USD: Brexit Optimism Offset BoE Negate Rate Talks, 1.3000 Holds The Key For Bulls

The GBP/USD pair had some good two-way price swings on Thursday and was influenced by a combination of diverging forces. The pair witnessed some aggressive intraday selling after the Bank of England surprised investors by saying that it had briefed policymakers on how negative interest rates could be implemented. Earlier, the BoE left its benchmark interest rates and the Asset Purchase Program unchanged at 0.10% and £745 billion, respectively. The UK central bank highlighted the risk of a longer period of elevated unemployment and uncertain growth outlook. This, in turn, took its toll on the British pound and dragged the pair to two-day lows, around the 1.2865 region.

The pair, however, quickly changed course and rallied back closer to the key 1.3000 psychological mark in reaction to optimistic Brexit-related comments by the European Commission President Ursula von der Leyen, saying that a trade deal between the EU and the UK is still possible. This coupled with the emergence of some fresh USD selling further collaborated to the pair’s solid rebound of over 130 pips. The USD lost some additional ground following the release of a rather unimpressive US macro data. In fact, the Philly Fed Manufacturing Index edged lower to 15 in September from 17.2 while the Initial Jobless Claims, Building Permits and Housing Starts all fell short of market expectations.

The pair finally settled near the top end of its daily trading range, albeit lacked any strong follow-through and remained below the 1.3000 mark through the Asian session on Friday. Bulls largely shrugged off slightly better-than-expected UK Monthly Retail Sales figures, which came in to show a growth of 0.8% MoM in August as against 0.7% expected. The core retail sales (excluding the auto motor fuel sales) increased +0.6% MoM as compared to +0.4% expected and +2.0% previous. With Friday’s key UK macro data out of the way, the incoming Brexit-related headlines will continue to play a key role in influencing the GBP price dynamics and produce some meaningful trading opportunities. Later during the early North American session, the release of the Michigan Consumer Sentiment Index for September will also be looked upon for some trading impetus on the last day of the week.

From a technical perspective, the lack of any strong follow-through buying warrants some caution before positioning for any further gains. Bulls might need to wait for a sustained strength beyond the 1.3000 mark. Above the mentioned handle, the pair is likely to surpass the 1.3035-40 supply zone and extend the positive move towards reclaiming the 1.3100 round-figure mark. The momentum could further get extended towards the next major hurdle near the 1.3175-80 region.

On the flip side, immediate support is now pegged near the 1.2925 region, which is closely followed by the 1.2900 round-figure mark. Any subsequent slide might now be seen as a buying opportunity and remain limited near the 1.2875-65 area. That said, some follow-through selling might negate prospects for any further gains. The pair might then turn vulnerable to accelerate the fall back towards the 1.2800 mark before eventually dropping to multi-week lows, around the 1.2765-60 zone.