19-Aug-2021

1) EUR/USD Under Pressure Below 1.1700 Amid Firmer US Dollar
2) XAU/USD Struggles To Recover On Growth Concerns, Firmer USD
3) GBP/USD Refreshes Monthly Lows Toward 1.3700 On USD Strength

1) EUR/USD Under Pressure Below 1.1700 Amid Firmer US Dollar

EUR/USD is trading below 1.1700, sitting at the lowest level since November 2020 on broad US dollar strength. Coronavirus fears underpin greenback’s safe-haven demand, DXY technical breakout adds fuel to rally amid Fed’s tapering expectations. US Jobless Claims awaited.

Euro/dollar is suffering from oversold conditions according to the Relative Strength Index (RSI) on the four-hour chart. The drop below 30 implies a bounce is due. Other indicators such as momentum and the Simple Moving Average are pointing lower.

Immediate support awaits at the fresh 2021 trough of 1.1665. The next level to watch is the double-bottom of 1.1610 sets in late 2020. Further down, 1.15 is a noteworthy psychological barrier.

The broken 1.17 level is the first level of resistance. It is followed by 1.1720, which support EUR/USD last week, and then by 1.1740, which was Wednesday’s swing high.

Taper is coming – that has been the narrative coming from the Federal Reserve’s meeting minutes, and it is boosting the dollar. If the Fed indeed reduces its bond-buying scheme this year and prints fewer greenbacks, the currency has room to rise. However, there are reasons to question this story and expect a reversal.

First, an announcement about cutting down purchases this year had already been on the agenda. Secondly, the minutes are from the meeting held in late July, and since then, August’s consumer confidence plunged below the pandemic lows and retail sales figures badly disappointed in July. Moreover, the Delta covid variant continues spreading rapidly.

Perhaps the most significant reason to be more cheerful than the current gloom comes from comments hidden deeper in the minutes. Here is the quote:

“Many participants noted that, when a reduction in the pace of asset purchases became appropriate, it would be important that the Committee clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate.”

In other words, the Fed will not automatically raise interest rates when it finishes its tapering process. That distinction, supported by “many” should also prompt a rethink.

The bank’s next big event is Fed Chair Jerome Powell’s speech in Jackson Hole late next week. Will he hint that a tapering announcement is coming in September? Probably not.

The economic calendar features weekly US Unemployment Claims and the Philly Fed Manufacturing Index. Both are unlikely to rock the boat unless they provide shocking news.

Apart from a potential Fed-rethink, markets are still grappling with the worrying scenes from Afghanistan, China’s pursuit of its tech companies, and the rapid spread of the Delta covid variant.

On that latter front, Germany reported the highest number of active coronavirus cases since early June, something that could undermine the old continent’s recovery. A new study showed that the efficacy of existing vaccines wanes overtime when it comes to the highly contagious strain.

2) XAU/USD Struggles To Recover On Growth Concerns, Firmer USD

Gold fades bounce off intraday low while trading around $1,778, as European traders brace for Thursday’s bell. The yellow metal prints the biggest daily losses since the August 09 slump as the market sentiment sours amid coronavirus fears.

Looking at the technical picture, gold, so far, has shown some resilience below 100-hour SMA and has also managed to hold its neck above the 23.6% Fibonacci level of the recent bounce from multi-month tops. This further warrants some caution for bearish traders or positioning for any meaningful decline. From current levels, any subsequent fall below the $1,770 level (23.6% Fibo. level) might attract some buying near the 200-hour SMA, currently around the $1,760 area. This is closely followed by the 38.2% Fibo. level, near the $1,754 region, which should now act as a key pivotal point for short-term traders.

On the flip side, the $1,795 horizontal zone now seems to have emerged as immediate strong resistance. Some follow-through buying beyond the $1,800 mark will be seen as a fresh trigger for bullish traders and set the stage for additional gains. The XAU/USD might then surpass an intermediate hurdle near the $1,812-13 region, or the very important 200-day SMA, and aim to challenge the double-top resistance, around the $1,832-34 zone.

The USD buying picked up pace following the release of FOMC minutes, which indicated that the US central bank could start reducing the pace of bond-buying later this year. The minutes, however, showed that several Fed officials thought that a move to start tapering asset purchases should start next year. Nevertheless, market participants seemed convinced that the Fed is now comfortable to roll back the crisis-era stimulus, which was evident from some follow-through USD strength through the Asian session on Thursday.

This, in turn, was seen as a key factor that dragged the non-yielding yellow metal back closer to weekly lows. That said, persistent COVID-19 jitters held investors from placing any aggressive bearish bets, warranting some caution before confirming that the XAU/USD has topped out in the near term. Traders now look forward to the US economic docket, featuring the release of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. The data might influence the USD and provide some impetus to the commodity.

3) GBP/USD Refreshes Monthly Lows Toward 1.3700 On USD Strength

GBP/USD edges lower towards 1.3700 ahead of the London open. The US dollar continues to stay strong on risk aversion and hawkish FOMC minutes. Sterling struggles with slowing inflation, which suggests BOE could be in no hurry to raise the interest rate.

GBP/USD takes offers around 1.3750, down 0.06% to refresh intraday low, during Thursday’s Asian session. In doing so, the cable pair justifies the pullback from 200-DMA amid the downbeat Momentum line. However, a clear break of 23.6% Fibonacci retracement (Fibo) of June–July declines, around 1.3730, becomes necessary for the pair sellers to amplify the dominance.

Following that, 1.3690 will be an additional halt to the south-run targeting the latest month’s low near 1.3570. Alternatively, a daily closing beyond the 200-DMA level of 1.3790 will aim for a 38.2% Fibo level surrounding 1.3830.

The sterling continued to struggle against the greenback. The Consumer Price Inflation (CPI) rate fell to 2.0% in July on yearly basis, below the market expectations of 2.3%. The softer reading eased the rate hike expectations from the Bank of England (BOE) in the near term.

In two surveys conducted by Lloyds Bank Plc and IHS Markit in a poll of 1,500 companies Britain’s exit from the EU and the coronavirus pandemic adding inflationary pressure, which in turn slowing down the prospects of UK economic recovery.

As for now, investors turn their attention to the US Initial Jobless Claims to gauge the market sentiment.