19-Feb-2021

1) USD/JPY: Descending Trend-Line Breakout Point Holds The Key For Bulls
2) EUR/USD: Euro Bulls Still Not Out Of The Woods, Need At Least One Dose Of Optimism
3) GBP/USD: Bulls Likely To Pause Near Ascending Channel Resistance, Around 1.4035 Area
4) XAU/USD: Gold Bears Eye Daily Closing Below November 30 Lows

 

 

1) USD/JPY: Descending Trend-Line Breakout Point Holds The Key For Bulls

The USD/JPY pair extended this week’s retracement slide from five-month tops and witnessed some follow-through selling during the Asian session on Friday. The downfall marked the third consecutive day of a negative move and was sponsored by a combination of factors. The US bond yields started retreating from one-year tops after the FOMC meeting minutes on Wednesday reaffirmed that the US central bank will maintain its ultra-accommodative monetary policy stance.

The USD was further pressured by Thursday’s disappointing US labor market data, which resurfaced doubts about a relatively faster US economic recovery from the coronavirus pandemic. In fact, the US Initial Weekly Jobless Claims unexpectedly jumped to 861K during the week ending February 13 from the previous week’s upwardly revised reading of 848K. This was enough to offset slightly better Philly Fed Manufacturing Index, which came in at 23.1 for February as against 20 anticipated.

Apart from this, a softer risk tone – as depicted by a modest pullback in the equity markets – underpinned the safe-haven Japanese yen (JPY) and contributed to the ongoing corrective slide. The JPY further benefitted from Friday’s release of the National Consumer Price Index from Japan, which recovered from -1.2% to -0.6% YoY in January. Adding to this, the National CPI (excluding fresh food and energy) recovered from -0.4% previous and recorded a modest 0.1% YoY rise during the reported period.

The impressive pace of COVID-19 vaccinations, the slowing pace of infections, and progress on the US President Joe Biden’s proposed $1.9 trillion stimulus package has been fueling optimism about the global economic outlook. This, in turn, should help limit any meaningful downside for the major. Hence, it remains to be seen if the ongoing pullback marks the end of the recent positive move or the pair is able to attract some dip-buying at lower levels.

Market participants now look forward to the US economic docket, featuring the releases of flash PMI prints (Manufacturing and Services) and Existing Home Sales data. This, along with the US bond yields, might influence the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some opportunities on the last day of the week.

From a technical perspective, the pair was last seen hovering around the very important 200-day SMA, just above mid-105.00s. This is closely followed by a near one-year-old descending trend-line resistance breakpoint, now turned support, around the 105.35 region. A sustained break below the mentioned levels might prompt some technical selling and force the pair to accelerate the corrective slide further towards the key 105.00 psychological mark. The downward trajectory could further get extended towards monthly swing lows, around the 104.40 region, which if broken will negate any near-term positive bias.

On the flip side, the 106.00 round-figure mark now seems to act as immediate strong resistance. Some follow-through buying, leading to a subsequent strength beyond multi-month tops will be seen as a fresh trigger for bullish traders. This, in turn, will set the stage for an extension of the recent appreciating move and assist the pair to aim back to reclaim the 107.00 round-figure mark. The 106.65-75 region could offer some intermediate resistance, though is unlikely to derail the bullish momentum.

 

2) EUR/USD: Euro Bulls Still Not Out Of The Woods, Need At Least One Dose Of Optimism

A classic dead-cat bounce or a meaningful correction that foreshadows a rally? The recent 70-pip upward move in EUR/USD has left many traders perplexed amid growing uncertainty on several fronts. Will skies clear on Friday? Here are the critical questions – that may receive some answers as the week draws to a close.

Is the economy improving? US jobless claims have been a bitter disappointment, leaping to 861,000 and ending a winning streak of declines. The stark reminder about the state of America’s labor market contrasted robust retail sales figures for January released beforehand.

Friday’s spotlight is on Markit’s preliminary Purchasing Managers’ Indexes for February. In the old continent, these forward-looking surveys are set to show an ongoing divide between the struggling services sectors – hit by lockdowns – and the humming manufacturing ones. Are managers seeing through the current suffering and into a vaccine-led recovery? That could boost the euro.

On the other side of the pond, Markit’s US PMIs are projected to show robust activity, and that may improve the mood. America also releases existing home sales figures for January, which may add to optimism. Despite the hardship of the pandemic, the housing sector is buoyant.

If US data is rosy, it could cause Treasury yields to rise and boost the dollar. However, if the statistics are only cautiously optimistic, it would lift sentiment while allowing the safe-haven dollar to decline.

The second question for the market is: Will President Joe Biden make progress on his covid relief package? Negotiations within his Democratic Party continue and one of the sticking points is if an increase in the minimum wage can be included in the package. Congress is gearing up to vote on as much as $1.9 trillion in aid late next week. Any delay may weigh on markets while positive developments may boost them.

Moreover, there are initial reports that the White House is already mulling a second fiscal stimulus focused on infrastructure and worth some $3 trillion. Details on such spending would also be positive.

The third question related to vaccines: European countries are finally receiving more doses of various jabs, but reports suggest that some are hesitating to take the AstraZeneca shots. Britain and the EU had an ugly row over supplies of this immunization solution and that has eroded confidence. Nevertheless, Astra’s vaccines are widely deployed in the UK and if the continent accepts these doses at a faster pace, the euro may rise.

In the US, the “deep freeze” storm in the southern US has slowed the distribution of COVID-19 vaccines, and bad weather is moving up north. If delays persist, it could weigh on sentiment. However, adverse weather affects only distribution and not production – and is unlikely to last.

Euro/dollar has topped the 100 Simple Moving Average on the four-hour chart but remains capped under the 100 and 200 SMAs. While downside momentum has eased, it has yet to turn positive. All in all, the picture is mixed.

Resistance awaits at 1.2110, which provided support last week and is also where the 50 SMA hits the price. It is followed by 1.2150, a swing high, and then by 1.2170, the February top.

Some support awaits at 1.2080, the daily low, followed by 1.2055, which is a critical cushion and a separator of ranges. Further down, 1.2020 and 1.20 await EUR/USD.

 

3) GBP/USD: Bulls Likely To Pause Near Ascending Channel Resistance, Around 1.4035 Area

The GBP/USD pair recorded its highest gains in more than a month and surged to the highest level in almost three years on Thursday. The British pound’s relative outperformance comes amid growing optimism that the UK’s impressive pace of COVID-19 vaccinations would allow Prime Minister Boris Johnson to lift lockdown restrictions in stages and get the economy moving. This, along with the emergence of some fresh selling around the US dollar, provided an additional boost to the major and contributed to the sharp intraday momentum of nearly 150 pips.

As investors looked past Wednesday’s upbeat US Retail Sales, a modest pullback in the US Treasury bond yields exerted some downward pressure on the greenback. The US bond yields started retreating from one-year tops after the FOMC meeting minutes – released on Wednesday – reaffirmed the US central bank’s ultra-accommodative monetary policy stance. The USD selling bias picked up pace following the disappointing release of labor market data, which dented the recent optimism over a relatively quicker US economic recovery from the coronavirus pandemic.

In fact, the US Initial Weekly Jobless Claims unexpectedly jumped to 861K during the week ending February 13, much higher than 765K anticipated. Adding to this, the previous week’s reading was also revised higher from 793K to 848K. This was enough to offset the less worse Philly Fed Manufacturing Index, which came in at 23.1 for February as against consensus estimates for a fall to 20 from 26.5 previous. Even a softer tone around the equity markets did little to lend any support to the greenback’s safe-haven status or stall the pair’s strong move up.

Nevertheless, the pair settled near the top end of its daily range, albeit struggled to reclaim the 1.4000 psychological mark and was seen consolidating in a range through the Asian session on Friday. Market participants now look forward to the UK monthly Retail Sales data for a fresh impetus. The UK economic docket also features the release of flash Manufacturing and Services PMI prints for February. Later during the early North American session, the US flash Manufacturing PMI and Existing Home Sales data, along with the US bond yields, will influence the USD price dynamics. This, in turn, might produce some trading opportunities on the last day of the week.

From a technical perspective, the post-BoE strong move up has been along an upward sloping channel that points to a well-established short-term bullish trajectory. Meanwhile, RSI on the daily chart has moved on the verge of breaking into the overbought territory. Hence, any subsequent momentum beyond the 1.4000 mark is likely to confront stiff resistance and pause near the trend-channel hurdle, currently near the 1.4030-35 region. A convincing breakthrough will be seen as a fresh trigger for bullish traders and pave the way for an extension of the ongoing positive momentum.

On the flip side, any meaningful pullback below the daily swing lows, around mid-1.3900s might still be seen as a buying opportunity. This should help limit the downside near the 1.3900 round-figure mark. This is followed by the lower boundary of the mentioned channel, currently near the 1.3880 region, which if broken decisively might prompt some technical selling and set the stage for a near-term corrective pullback.

 

4) XAU/USD: Gold Bears Eye Daily Closing Below November 30 Lows

Gold (XAU/USD) is attempting a bounce from seven-month lows of $1761 but the bears are likely to regain control if the US Treasury yields extend their advance on expectations of a bigger US fiscal stimulus. The benchmark 10-year US yields sit at yearly highs amid hopes that the US stimulus would help boost the economic recovery. Meanwhile, a broad-based US dollar rebound, amid fears over the new covid strains and nervousness ahead of the preliminary Markit PMIs on both sides of the Atlantic, also weighed on gold.

Markets also rethink the implications of the rising US rates on the equities and its eventual impact on the recovery prospects. Meanwhile, US Treasury Secretary Janet Yellen’s appeal to back the $1.9 trillion stimulus package could bode well for the Treasury yields. Focus remains on the Eurozone/ US PMIs, virus, and stimulus updates for fresh trading incentives.

As observed in the daily chart, the gold price is at the brink of announcing a massive sell-off should sellers find acceptance below the November 30 low of $1765 on a daily closing basis.

Stops could be triggered on a sustained move below the latter, exposing the June 2020 lows around $1720.

The 14-day Relative Strength Index (RSI) lies just above the oversold territory, suggesting that there is room for further downside. Therefore, the bears could extend the sell-off fuelled by the confirmation of the death cross formation on Tuesday.

However, if the bulls manage to defend the crucial support, allowing the price to settle above that level, a corrective pullback towards the January low of $1803 cannot be ruled out.