02-Sep-2020

1) Dollar Bulls Again Attempt To Reverse The Trend
2) GBP/USD: Bullish Potential Intact, Dips Might Still Be Seen As A Buying Opportunity
3) EUR/USD: First Signs Of A Possible Bullish Exhaustion Near 1.2000 Mark
4) Gold Price: XAU/USD Bulls Down But Not Out Ahead Of US ADP

1) Dollar Bulls Again Attempt To Reverse The Trend

By the start of trading in Europe on Wednesday, EURUSD is trading around 1.1900 after briefly touching 1.2000. The dollar received double support on Tuesday, reversing down after just two minutes held above the psychologically important level at 1.2000, and further benefiting from a strong manufacturing activity report.

This is not the first time since late July that we have seen EURUSD strongly fall following the renewal of its two-year high. So far, there have been four such advances, that temporary thrust the pair down by about two figures, or about 1.7%. However, the dollar is yet to develop a strong growth momentum, and each time dollar bulls counterattack from higher levels.

Yesterday’s pullback is only half of its expected path, becoming tuned for a possible continuation of downward momentum in the coming days. This is supported by signals from the Relative Strength Index indicator. While EURUSD is reaching ever higher local highs, the RSI peaks are becoming lower. This performance often acts as a precursor of a deeper correction or a change to a downtrend.

Macroeconomic data have recently assisted the dollar. The published ISM Manufacturing Index showed unexpectedly strong growth from 54.2 to 56.0 and much better than expected 54.6. Among the components of the index, a jump in new orders received a positive response. It is also worth paying attention to the increasing price pressure.

The employment component, on the other hand, notes a further decrease, pointing to additional optimisation of the labour market and prompting us to anticipate with caution the employment data on Friday. As manufacturing contributes less than 10% to GDP, compared 70%+ of the service sector, the recovery in services and construction can easily overshadow a slight reduction in manufacturing.

The dollar received its support at the right time. Suppose the labour market on Friday confirms signals of rising inflationary pressures and a recovery in employment. In that case, this could be the basis for a deeper recovery of the dollar beyond the 1-2% short-term correction.

A drop for EURUSD below 1.1750 could be a confirmation of serious intention of the dollar bulls. However, this level is significantly far from current market quotes.

2) GBP/USD: Bullish Potential Intact, Dips Might Still Be Seen As A Buying Opportunity

The GBP/USD pair added to its recent strong gains and shot to fresh YTD tops amid some follow-through US dollar selling through the first half of the trading action on Tuesday. The Fed Chair Jerome Powell last week announced a new policy framework and said that the US central bank would allow inflation to run above 2% target for some period. This, in turn, fueled speculations that the Fed will keep interest rates lower for longer and was seen as one of the key factors that continued exerting some heavy pressure on the greenback.

Meanwhile, the British pound seemed rather unaffected by the lack of progress in Brexit talks and largely shrugged off the final UK Manufacturing PMI print, which came in at 55.2 as against the preliminary estimate of 55.3. From the US, the ISM Manufacturing PMI improved to 56.0 for August from 54.2 previous, surpassing market expectations. The data provide a much-needed respite to the USD bulls and kept a lid on any further gains for the major, rather prompted some selling at higher levels. The pair failed ahead of the key 1.3500 psychological mark and retreated around 125 pips from daily swing highs, ending the day with only modest gains.

The pullback, however, lacked any strong follow-through and the pair managed to hold above mid-1.3300s through the Asian session on Wednesday. In the absence of any major market-moving economic releases from the UK, the USD price dynamics might continue to act as an exclusive driver of the pair’s momentum. Later during the early North American session, the release of the US ADP report on private-sector employment will also be looked upon for some trading impetus. The key focus will remain on the closely watched US monthly jobs report, popularly known as NFP, which should assist traders to determine the pair’s next leg of a directional move.

From a technical perspective, any meaningful slide below mid-1.3300s is likely to find decent support near the 1.3300 mark (weekly lows). This is closely followed by a previous strong resistance breakpoint, around the 1.3285-80 region, which if broken might prompt some technical selling and turn the pair vulnerable. Bearish traders might then drag the pair further towards the 1.3200 round-figure mark.

On the flip side, bulls might now wait for a move back above the 1.3400 mark before placing fresh bets. The subsequent momentum should lift the pair beyond the overnight swing highs, around the 1.3480 region, towards reclaiming the 1.3500 mark en-route December 2019 tops, near the 1.3515 region.

3) EUR/USD: First Signs Of A Possible Bullish Exhaustion Near 1.2000 Mark

The EUR/USD pair pushed through the key 1.2000 psychological mark for the first time in more than two years on Tuesday. The momentum was exclusively sponsored by persistent selling around the US dollar amid expectations that the Fed will keep interest rates lower for longer. It is worth recalling that the Fed Chair Jerome Powell announced a historic policy switch last week and made it clear that the US central bank is willing to tolerate above-target inflation for some time to support labor market.

On the economic data front, the final versions of the Eurozone Manufacturing PMI prints for August were mixed and did little to provide any meaningful impetus. Separately, the advance Eurozone inflation report showed that the headline CPI plunged from +0.4% to -0.2% YoY in August as against consensus estimates pointing to a 0.2% rise. Weaker-than-expected inflation caught bulls off guard and turned out to be one of the key factors that prompted some selling around the shared currency.

On the other hand, better-than-expected US economic data stemmed the USD downside momentum, rather prompted some short-covering and further contributed to the pair’s sharp intraday pullback of over 100 pips. In fact, the US ISM Manufacturing Index improved to 56.0 for August as compared to 54.2 previous and consensus estimates pointing to a modest rise to 54.5. The pair finally settled near the lower end of its daily trading range and remained depressed through the Asian session on Wednesday.

The pair was last seen hovering around the 1.1900 mark as market participants now look forward to the release of the US ADP report on private-sector employment. The data might influence the USD price dynamics and provide some trading impetus later during the early North American session. The key focus, however, will remain on the closely watched US monthly jobs report (NFP), which might help investors to determine the pair’s next leg of a directional move.

From a technical perspective, the overnight sharp retracement slide could be seen as first signs of bullish exhaustion. That said, any subsequent fall is likely to find decent support near the 1.1850-45 horizontal support. Some follow-through selling will suggest that the pair might have topped out in the near-term and pave the way for a further decline. The pair might then extend the corrective slide further below the 1.1800 mark, towards testing the 1.1775-65 horizontal support.

On the flip side, immediate resistance is now pegged near the 1.1935-40 region, above which bulls are likely to make a fresh attempt towards reclaiming the 1.2000 round-figure mark.

4) Gold Price: XAU/USD Bulls Down But Not Out Ahead Of US ADP

Gold (XAU/USD) rose to the highest level in two weeks at $1992.42 before witnessing a sharp $40 reversal to near $1954 levels on Tuesday. The spot, however, recovered some ground to settle the day at $1970. The main driver behind gold’s two-way price-movement remained the US dollar dynamics. The greenback extended its ongoing bearish momentum and hit two-year lows in the European session amid the Fed fallout.

Later on in the American trading, the US dollar staged a solid comeback, as the upbeat US ISM Manufacturing PMI for August saved the day for the dollar bulls. The US Treasury yields also rebounded alongside on the back of improved hopes of a US economic recovery, weighing negatively on the yieldless gold. Meanwhile, the US stocks recorded yet another all-time-high and dulled gold’s safe-haven appeal.

Attention now turns towards the US ADP jobs report due later on Wednesday at 1215 GMT. Markets are expecting the US private sector to add 950K jobs in August vs. +167K last. However, a disappointment cannot be ruled out, given that the ISM Manufacturing Employment sub-index remained in contraction last month. The dollar pullback could stall on downbeat US ADP numbers, as it would point to a weaker US NFP report due on Friday. Therefore, gold is likely to trade with caution heading into the US ADP data, although another run towards $2000 mark cannot be ruled out going forward.

Despite the sharp pullback in gold on Tuesday, the price managed to close above the critical horizontal 21-Simple Moving Average on the daily chart (DMA) for the first time in nine days.

Therefore, the buyers still remain hopeful and could attempt another run towards the $2000 mark should the US ADP data disappoint and trigger renewed dollar weakness. The $1950 level could be tested once again on the above-forecast jobs report. A break below which the rising trendline support at $1923 will be put at risk.

The daily Relative Strength Index (RSI) trades flat but holds above the midline, currently at 54.50, still backing the bullish case.