20-Jul-2020

1) USD Settles Lower For The Fourth Consecutive Week
2) GBP/USD: Continues To Find Some Support Ahead Of 1.2500 Mark
3) European Equities Softer On Monday’s Open As The Bailout Fund Talks Loomed
4) Gold Price: A Potential Bull Flag Calls For A Retest Of Multi-Year Highs

 

 

1) USD Settles Lower For The Fourth Consecutive Week

The common currency managed to pare losses from Thursday as price recovered sharply into Friday’s close.

As a result, the euro currency closed above the key 1.1400 handle comfortably. It also marks a four-month high for the euro.

Price action is now likely to aim for the 1.1500 handle. However, support near 1.1400 still looks a bit doubtful. There is still a risk of a move below this level.

The initial trend line will highlight this, in case the euro currency slips lower. This will open the test toward the 1.1347 level once again.

Alternately, a close above 1.1425 could signal a continuation to the upside.

The pound sterling gave back the gains from earlier in the week to push lower. However, price action found solid support near the 1.2516 level, marking a double bottom pattern.

This could potentially mean that GBPUSD might be looking to break out from its range. The positioning of the Stochastic oscillator also lines up to this view.

The minimum upside target is 1.2770 from the double bottom pattern.

This will be a few points shy off the 1.2813 resistance level, but we could expect the momentum to push the cable to test this resistance area.

Crude oil prices continue to maintain a rather choppy range.

Prices briefly tested the 41.00 level but soon settled lower. We expect this to continue in the near term, with the potential for prices to test the short term rising trend line.

However, a strong breakout above 41.00 is required for prices to continue the larger uptrend.

To the downside, support is seen near the 38.78 level. This price area could be tested iF oil prices turn bearish in the near term.

Still, we expect to see price action in oil markets continue to remain choppy below the 41.00 handle.

The precious metal recovered from the losses from Thursday as price action turned bullish.

Gold prices managed to steadily climb into Friday’s close, settling at 1809.96. This, however, marks a lower high.

Gold prices have found it difficult to break out about the nine-year highs of 1817.79. Therefore, if the consolidation continues, we might see a correction unless gold manages to close above the 1817.19 price area.

To the downside, the 1800 level remains a key support area for now, but a close below this level will open the way for a test toward the 1779.16 level of support.

 

2) GBP/USD: Continues To Find Some Support Ahead Of 1.2500 Mark

The GBP/USD pair witnessed some selling through the first half of the trading action on Friday, albeit lacked any strong follow-through. The downtick was solely led by some cross-driven weakness stemming from a strong bid tone surrounding the EUR/GBP amid the optimism over a deal on the EU’s proposed €750 billion coronavirus recovery fund. However, the emergence of some fresh selling around the US dollar extended some support and helped limit any deeper losses for the major.

The second wave of the coronavirus infections in the US fueled concerns that the economic recovery will take much longer than initially expected. This, in turn, undermined demand for the greenback, which was further pressured by the disappointing release of the Michigan Consumer Sentiment Index. The gauge snapped two months of an uptrend and fell to 73.2 in July from 78.1 in previous. The respondents’ view of economic conditions sank to 84.2 from 87.1.

The pair once again managed to find decent support ahead of the key 1.2500 psychological mark and rallied over 60 pips from daily lows, ending the day with modest gains. Meanwhile, a slight deterioration in the global risk sentiment extended some support to the USD’s relative safe-haven status and exerted some pressure on the major. In the absence of any major market-moving economic releases, either from the UK or the US the USD price dynamics might continue to act as an exclusive driver of the pair’s momentum on the first day of a new trading week.

From a technical perspective, nothing seems to have changed much for the pair and the 1.2500 mark might continue to act as immediate support. Any subsequent weakness below weekly lows, around the 1.2480 region, now seems to accelerate the fall further towards 100-day SMA support, currently near the 1.2425 region.

On the flip side, the 1.2600 mark now seems to act as an immediate resistance, above which bulls are likely to make a fresh attempt towards testing the 1.2665-75 strong horizontal resistance. A sustained move beyond should set the stage for a further near-term appreciating move towards reclaiming the 1.2700 mark en-route June daily closing highs resistance near the 1.2745 zone.

 

3) European Equities Softer On Monday’s Open As The Bailout Fund Talks Loomed

The euro is at a 4-month high as EU leaders continue to talk after 3 days of meetings in Brussels in an effort to get agreement on a rescue package for countries hardest hit by the pandemic. The frugal four are holding out and have a new ally in Finland, so make that the Frugal Five Get the EU into Trouble, if there is ever a book written about it. Hungary and Poland are also unhappy about tying aid to the rule of law. Hungarian Prime Minister Viktor Orban pointedly blamed the ‘Dutch guy’, meaning Dutch PM Rutte, and threatened to veto rule of law of conditionality.

EU Council President Charles Michel is touting a new deal with €390bn in grants, after the Frugal Five proposed a €700bn fund split equally between loans and grants which fell well short of what most other countries are hoping for. This is already down from the €500bn first imagined by Macron and Merkel.

Clearly cohesion is weak, but the EU is usually capable of working out a fudge of sorts. Talks are due to start again later today at 4pm Brussels time with early indications that the ‘frugals’ are prepared to accept the €390bn idea. The biggest hurdles are the size of grants and the conditions attached to the money.

The euro has made fresh highs above 1.14, with the move to 1.14670 this morning the highest since EURUSD has printed since March. With the euro marking a 4-month high it looks like traders are expecting some kind of deal is done, even if it falls short of the original plan. As noted last week, this not an ordinary summit – what’s being talked about is mutual debt issuance for the first time. A deal would mark a breakthrough for the EU and show that the bloc can respond to an era-defining crisis with one voice. Failure today is not the end of the road by any means, but it could produce a negative reaction in Euro-area sovereign debt, European equities and the euro.

European equities were softer on the open on Monday as the bailout fund talks loomed, with the major indices edging almost 1% lower to retest the lower end of last week’s ranges. The FTSE 100 tested the 50% retrace of the June range at 6220. US equities finished mixed on Friday as the S&P 500 and Nasdaq rose a touch and Dow fell slightly. Chinese equities bounced but Asia was otherwise fairly flat.

Pfizer and BioNTech have agreed a vaccine deal to supply UK with 30m doses should their candidate prove successful. Hopes for a vaccine continue to underpin positive equity market sentiment despite signs of a slower recovery than the V-shaped rebound everyone had hoped for. Much hope is being pinned on a candidate vaccine being developed by AstraZeneca and Oxford University – results from phase one clinical trials are due today and could set the tone for the rest of week in equity markets. New cases in the US and globally continue to soar but hope for a cure wins over the idea of a fresh lockdown. AstraZeneca shares hit a record high this morning ahead of the results.

Treasury yields were softer as markets eye the rising case numbers in the US – Friday marked a fresh record 77k new cases, whilst efforts to roll back the easing of lockdown restrictions in states like California could result in some high frequency data like initial jobless claims taking a turn for the worse.

 

4) Gold Price: A Potential Bull Flag Calls For A Retest Of Multi-Year Highs

Gold (XAU/USD) started out a fresh week on a cautious footing, despite the positive close last week around $1810 levels. Resurgent haven demand for the US dollar across the board amid renewed concerns over the continued rise in the coronavirus cases globally dampened the market mood.

However, worries over the mounting virus risks on the global economic recovery, the EU Summit deadlock and US stimulus talks will continue to underpin the yellow metal, in the absence of US economic data due later this Monday.

It’s worth noting that it could be an uphill task for the gold bulls to regain the upside momentum, as speculators reduced their bullish positions in gold (Comex contracts) and in the week to July 14.

A potential bull flag pattern is spotted on the hourly chart, with the pattern to get confirmed on a close above the falling trendline resistance at $1809.98 on an hourly basis.

A bullish breakout will call for a pattern target of $1827 in the coming days. In the meantime, the previous week of $1815.10 will challenge the bulls’ commitment.

The hourly Relative Strength Index (RSI) is trading flat but hold above the midline (50.0), suggesting more room to the upside.

Acceptance above the latter, the multi-year high at $1818.17 will be put to test, in a bid to test the $1820 round figure.

Alternatively, a cluster of supports is aligned around $1805, which is the level to beat for the bears in the near-term. That is the confluence of the 50, 100, 200-hourly Simple Moving Averages and falling trend line support.

Should the bulls fail to defend the aforesaid support, the next downside target is placed at the $1800 psychological level.