20-Oct-2020

1) GBP/USD: Brexit Uncertainties Continue To Cap The Upside
2) AUD/USD: Aussie Extends Fall As RBA Discusses Further Easing
3) XAU/USD: Gold’s Fate Hinges On A Potential US Fiscal Stimulus Deal
4) EUR/USD: Bulls At The Mercy Of USD Price Dynamics, Upside Seems Limited

1) GBP/USD: Brexit Uncertainties Continue To Cap The Upside

A combination of factors assisted the GBP/USD pair to catch some aggressive bids on the first day of a new trading week and rally back above the key 1.3000 psychological mark. The British pound got a strong boost in reaction to the UK Brexit minister, Michale Gove’s optimistic remarks over the weekend. In a BBC interview, Gove said that the door is “still ajar” for post-Brexit talks to continue with the European Union if officials in the bloc change their position on key points. It is worth recalling that negotiations between the UK and the EU had stalled amid disagreements over fishing access and competition issues. Gove’s remarks, however, offered a glimmer of hope and prompted traders to unwind their bearish GBP bets.

On the other hand, the safe-haven US dollar was being weighed down by reviving hopes for additional US fiscal stimulus and expectations of a COVID-19 vaccine by the end of this year boosted investors’ confidence. The US House Speaker Nancy Pelosi said on Sunday that legislation on a wide-ranging coronavirus relief package could be pushed through before the election on November 3. Investors, however, were unconvinced that a deal will be reached with Republicans before the self-imposed Tuesday deadline by Pelosi. This, along with worries that a steep rise in coronavirus cases could lead to fresh lockdown measures and prove detrimental for the already fragile global economic recovery, kept a lid on the latest optimism.

The pair started losing momentum near the 1.3025 region and retreated around 85 pips from daily tops. The intraday pullback came after the UK Brexit Negotiator, Michel Frost, said that there is no point on resuming talks. Adding to this, Gove affirmed that the UK is ready for an “Australian-style” exit from the Union. Despite the fall, the pair managed to end the day with notable gains and held steady below mid-1.2900s through the Asian session on Tuesday. In the absence of any major market-moving economic releases from the UK, the incoming Brexit-related headlines will continue to play a key role in influencing the sentiment surrounding the British pound.

Meanwhile, the US economic docket features the release of housing market data – Building Permits and Housing Starts. Apart from this, the broader market risk sentiment will influence the USD price dynamics and provide some trading impetus. Traders will also take cues from developments surrounding the US fiscal stimulus and the coronavirus saga.

From a technical perspective, the overnight strong positive momentum faltered near a resistance marked by a one-week-old descending trend-line. The downside, however, remained cushioned near the 200-period SMA on the 4-hourly chart. Some follow-through weakness below the mentioned support, currently around the 1.2935 region, might prompt some technical selling and turn the pair vulnerable to slide back towards testing sub-1.2900 level. This is followed by a strong horizontal support near the 1.2865-60 region, which if broken decisively will pave the way for a further near-term depreciating move.

On the flip side, the 1.3000 mark might act as immediate resistance and is followed by the trend-line resistance, around the 1.3025-30 region. A convincing breakthrough will negate any near-term bearish bias and lift the pair back towards monthly swing highs, around the 1.3080-85 region. A sustained strength above the 1.3100 mark will be seen as a fresh trigger for bullish traders and set the stage for a move beyond the 1.3200 level.

2) AUD/USD: Aussie Extends Fall As RBA Discusses Further Easing

The Australian dollar accelerated lower in Asia on Tuesday (down 0.5% for the session) as minutes of RBA most recent meeting showed that the central bank discussed further monetary easing through cutting interest rate towards zero and buying longer-dated government bonds.

Fading risk mode on record coronavirus infections in the Europe and stalled US stimulus talks, inflate US dollar and add pressure to the Aussie dollar.

The pair extends steep descend into sixth straight day and increase pressure on key 0.70 support zone (25 Sep low / psychological) with firm break here to signal deeper correction of larger Mar-Sep 0.5509/0.7413 uptrend.

Rising negative momentum and moving averages in bearish setup on daily chart, support the action, but oversold stochastic warns that bears may take a breather before final push through 0.70 zone supports.

Upticks are expected to provide better selling opportunities and should be ideally capped by broken 100DMA (0.7100).

Sustained break of 0.70 pivot would expose targets at 0.6964/20 (Fibo 23.6% of 0.5509/0.7413 / early July higher base).

3) XAU/USD: Gold’s Fate Hinges On A Potential US Fiscal Stimulus Deal

Having faced rejection once again near the $1915-1920 region on Monday, Gold (XAU/USD) turned south but managed to settle the day in the green above the $1900 mark. The uncertainty over a US fiscal stimulus deal likely to be reached before the November 3 election continues to bode well for the safe-haven US dollar while capping the upside attempts in the yellow metal.

Despite President Donald Trump now backing a bigger stimulus package than earlier offered by the House Speaker Nancy Pelosi. Pelosi said that she hopes that by the end of Tuesday there will be “clarity” on a potential coronavirus stimulus bill after concluding a 53-minutes call with Treasury Secretary Steve Mnuchin late Monday.

Looking ahead, in absence of relevant US macroeconomic news featured on Tuesday, the developments around the stimulus talks will continue to remain a key driver for gold trades, as investors turn cautious ahead of the stimulus deadline.

Gold continues to waver in a two-month-long falling wedge formation, awaiting a range breakout.

The 14-day Relative Strength Index (RSI) has turned neutral just at the midline, suggesting a lack of clear directional bias.

Therefore, a bull-bear tug-of-war is likely to extend, making up for up and down sessions, unless the price closes the day above the critical falling trendline resistance at $1916.

A technical breakout would be confirmed above the latter, with immediate resistance aligned at the 50-daily moving average (DMA) at $1924.

Alternatively, the bulls remain hopeful so long as they hold above the 21-DMA at $1895. Acceptance below the latter could open floors for a test of the 100-DMA at $1875 once again.

4) EUR/USD: Bulls At The Mercy Of USD Price Dynamics, Upside Seems Limited

The EUR/USD pair caught some fresh bids on the first day of a new trading week and rallied to the 1.1800 neighbourhood, or near one-week tops amid a broad-based US dollar weakness. Reviving hopes for additional US fiscal stimulus and expectations of a COVID-19 vaccine by the end of this year boosted investors’ confidence. The risk-on flow dented the greenback’s relative safe-haven status and was seen as a key factor driving the pair higher. It is worth reporting that the US House Speaker Nancy Pelosi said on Sunday that legislation on a wide-ranging coronavirus relief package could be pushed through before the election on November 3.

However, investors remain unconvinced that a deal will be reached with Republicans before the self-imposed Tuesday deadline by Pelosi. This comes on the back of rising concerns about the risk of a disputed US election outcome and kept a lid on the latest optimism. Investors also remain concerned that a steep rise in coronavirus cases could trigger fresh lockdown measures and prove detrimental for the already fragile global economic recovery. This, in turn, led to a sharp intraday turnaround in the equity markets, which forced investors to take refuge in traditional safe-haven assets, including the USD, and capped the upside for the major.

The pair finally settled around 25 pips off daily swing highs, albeit lacked any strong follow-through, instead attracted some buying during the Asian session on Tuesday. Market participants now look forward to the release of German Producer Price Index (PPI) for the month of September for some impetus. The US economic docket features the release of Building Permits and Housing Starts. The data is unlikely to be a major game-changer, albeit might still be looked upon for some trading opportunities. Traders will also take cues from the broader market risk sentiment, developments surrounding the US fiscal stimulus and the coronavirus saga.

From a technical perspective, the overnight strong positive move stalled near a resistance marked by 50-day SMA. The mentioned barrier, around the 1.1800 mark, coincides with a multi-week descending trend-line and should now act as a key pivotal point for short-term traders. A convincing breakthrough will negate any near-term bearish bias and set the stage for a move towards reclaiming the 1.1900 mark, with some intermediate resistance near the 1.1840-45 horizontal zone.

On the flip side, the 1.1740-35 region now seems to protect the immediate downside. This is followed by support near the 1.1700 mark, below which the pair is likely to accelerate the fall towards monthly swing lows, around the 1.1615-10 area. Some follow-through selling below the 1.1600 mark now seems to pave the way for an extension of the downward trajectory further towards challenging the key 1.1500 psychological mark.