21-Jan-2021

1) Dollar on Back Foot As Biden Optimism Bolsters Riskier Currencies
2) EUR/USD: Investors Await ECB for Fresh Directional Impetus
3) GBP/USD: Bullish Technical Set-Up Favours a Move Towards 1.3800 Mark
4) XAU/USD: Gold to Face a Bumpy Road to the Upside Amid Stimulus Hopes

1) Dollar on Back Foot As Biden Optimism Bolsters Riskier Currencies

The focus today will be on the European Central Bank (ECB) monetary policy. Disinflation continues to remain the biggest worry for the ECB and a stronger Euro is further compounding their problems. The communication from the ECB is likely to be dovish, though no changes to rates, asset purchases, and TLTROs are likely. Comments on the Euro will be closely watched. 1.2030 is an important support and 1.2350 a key resistance. Break of either could result in stops getting triggered.

T-Bill cut-offs came in higher compared to the previous auction with a 3m T-Bill yield now at 3.32%, just a tad below the reverse repo rate of 3.35%. The far end of the curve though was quite stable with the yield on the 10y benchmark at 5.90% i.e. very close to the reverse repo. The forwards continue to remain elevated. Equities rallied for the second straight day with benchmark indices hitting new record highs.

The Sterling again ran into resistance around the 1.37 mark. 1.3650-1.37 is proving to be a strong resistance zone for Sterling.

The Dollar is weak against emerging market and commodity currencies. Overall global risk sentiment is upbeat. USD/INR could test the 72.90 support, a break of which could trigger stops resulting in a move lower to 72.70. 72.50 is an extremely crucial technical support. SGX is indicating a 50pt gain for Nifty on open.

Joe Biden officially got sworn in as 46th president of the US in the inauguration ceremony yesterday. His comments over the next few days on foreign policy, fiscal stimulus, and management of the ongoing Coronavirus-led health crisis will be closely tracked. US weekly jobless claims are due today.

2) EUR/USD: Investors Await ECB for Fresh Directional Impetus

Following an early uptick to fresh weekly tops, the EUR/USD pair witnessed some selling on Wednesday and finally settled in the red. The pullback lacked any obvious catalyst and could be solely attributed to some repositioning trade ahead of the European Central Bank (ECB) meeting on Thursday. On the economic data front, Eurostat’s reported the final version of the Eurozone CPI, which showed that the consumer prices fell 0.3% YoY in December. Meanwhile, the core CPI was finalized at 0.2% YoY. The readings were in line with the flash estimates and did little to provide any meaningful impetus to the shared currency.

That said, a broad-based US dollar weakness extended some support and helped limit any deeper losses for the major. Hopes for an additional US stimulus package from the newly inaugurated US President Joe Biden, to a larger extent, offset worries about the potential economic fallout from the coronavirus pandemic. Biden took a flurry of executive actions in his first hours as president and also pitched a plan to pump $1.9 trillion more into the struggling US economy. The reflation trade pushed the US equity markets to fresh record highs and undermined the greenback’s relative safe-haven status against its European counterpart.

The pair bounced around 30 pips from the daily swing lows, around the 1.2075 region, and build on the momentum through the Asian session on Thursday. The market focus now shifts to the ECB policy decision. The central bank is expected to keep interest rates and the pace of bond purchases unchanged. The policymakers, however, could express displeasure over the high exchange rate of the euro and its adverse effect on the inflation outlook. Hence, the accompanying policy statement and the ECB President Christine Lagarde’s comments at the post-meeting press conference might infuse some volatility around the common currency.

Later during the early North American session, the US macro data might influence the USD price dynamics and further produce some meaningful trading opportunities. Thursday’s US economic docket features the release of the Philly Fed Manufacturing Index, the usual Initial Weekly Jobless Claims, and housing market data – Building Permits and Housing Starts.

From a technical perspective, the pair already seems to have confirmed a breakout through a falling wedge resistance and seems poised to appreciate further. That said, bulls might still need to wait for a sustained move beyond the 1.2155-60 horizontal resistance before placing fresh bets. The pair might then aim to surpass the 1.2200 level and test the 1.2235-40 resistance zone. Some follow-through buying has the potential to push the pair back towards the 1.2300 round-figure mark.

On the flip side, the 1.2080-75 region now seems to have emerged as immediate strong support. A subsequent slide below weekly swing lows, around mid-1.2000s, will be seen as a fresh trigger for bearish traders and set the stage for an extension of the recent corrective slide from multi-year tops. The pair might then accelerate the fall towards challenging the key 1.2000 psychological mark before eventually dropping to the 1.1975 region. The latter marks the 50% Fibonacci level of the November-January rally, around the 1.2170-75 region, which should act as a key pivotal point and help determine the pair’s next leg of a directional move.

3) GBP/USD: Bullish Technical Set-Up Favours a Move Towards 1.3800 Mark

The GBP/USD pair jumped to fresh 32-month tops on Wednesday, albeit continued with its struggle to find acceptance above the 1.3700 mark and finally settled with modest daily gains. The strong intraday positive move was sponsored by a softer tone surrounding the US dollar and got an additional boost following the release of stronger-than-expected UK CPI consumer inflation figures. The British pound further benefitted from the rapid vaccination campaign and a gradual decrease in COVID-19 cases in the UK. Despite the supporting factors, the pair failed to capitalize on the move beyond the 1.3700 level and witnessed a sharp pullback of around 100 pips from daily swing highs.

However, persistent USD selling bias extended some support, instead of assisted the pair to regain positive traction for the third consecutive session on Thursday. The greenback remained depressed amid the prevalent upbeat market mood, supported by the increasing likelihood of an additional US stimulus package under Joe Biden’s presidency. In fact, Biden pitched a plan to pump $1.9 trillion more into the struggling US economy in his first hours as the new US president. This, in turn, helped offset worries about the potential economic fallout from the coronavirus pandemic. This, in turn, pushed the US equity markets to fresh record highs and undermined the USD’s safe-haven demand.

There isn’t any major market-moving data due for release from the UK on Thursday. Meanwhile, the US economic docket features the release of the Philly Fed Manufacturing Index, the usual Initial Weekly Jobless Claims, and housing market data – Building Permits and Housing Starts. This, along with the broader market risk sentiment, might influence the USD price dynamics and provide some impetus to the major. Apart from this, the ECB monetary policy decision could trigger some cross-driven movement and assist traders to grab meaningful opportunities.

From a technical perspective, the recent strong move up over the past four months or so has been along an upwards sloping channel. This points to a well-established near-term bullish trend and supports prospects for additional gains. With technical indicators on the daily chart still far from being in the overbought territory, the pair seems all set to prolong the upward trajectory and aim to reclaim the 1.3800 mark. The mentioned level marks the top boundary of the ascending channel, which if cleared decisively will be seen as a fresh trigger for bullish traders.

On the flip side, any meaningful pullback is likely to find decent support and attract some dip-buying near the 1.3620 horizontal support. This is closely followed by supports near the 1.3600 mark and the 1.3585 region. Failure to defend the mentioned levels might prompt some technical selling and turn the pair vulnerable to correct further, possibly towards testing the key 1.3500 psychological mark.

4) XAU/USD: Gold to Face a Bumpy Road to the Upside Amid Stimulus Hopes

With Joe Biden sworn in as the 46th US President on Wednesday, Gold (XAU/USD) surged nearly 2% to reach the highest levels in two weeks above $1870. That came in on the heels of the continued rise in the US inflation expectations, as markets remained hopeful that the Biden administration would boost stimulus to deal with the economic blow from the coronavirus pandemic.

The US stocks registered fresh all-time highs, as the stimulus expectations lifted the risk sentiment and weighed negatively on the US dollar. Meanwhile, the 10-year US Treasury yields traded rangebound around 1.10%.

The risks remain tilted to the upside for gold in Thursday’s trading amid the upbeat market mood while investors rethink Biden’s likely $1.9 trillion stimulus package ahead of the key ECB monetary policy decision and US weekly jobless claims data. The continued surge in the virus cases globally could also underpin the sentiment around the safe-haven gold. According to Reuters, US fatalities rose by 4332 on Wednesday while Germany reported nearly 20,400 new infections on Thursday.

As observed in the four-hour chart, gold extended the break higher, having confirmed a falling channel breakout in Wednesday’s Asian trading.

The price seems to have found acceptance above the 200-simple moving average (SMA) at $1868 on the given timeframe. However, the bulls need to crack the horizontal 100-SMA resistance at $1877 to unleash the further upside.

The 14-day Relative Strength Index (RSI) sits beneath the overbought region, suggesting more scope northwards.

To the downside, a break below the 200-SMA could trigger a sharp drop towards $1846 critical support, which is the confluence of the pattern resistance now support, 21 and 50-SMAs. The next relevant support awaits near the $1830 region, below which the January 17 low at $1803 could be back on the radar.