22-Dec-2020

1) Dollar Erases Initial Gain On Safe-Haven Buying And Falls On Rebound In US Stocks
2) Larming Developments In GLD ETF Reaffirm Need To Own Physical Gold
3) EUR/USD: Emergence Of Dip-Buying Supports Prospects For Additional Gains
4) GBP/USD: Brexit Uncertainties, Coronavirus Jitters Might Continue To Cap Gains

 

 

1) Dollar Erases Initial Gain On Safe-Haven Buying And Falls On Rebound In US Stocks

The greenback went through a volatile Monday’s session and erased its intra-day gains and retreated in New York after falling in Asia and Europe on active risk-averse buying in USD on fears about an infectious new coronavirus strain that was discovered in the UK. USD gained in New York afternoon as U.S. stocks pared initial weakness on U.S. stimulus deal optimism.

Versus the Japanese yen, the greenback went through a roller-coaster session. Although the dollar opened higher and gained to 103.56 in New Zealand, the price retreated to 103.26 in the Asian morning. However, the pair then rose to session highs of 103.88 in Europe on safe-haven USD buying due to new coronavirus strain concern together with a selloff in global equities before falling back to 103.29 in New York afternoon as the recovery in U.S. stocks prompted broad-based USD selling.

The single currency went through a hectic session. Price opened lower and fell to 1.2180 in Asian morning on safe-haven USD buying before recovering to 1.2226 in early European trading but only to tumble to session lows of 1.2131. However, the pair then bounced to 1.2225 in New York morning on short-covering due to a rebound in U.S. equities and later climbed back to 1.2253.

On the data front, Reuters reported eurozone consumer confidence rose by 3.7 points in December from the November number, figures released on Monday showed. The European Commission said a flash estimate showed euro zone consumer morale improved to -13.9 this month from -17.6 in November. Economists polled by Reuters had expected a rise to -16.8. In the European Union as a whole, consumer sentiment rose by 3.4 points to -15.3.

The British pound also went through a volatile session. Cable opened lower and then fell to 1.3337 in Asia on the impasse in the latest Brexit talks over the weekend as well as new lockdown measures in the United Kingdom due to a new coronavirus strain and travel bans before recovering to 1.3368. However, renewed selling interest emerged and intra-day selloff accelerated at European open and price tumbled to a 1-week low of 1.3189 before staging a strong rebound to 1.3357 in New York morning on short-covering and cross-buying in sterling. Price later extended intra-day on Brexit optimism and hit 1.3499 before retreating.

Reuters reported Britain insisted on Sunday that the European Union should shift position to open the way to a post-Brexit trade pact, drawing a swift response from the bloc’s negotiator defending the union’s right to protect its interests.

Negotiations are expected to continue on Monday, beyond a Sunday deadline set by the European Parliament, and a senior British government source described them as “difficult” because of the “significant differences” in position.

While earlier on Sunday, several European countries began closing their doors to travelers from Britain after the country tightened COVID restrictions in London and southern England to try to curb the spread of a new strain of the coronavirus. Later, Reuters revealed that the EU is considering a new proposal on fishing rights from the United Kingdom as British Prime Minister Boris Johnson tries to secure an 11th-hour trade deal, Bloomberg News reported on Monday.

Under the latest proposal, Britain is ready to let EU boats retain two-thirds of their catch, the report said. Last week the United Kingdom was insisting the EU accept a 60% cut, the report added. The EU in recent days has offered a 25 percent cut over a six-year transition – a proposal that France is deeply uncomfortable with and that has prompted outrage from the bloc’s fishing industry, according to a Financial Times report.

 

2) Larming Developments In GLD ETF Reaffirm Need To Own Physical Gold

The world’s largest gold exchange-traded fund (ETF) seems to be having a lot of trouble when it comes to accounting.

The SPDR Gold Trust (GLD) recently appointed its 6th chief financial officer in 2014. And the problem of finding and keeping executives who are willing to certify the Fund’s accounting does not appear to be the only reason for concern at GLD.

The timing of the most recent CFO departure is particularly troubling. Laura Melman left one day prior to the Fund’s fiscal year-end.

The World Gold Council, which is behind the SPDR Gold Trust, says her “departure did not arise from any disagreement on any matter relating to the operations, policies, or practices of the SPDR® Gold Trust.”

However, Melman didn’t sign off on GLD’s annual 10-K filing before departing, even though, presumably, she had the filing all but completed.

That signature had to be made by Brandon Woods, who was on his first day on the job.

The World Gold Council has not commented as to why there is so much trouble retaining CFOs. This much turnover is often a sign of serious problems.

The long-time auditor of the fund, KPMG, didn’t exactly inspire confidence in the 10-K filing. The accounting firm flagged the filing with a “Critical Audit Matter.”

The auditor included the following explanation:

We identified the evaluation of the evidence pertaining to the existence of the gold holdings as a critical audit matter. Given the nature and volume of the gold holdings, subjective auditor judgment was required to evaluate the extent and nature of evidence obtained to assess the quantity of gold held by the custodian as of September 30, 2020.

Translation – KPMG had to use subjective judgment rather than objective evidence and records when attempting to confirm exactly how much physical gold is actually held by the fund.

The fund’s auditors aren’t the only ones who appear uncertain about the inventory held by GLD. Gold bugs have long questioned whether it can account for all of the physical metal represented as owned by the trust in its filings.

The fund reports adding 348 tons of physical gold between January and July of this year. It appears as if a lot of the gold – 70 tons or more – was sourced from the Bank of England.

Skeptics believe the gold sourced from the BoE is not owned. Rather it is leased and will ultimately need to be returned to the central bank.

In addition to accounting red flags at GLD, investors should also consider the risk associated with who provides depository services. HSBC Bank is the custodian of the gold. The bank stores GLD’s bars in its London vaults.

That means owning shares of GLD requires placing your trust in HSBC, arguably one of the world’s most crooked banks.

Financial advisors and stockbrokers around the world often recommend buying shares of GLD to clients who are interested in gold. They view the shares as a perfectly good proxy for owning physical bullion.

However, most will not even be aware of, or consider, the counterparty risks outlined above.

Investors are better off buying actual bullion and storing it themselves. They can also hold precious metals through a reputable depository that isn’t connected to the banking system and offers segregated storage.

There’s little good reason to put any trust in GLD’s parade of CFOs or in shady HSBC bankers.

 

3) EUR/USD: Emergence Of Dip-Buying Supports Prospects For Additional Gains

The EUR/USD pair had some good two-way price swings on the first day of a new trading week and was influenced by developments surrounding the coronavirus saga. The discovery of a new rapid-spreading strain of the highly contagious disease rattled global financial markets and forced investors to take refuge in the traditional safe-haven US dollar. This, in turn, was seen as a key factor that exerted some heavy downward pressure on the major and dragged it to a three-day low level of 1.2130.

The early knee-jerk slide, however, turned out to be short-lived, instead was quickly bought into amid optimism over COVID-19 vaccine rollout in Europe. The European Medicines Agency approved the Pfizer/BioNTech Vaccine for usage in the EU. The EMA stated that there is no evidence to suggest that the vaccine will not work against the new coronavirus strain. The pair rallied over 120 pips from daily swing lows and was further supported by the emergence of some USD selling at higher levels.

The US House of Representatives passed a long-awaited $892 billion coronavirus aid package on Monday, alongside a $1.4 trillion measure to keep the government funded for another year. This, along with a strong rebound in the US equity markets, failed to assist the greenback to preserve its strong intraday gains amid absent relevant market-moving economic releases. Nevertheless, the pair settled near the top end of its daily trading range, just below mid-1.2200s, albeit lacked follow-through.

Renewed fears that the highly infectious new strain of COVID-19 could lead to a slower global economic recovery continued weighing on investors’ sentiment. This was evident from the prevalent cautious mood around equity markets, which continued lending some support to the safe-haven USD and prompted some fresh selling around the pair during the Asian session on Tuesday. Market participants now look forward to the release of the German GFK Consumer Confidence Index for a fresh impetus.

The US economic docket highlights the final version of the Q3 GDP report, along with the Richmond Fed Manufacturing Index, the Conference Board’s Consumer Confidence Index, and Existing Home Sales. Apart from this, the broader market risk sentiment will influence the USD price dynamics and contribute to producing some meaningful trading opportunities on Tuesday.

From a technical perspective, the pair managed to rebound from an important congestion zone near the 1.2130-25 region. The mentioned area coincides with a near seven-week-old ascending trend-line and 100-period SMA on the 4-hourly chart, which should now act as a key pivotal point for short-term traders. In the meantime, any subsequent move up is more likely to confront resistance near the 1.2275-80 region. A sustained move beyond will be seen as a fresh trigger for bullish traders and push the pair further beyond the 1.2200 mark, towards testing the next hurdle near the 1.2235-40 region.

On the flip side, any meaningful slide back below the 1.2200 mark now seems to find some support near the 1.2170 region. This is followed by the 1.2130-25 confluence support, which if broken decisively will negate prospects for any further gains. Some follow-through selling below the 1.2100 mark will add credence to the bearish break and turn the pair vulnerable to accelerate the fall further towards challenging the key 1.2000 psychological mark.

 

4) GBP/USD: Brexit Uncertainties, Coronavirus Jitters Might Continue To Cap Gains

The GBP/USD pair opened with a bearish gap in reaction to the imposition of the most severe lockdown measures in London and southeast England to control the fast-spreading new variant of the coronavirus. The discovery of a new strain, which was said up to 70% more transmissible than the original, spooked investors and provided a strong boost to the US dollar’s status as the global reserve currency. The British pound was further pressured by a deadlock in the post-Brexit trade deal negotiations. Both sides remain at odds over access to the UK’s rich fishing waters and missed yet another deadline. The European Parliament had fixed Sunday as the last moment it could accept a text of any accord to ratify it before the end of the transition period on December 31.

However, reports indicated there is no evidence that the recently rolled out vaccines would not protect against the new faster spreading strain of the highly contagious disease. This, along with some positive Brexit-related headlines and additional US fiscal stimulus measures, helped ease the bearish pressure, rather assisted the pair to stage a solid intraday rebound. Bloomberg News reported on Monday that the EU was considering a compromise on fishing rights, which have been a stumbling block to a deal. Separately, British Prime Minister Boris Johnson warned that there are still problems in securing a post-Brexit trade deal. However, investors remained hopeful about a last-minute Brexit deal, which, in turn, extended support to the sterling.

Meanwhile, the US House of Representatives passed a long-awaited $892 billion coronavirus aid package on Monday, alongside a $1.4 trillion measure to keep the government funded for another year. Apart from this, a strong intraday rebound in the US equity markets failed to assist the greenback to preserve its strong intraday gains amid absent relevant market-moving economic releases. The pair recovered over 300 pips from daily swing lows, albeit struggled to capitalize on the move and failed ahead of the key 1.3500 psychological mark. Renewed fears that the highly infectious new strain of COVID-19 could lead to a slower global economic recovery continued benefitting the safe-haven USD and exerted some pressure on the major during the Asian session on Tuesday.

Market participants now look forward to the release of the final Q3 GDP reports from the UK and the US for a fresh impetus. The US economic docket also features the releases of Richmond Fed Manufacturing Index, Conference Board’s Consumer Confidence Index, and Existing Home Sales. The data, along with the incoming Brexit-related headlines and developments surrounding the coronavirus saga, should infuse some volatility around the major and assist traders to grab some meaningful opportunities.

From a technical perspective, the pair on Monday managed to rebound swiftly from support marked by the lower boundary of a three-month-old ascending trend-channel. The mentioned support, currently around the 1.3200-1.3190 region, coincides with 50-day SMA and should now act as a key pivotal point for short-term traders. In the meantime, the 1.3325-20 region and the 1.3300 round-figure mark might act as immediate support levels. A sustained break below might turn the pair vulnerable to slide back to challenge the trend-channel support.

On the flip side, bulls might now wait for a sustained move beyond the 1.3500 mark before positioning for any further appreciating move. Some follow-through buying beyond the 1.3525 region will shift the near-term bias back in favor of bullish traders and assist the pair to make a fresh attempt towards conquering the 1.3600 mark. The momentum could further get extended to last week’s swing highs, around the 1.3625 region, which if cleared will mark a fresh near-term bullish breakout and set the stage for an extension of the pair’s recent strong upward trajectory.