22-Feb-2021

1) GBP/USD Dips Below 1.40 Ahead Of UK PM Johnson’s Reopening Speech
2) XAU/USD: Gold Bulls Insist But Treasury Yields Surge Could Play A Spoil Sport
3) EUR/USD: Pair Torn Between Optimism And Inflation Fears, Has Two Reasons To Rising

1) GBP/USD Dips Below 1.40 Ahead Of UK PM Johnson’s Reopening Speech

GBP/USD has been on the back foot, dipping below 1.40 as the dollar benefits from rising yields. UK PM Johnson is set to lay out a highly-anticipated reopening plan later in the day.

Unless breaking the monthly ascending trend channel, currently between 1.4070 and 1.3890, GBP/USD is likely to keep the upside momentum.

The Sun came out with the news, quoting UK’s Health Minister Matt Hancock, saying, “there was evidence that the stricter measures – including contact tracing and stricter border measures – had slowed the spread of the new strains.” The news piece also highlights British Prime Minister (PM) Boris Johnson’s readiness to recall the virus-led lockdowns as saying, “This comes as the PM is confident he can speed up the vaccination program to free the country from lockdown sooner than planned.”

On a different page, the Financial Times (FT) cites odds of UK Foreign Secretary Dominic Raab to call for the United Nations’ intervention in China’s Xinjiang province to challenge the sour sentiment.

Against these plays, the equity Futures struggle between gains and losses as the bond yields refresh multi-day high.

Looking forward, comments from UK PM Boris Johnson will be decisive for the GBP/USD pair traders as any disappointment over the lockdown measures can probe the short-term bullish chart formation around the multi-month top. Also, comments from the UK’s Raab will be closely watched and may weigh on the risks, indirectly helping the US dollar, if China chose to retaliate.

2) XAU/USD: Gold Bulls Insist But Treasury Yields Surge Could Play A Spoil Sport

The reflation trade emerges as the key theme starting out a new week this Monday, limiting the recovery in Gold (XAU/USD) from seven-month lows of $1761. Expectations that US President Joe Biden’s $1.9 trillion stimulus package could be approved next week, refueled the market optimism and reflation trade, which drove the US Treasury yields sharply higher. The benchmark 10-year US Treasury yields reached one-year highs, capping the advance in the non-yielding gold.

The rally in the US rates put a fresh bid under the dollar across its main peers, keeping the additional upside elusive in the metal, for now. Positive developments on the covid vaccine front could also likely weigh on gold. Markets now look forward to the testimonies by the Fed Chair Jerome Powell due on Tuesday and Wednesday for fresh trading impetus.

The risks of ongoing business failures in the US “remain considerable” even as the economy emerges from the coronavirus pandemic, the Fed said on Friday in its semi-annual monetary policy report to Congress.

Gold’s hourly chart shows that the price gyrates between the bearish 100-hourly moving average (HMA) and upward-sloping 21-HMA, awaiting fresh catalysts for a range breakout.

A break above the 100-HMA at $1788 could prompt the XAU bulls to challenge the key horizontal trendline barrier at $1793 levels. Acceptance above the latter is needed to stimulate the recovery mode.

The Relative Strength Index (RSI) edges higher above the 50 levels, suggesting the metal could see a fresh leg higher in the sessions ahead.

Meanwhile, a breach of the critical support around $1780 could trigger a sharp fall towards the multi-month lows of $1761.

3) EUR/USD: Pair Torn Between Optimism And Inflation Fears, Has Two Reasons To Rising

How many shots in the arm are needed to vaccinate against COVID-19? The medical debate has been raging on and so has the economic one – too many economic boosts may cause overheating, and this battle is tearing the dollar apart.

On the one hand, the greenback is a safe-haven currency and therefore suffers as the world is emerging from the health and economic crisis. President Joe Biden’s stimulus will help America recover and funds can flow out of the US to other places. This thinking is pushing EUR/USD higher.

On the other hand, an overdose raises fears of inflation – with oil and copper prices already shooting higher, also for their own reasons. In turn, investors are selling of US Treasuries, pushing yields to new highs. And that makes the dollar attractive.

At the time of writing, yields are having the upper hand, pushing EUR/USD down toward 1.21. However, two forces may change that. First, the German IFO survey for February is set to show optimism in Europe’s largest economy, providing support to the euro.

Nevertheless, the world’s most popular currency pair mostly moves to the greenback’s tune. Jerome Powell, Chairman of the Federal Reserve, is scheduled to testify before Congress on Tuesday and Wednesday, but his prepared remarks may already be published on Monday.

Will the Fed tolerate rising returns on US debt for much longer? While higher yields are a healthy sign of upbeat expectations for growth, they may also choke the recovery. Powell will likely reiterate the bank’s commitment to supporting the recovery – which means looser monetary policy for longer – and that could weigh on the greenback.

Investors will also be watching for developments related to the stimulus. Democrats have a narrow majority in the House and the tightest of margins in the Senate. The 50-50 – broken only by Vice-President Kamala Harris – means every senator from Biden’s part has significant power. Comments related to the stimulus bill may also move markets. Investors are confident that some bill will pass, yet probably below $1.9 trillion proposed by the president.

Euro/dollar is battling 1.2105, which is where the 50 Simple Moving Average on the four-hour chart hits the price. The 200 SMA is also approaching it. Momentum is marginal to the upside and the pair is trading above the 100 SMA. All in all, the picture is mixed.