22-Oct-2020

1) AUD/USD Shrugs Off Dovish RBA, Buoyed By US Weakness And Yuan Gains
2) EUR/USD: Bulls Take A Breather, Focus Remains On US Stimulus Talks
3) GBP/USD: Stage Seems Set For A Move Beyond 1.3300 Mark
4) XAU/USD: Dollar’s Rebound Checks The Gold Rise, Bullish Bias Still Intact

1) AUD/USD Shrugs Off Dovish RBA, Buoyed By US Weakness And Yuan Gains

The Australian Dollar crept higher through trade on Wednesday, breaking back above 0.71 US cents amid broad US dollar weakness. Optimism surrounding US fiscal stimulus support has helped the AUD reverse losses suffered in the wake of Tuesday’s dovish RBA minutes while sustained CNY strength has helped underpin the uptick. China has been a bench market for the world as its economy has bounced back strongly despite the initial COVID-19 shock. While the PBOC has tried to intervene and force the currency lower the availability of higher yields and ongoing economic outperformance continue to drive gains, marking fresh two-year highs with the USD falling to 6.65 down from 7.16 at the height of the pandemic. Having touched intraday highs at 0.7140 the AUD has drifted marginally lower into this morning’s open. Direction through the rest of the week will be dominated by evolving US stimulus talks. If an agreement can be reached in time to pass a bill before the election the AUD could test the top end of recent ranges, while a breakdown in talks will likely ensure the AUD remains stuck between 0.70 and 0.7230 into November.

The US dollar fell through trade on Wednesday, forced toward a 7-week low amid hopes a fiscal stimulus relief bill may still be passed before the election. Headlines continue to dominate direction and while Tuesday’s self-imposed deadline has passed comments from Nancy Pelosi prompted a surge in optimism overnight. The House speaker suggested if a deal could be struck before the weekend there was still time to pass a bill before the election. While there is still some gap between Senate Republicans and Democrats Pelosi and Treasury Secretary Mnuchin remain confident a compromise will be reached. The questions now are not a matter of “if” a fiscal stimulus bill will be passed but “when”. The Dollar index was down 0.6% testing a break below 92 and marking its lowest level since early September. The downturn could have been worse too, with the world’s base currency buoyed by a steep CAD depreciation. The Canadian dollar lost half a percent after oil prices plunged 4% following an uptick in inventories and a downturn in consumption as the pandemic tightens its grip on the US economic recovery.

The Great British Pound was the strongest of the majors, advancing nearly 2% amid US dollar weakness and hopes a last-minute UK/EU trade deal will be struck as talks resume. Chief EU negotiator Michael Barnier suggested a pact was within reach if both sides could come together in the true spirit of compromise. The two parties have agreed to a final round of intensive talks expected to last three weeks in a bid to resolve key sticking points and reach an agreement. With hopes, a hard Brexit will be avoided Sterling surged through 1.30 and 1.31 to touch intraday highs at 1.3165. Focus remains squarely affixed to the evolving Brexit narrative with at least a partial deal prompting GBP upside into the end of the year.

2) EUR/USD: Bulls Take A Breather, Focus Remains On US Stimulus Talks

The EUR/USD pair advanced for the fourth consecutive session on Wednesday and shot to five-week tops, around the 1.1880 region on the back of some heavy selling around the US dollar. News that the US President Donald Trump was willing to accept a large aid bill raised hopes for a pre-election stimulus breakthrough. This, in turn, helped boost investors’ confidence and undermined demand for the safe-haven greenback.

Meanwhile, prospects for more government borrowing sparked a selloff in the US Treasuries and pushed the yield on the benchmark 10-year government bond to over four-month tops. The lack of demand for government debt exerted some additional downward pressure on the buck. Even growing market concerns that the second wave of coronavirus infections could hinder the global economic recovery did little to provide any respite to the USD bulls.

Investors remain sceptic that any package can actually pass through the Republican-controlled Senate before the November 3 election. The stimulus optimism already seems to have faded as there remains a strong opposition from within Trump’s own Republican Party. Adding to this, Trump on Wednesday accused Democrats of being unwilling to craft an acceptable compromise on stimulus. The slow pace of US stimulus talks added to uncertainty about the US economic outlook and took its toll on the global risk sentiment.

This was evident from a fresh leg down in the equity markets, which helped revive the USD demand. This, coupled with dovish ECB expectations, prompted some selling around the major during the Asian session on Thursday. Market participants now look forward to the release of the German Gfk Consumer Confidence for some impetus. The US economic docket features the release of the usual Initial Weekly Jobless Claims. The key focus, however, will be on developments surrounding the US fiscal stimulus, which might continue to infuse some volatility in the financial markets.

From a technical perspective, the pair struggled to find acceptance above the 61.8% Fibonacci level of the 1.2011-1.1612 downfall and witness a modest pullback from the 1.1880-90 congestion zone. This makes it prudent to wait for some strong follow-through buying beyond the mentioned hurdle before positioning for any further appreciating move. A sustained move back above the 1.1900 mark will be seen as a fresh trigger for bullish traders and set the stage for a move back towards reclaiming the key 1.2000 psychological mark.

On the flip side, any subsequent slide is likely to find decent support near the 50% Fibo. level, around the 1.1815 region. This is closely followed by a confluence resistance breakpoint, around the 1.1800 mark, comprising of 50-day SMA and a near six-week-old descending trend-line. Failure to defend the mentioned support levels might prompt some technical selling and accelerate the slide towards the next major support near the 1.1765-60 horizontal zone. The downward trajectory could further get extended to 23.6% Fibo. level, around the 1.1700 mark, which if broken decisively will negate any near-term positive bias. The pair might then turn vulnerable to aim back to retest September monthly swing lows, around the 1.1615-10 region.

3) GBP/USD: Stage Seems Set For A Move Beyond 1.3300 Mark

The British pound caught some aggressive bids on Wednesday and assisted the GBP/USD pair to post its strongest single-day gains since March. The incoming Brexit-related headlines raised prospects for the resumption of Brexit talks, which, in turn, prompted traders to unwinding their GBP bearish bets. The EU’s chief Brexit negotiator, Michel Barnier said that a Brexit agreement is within reach and showed readiness to discuss all subjects based on the legal text. Apart from Brexit developments, the heavy offered tone surrounding the US dollar further collaborated to the pair’s strong intraday positive move of over 140 pips.

News that the US President Donald Trump was willing to accept a large aid bill raised hopes for a pre-election stimulus breakthrough and helped boost investors’ confidence. This, in turn, undermined demand for the safe-haven greenback and provided an additional boost to the major. Prospects for more government borrowing sparked a selloff in the US Treasuries and pushed the yield on the benchmark 10-year government bond to over four-month tops. The lack of demand for government debt exerted some additional downward pressure on the buck. Bulls largely shrugged off the imposition of fresh lockdown measures to curb the second wave of the coronavirus infection in the UK.

The pair shot to an intraday high level of 1.3176, though uncertainty over the next round of the US fiscal stimulus capped any further upside, at least for the time being. Despite positive developments, investors remain skeptic that any package can actually pass through the Senate amid strong opposition from within Trump’s own Republican Party. Adding to this, Trump on Wednesday accused Democrats of being unwilling to craft an acceptable compromise on stimulus. The slow pace of US stimulus talks took its toll on the global risk sentiment and provided a much-needed respite to the USD bulls.

The pair consolidated the overnight upsurge and was seen oscillating in a narrow trading band through the Asian session on Thursday. In the absence of any major market-moving economic releases from the UK, developments surrounding the Brexit saga will continue to play a key role in driving the sentiment around the sterling. Meanwhile, the US economic docket features the release of the usual Initial Weekly Jobless Claims. This, along with the US stimulus headlines, will influence the USD price dynamics and produce some meaningful trading opportunities.

From a technical perspective, the overnight strong momentum confirmed a near-term bullish breakthrough a symmetrical triangle, and supports prospects for additional gains. Bulls, however, took a brief pause near a resistance marked by the 61.8% Fibonacci level of the 1.3482-1.2676 recent pullback. This makes it prudent to wait for a sustained move beyond the mentioned barrier, around the 1.3175 region, before placing fresh bullish bets. The pair might then surpass the 1.3200 mark and aim to test the 1.3235 horizontal resistance. The momentum could further get extended towards the 1.3300 mark en-route the 1.3320 hurdles.

On the flip side, any meaningful pullback now seems to find decent support near the 1.3100 round-figure mark. Subsequent weakness will now be seen as a buying opportunity, which, in turn, should help limit the downside near the 50% Fibo. level, around the 1.3070-65 region. That said, some follow-through selling might still drag the pair back towards the triangle resistance breakpoint, now turned support, currently near the 1.3010-1.3000 region.

4) XAU/USD: Dollar’s Rebound Checks The Gold Rise, Bullish Bias Still Intact

Gold (XAU/USD) rallied about 1% on Wednesday and clocked fresh one-week highs at $1932 before retracing slightly to finish the day around $1925. The surge in the yellow demand was fueled by the absence of haven demand for the US dollar. Investors cheered the progress on a likely US fiscal stimulus deal ahead of the election, as President Donald Trump leaned towards a larger aid bill while the White House and Democrats moved closer to an agreement.

However, the tide turned in favor of the dollar bulls towards the mid-American session after Wall Street stocks tumbled on reports that Senate Republicans showed reluctance on approving a multi-trillion-dollar stimulus deal. Gold slipped along with stocks, as the correction continues so far this Thursday. Uncertainty over the next round of stimulus talks creeps in, as President Trump lashed out at the House Speaker Nancy Pelosi after she pushed for a $2 trillion proposal.

Adding to the risk-off mood, US National Intelligence Director and FBI Director warned over Russia and Iran trying to meddle with the November 3 elections. The greenback extends its overnight recovery, keeping gold under pressure. However, any positive development on the stimulus front and or upbeat US jobless claims data could revive the appetite for risk assets, which could likely weigh on the dollar and render gold-supportive.

After a big falling wedge breakout validated on the daily chart on Wednesday, the bulls face a stiff resistance at the 50-daily moving average (DMA) at $1924, at the time of writing.

Therefore, the bullish momentum is likely to regain traction only on a sustained break above the above-mentioned powerful barrier. The next critical resistance is aligned at the October 12 high of $1933.30, beyond which the psychological $1950 level will be put at risk.

The 14-day Relative Strength Index (RSI) has turned lower but holds above the midline at 51.21, suggesting that there is room for further upside.

On the flip side, the 21-DMA at $1898 will continue to guard the downside. A break below the latter could test the 100-DMA support at $1879.