23-Sep-2020

1) Dollar Rises On Safe-Haven Buying, Sterling Tumbles On New Coroanvirus Restrictions
2) GBP/USD: Break Below 200-DMA Paves The Way For Further Near-Term Weakness
3) EUR/USD: Remains Vulnerable Near Two-Month Lows Ahead Of Eurozone/US PMIs
4) Gold Price: Dollar Offers No Reprieve To XAU/USD, The $1863 August Low Eyed

1) Dollar Rises On Safe-Haven Buying, Sterling Tumbles On New Coroanvirus Restrictions

The greenback extended its gains from Monday and ended higher across the board on Tuesday due to continued active safe-haven USD buying together with hawkish comments from Chicago Fed President Evans. Cable tumbled to an 8-week low after UK Prime Minister Boris Johnson announced new restrictions to tackle spread of Covid-19.

Reuters reported the U.S. economy risks a longer, slower recovery, if not another outright recession, if Congress fails to pass a fiscal package to support out-of-work Americans and state and local governments, Chicago Federal Reserve President Charles Evans said on Tuesday.

“Fiscal support is just fundamental,” Evans said at a virtual meeting of the London-based Official Monetary and Financial Institutions Forum. His own forecast for the U.S. unemployment rate to fall to 5.5% by the end of next year assumes not just a vaccine for the coronavirus but also a U.S. fiscal package of at least $500 billion or $1 trillion, and otherwise I think the recessionary dynamics are really going to kick in in a much bigger way,” he said.

Versus the Japanese yen, although dollar met renewed selling at 104.75 at Asian open and fell to 104.41 in Europe, price erased intra-day losses and later rallied to session highs at 105.07 in New York morning on USD’s broad-based strength before retreating to 104.92 on profit-taking.

The single currency met renewed selling at 1.1773 in Australia and fell to 1.1721 in European morning. Despite staging a strong rebound to 1.1767, the pair the tumbled to an 8-week low of 1.1693 in New York morning on USD’s strength before trading sideways.

The British pound went through a volatile session. Although cable moved sideways in Asia, price met renewed selling at 1.2824 and tumbled to a 1.2714 in European morning on negative comments from Bank of England Governor Andrew Bailey together with fears of potential second national lockdown. However, the pair then rallied to 1.2867 on cross-buying in sterling but only to drop again to a fresh 8-week low of 1.2711 in New York on USD’s broad-based strength as well as Prime Minister Boris Johnson’s announcement of new restrictions to prevent another round of full lockdown before rebounding to 1.2742 on short-covering.

Reuters reported Bank of England Governor Andrew Bailey said on Tuesday that escalating COVID-19 cases in Britain reinforced the downside risks in its latest forecasts for the economy. He told a British Chambers of Commerce audience that there were “hard yards” to come and that the BoE would do everything it could to support the economy. The British Prime Minister Boris Johnson unveiled on Tuesday a new package of tougher measures to try to tackle increasing numbers of COVID-19 cases, saying the government would extend the use of masks and tighten the so-called “rule of six”.

In other news, Reuters reported America’s economy has shown “marked improvement” since the coronavirus pandemic drove it into recession, but the path ahead remains uncertain and the U.S. central bank will do more if needed, Federal Reserve Chair Jerome Powell told a congressional panel on Tuesday.

2) GBP/USD: Break Below 200-DMA Paves The Way For Further Near-Term Weakness

The GBP/USD pair had some good two-way price moves on Tuesday and was influenced by a combination of diverging forces. Following an early slide to the 1.2700 neighbourhood, the pair caught some intraday traction and rallied over 150 pips after the BoE Governor Andrew Bailey downplayed expectations that the central bank could soon cut interest rates below zero. At an online talk hosted by the British Chambers of Commerce, Bailey said that the mention of negative rates doesn’t imply anything about the possibility of using it. He also noted that the experience of negative rates elsewhere was mixed, and the effectiveness depends on the structure of the banking system and the timing of the move.

The British pound got an additional from positive Brexit-related headlines. EU source reportedly said that Brexit talks have been going a bit better than expected and that there is a ‘window of opportunity’. The UK PM spokesman confirmed the EU Chief Brexit Negotiator Michel Barnier’s visit tomorrow for informal talks. The spokesman further stressed that the UK will continue to work hard on securing a Brexit deal. The optimism turned out to be short-lived after Ireland’s foreign minister, Simon Coveney was noted saying that there is a growing sense that perhaps Britain doesn’t want a Brexit deal and the UK government tactic is making complex talks even more difficult.

In the latest developments surrounding the coronavirus saga, the UK Prime Minister Boris Johnson announced a slew of coronavirus restrictions for England. These new measures to contain a fresh spike in the number of COVID-19 infections may last for six months. Adding to this, Johnson warned to introduce greater restrictions if there is no improvement in the pandemic situation. This, in turn, took its toll on the British pound. This coupled with a strong pickup in demand for the US dollar prompted some fresh selling at higher levels. The pair finally settled near the lower end of its daily trading range and extended the slide during the Asian session on Wednesday.

The greenback remained well supported by growing market concerns that the second wave of coronavirus infections could hinder the current economic recovery. The USD uptick got an additional boost after Chicago Fed President Charles Evans struck a hawkish tone on Tuesday and said that further quantitative easing may not provide additional lift to the US economy. Evans further added that it is possible for the Fed to raise interest rates before inflation starts to average 2%. The bid tone surrounding the buck pushed the pair below the very important 200-day SMA, or two-month lows during the Asian session on Wednesday.

In the absence of any major market-moving economic releases from the UK, the incoming Brexit-related headlines will play a key role in driving the British pound. Later during the early North American session, traders will take cues from the release of the flash version of the US PMI prints for September. Apart from this, the Fed Chair Jerome Powell’s second day of the congressional testimony will influence the USD price dynamics and the broader market risk sentiment will influence the USD price dynamics, which, in turn, might further contribute to produce some meaningful trading opportunities.

From a technical perspective, the pair was last seen hovering near the 38.2% Fibonacci level of the 1.1412-1.3482 positive move. Some follow-through selling will confirm a near-term bearish breakdown and accelerate the slide further towards the 1.2625-20 horizontal support. Subsequent weakness below the 1.2600 mark will set the stage for a fall towards mid-1.2500s en-route the key 1.2500 psychological mark and 50% Fibo. level support near the 1.2445 region.

On the flip side, any attempted recovery back above the 1.2700 mark now seems to confront a stiff resistance and remain capped near the previous multi-week swing lows, around the 1.2760-65 region. That said, some follow-through strength might prompt some short-covering move and lift the pair back above the 1.2800 mark. This is followed by resistance near the overnight swing high, around the 1.2865 region, which if cleared might negate any near-term bearish bias. The pair might then aim back towards conquering the key 1.3000 psychological mark in the near-term.

3) EUR/USD: Remains Vulnerable Near Two-Month Lows Ahead Of Eurozone/US PMIs

The EUR/USD pair witnessed some follow-through selling for the fourth consecutive session and fell to the lowest level since July 27th during the Asian session on Wednesday. Concerns about the second wave of coronavirus infections continued driving some haven flows towards the US dollar, which got an additional boost after Chicago Fed President Charles Evans struck a hawkish tone. Evans said that further quantitative easing may not provide additional lift to the US economy and it is possible for the Fed to raise interest rates before inflation starts to average 2%.

Meanwhile, comments by the ECB Executive Board member Fabio Panetta fueled expectations for further policy easing this year and weighed on the shared currency. Panetta said that the ECB should err on the side of providing too much stimulus rather than too little. Panetta also singled out the recent appreciation of the euro and said that it is one factor that we need to watch closely with regard to its implications for the medium-term inflation outlook. This comes amid worries that the economic recovery in the Eurozone is stalling, which further contributed to the downfall.

Hence, the key focus will be on the flash version of the Eurozone PMI prints for September. Even a slight disappointment might be enough to support the view that the picture in Europe has changed and continue exerting pressure on the major. Later during the early North American session, the flash version of the US Manufacturing and Services PMIs, along with the Fed Chair Jerome Powell’s second day of the congressional testimony will influence the USD price dynamics and produce some meaningful trading opportunities.

From a technical perspective, a sustained break below 50-day SMA – for the first time since May –was seen as a fresh trigger for bearish traders. A subsequent fall below August monthly swing lows, around the 1.1695 region, might have already set the stage for further weakness. Hence, some follow-through slide towards testing the 1.1600 round-figure mark, marking the 50% Fibonacci level of the 1.1683-1.2011 positive move, now looks a distinct possibility. The downward trajectory could further get extended towards 61.8% Fibo. level, around the key 1.1500 psychological mark.

On the flip side, attempted recovery back above the 1.1700 mark now seems to confront stiff resistance near the 1.1735-40 horizontal support breakpoint. Any further move up might now be seen as a selling opportunity and remain capped near the 1.1785 region (50-DMA).

4) Gold Price: Dollar Offers No Reprieve To XAU/USD, The $1863 August Low Eyed

Gold (XAU/USD) extends sell-off into a third straight day on Wednesday, having settled at $1900 on Tuesday. The yellow metal remains undermined by the relentless haven demand for the US dollar seen across the board, as investors shun riskier assets amid coronavirus resurgence in Europe and the UK. US Federal Reserve (Fed) Chair Jerome Powell’s testimony and solid US housing data collaborated with the US dollar surge. Powell said the US economy remains resilient throughout the crisis.

Further, the renewed US-China tensions, following US President Donald Trump’s speech at the United Nations (UN) General Assembly on Tuesday, continue to temper the risk sentiment and render dollar-supportive. Trump said China must be held accountable for mishandling the coronavirus outbreak. Attention now turns towards the US Markit Manufacturing PMI and Day 2 of Powell’s testimony on the economic impacts of COVID-19 before the House Select Committee.

Gold has resumed its recent downside momentum, having confirmed a symmetrical triangle breakdown on the hourly chart, opening floors for a test of the pattern target near the August month low of $1863.

Ahead of that level, Monday’s low at $1882 could challenge the bears’ commitment. The path of least resistance remains to the downside, as the bearish Relative Strength Index (RSI) probes the oversold territory at 31.17, allowing for more declines.

Any recovery attempts could meet the immediate upside hurdle at $1901/02, where the bearish 21-hourly Simple Moving Average (HMA) coincides with the pattern support now resistance.

Further north, the next cap sits at the downward-sloping 50-HMA at $1913, above which Tuesday’s high of $1920 could be put to test. Only a sustained move above the 100-HMA at $1931 could likely offer some reprieve to the XAU bulls in the near-term.