25-May-2021

1) EUR/USD Soars To Highest Since January On Dollar Weakness
2) GBP/USD Shrugs Off Brexit Concerns And Advances To 1.42
3) USD/CAD Hangs Near Multi-Year Lows, Below Mid-1.2000s
4) XAU/USD Supported By Weaker US Yields But Overbought Conditions Warrant Caution

 

 

1) EUR/USD Soars To Highest Since January On Dollar Weakness

EUR/USD has jumped above 1.2250, the highest since January. The US dollar remains pressured after Fed officials stressed that the economy has a long way to go and inflation is transitory. US Consumer Confidence data eyed as well.

Euro/dollar is making its fourth attempt to challenge 1.2245, as seen on the four-hour chart. The currency pair is benefiting from upside momentum and has evaded a drop below the 50 Simple Moving Average. With the Relative Strength Index (RSI) well outside overbought conditions, there is more room to rise.

Above 1.2245, the next level of resistance is at 1.2280, followed by 1.2350, both seen earlier this year.

Support is at 1.22, which cushioned EUR/USD earlier in May. It is followed by 1.2175 and 1.2155, the latter holding up the pair last week.

Many European traders are returning to work only on Tuesday and they have reasons to push EUR/USD over the stubborn 1.2245 resistance line. It would be the fourth attempt.

The primary driver of the currency pair is the US Federal Reserve. Lael Brainard, Governor at the Federal Reserve, hailed the rapid economic recovery but reiterated the bank’s position that there is still a long way to go and that any inflation would be transitory. Her colleagues Raphael Bostic and Esther George – the latter being a known hawk – also supported that view.

As long as the Fed remains calm, the printing presses continue working – the bank buys $120 billion in bonds every month – and weakening the dollar. An interest rate hike is still beyond the horizon. Chicago Fed President Charles Evans and Randal Quarles are scheduled to speak later in the day.

The Conference Board’s Consumer Confidence measure for May will likely show an ongoing improvement in sentiment, yet investors will want to see if rising prices are curbing shoppers’ enthusiasm. Housing figures such as New Home Sales are also of interest.

What about the euro side of the equation? While German y marginally downgraded it’s Gross Domestic Product read from -1.7% to -1.8% in the second quarter, optimism about the future has likely remained elevated. The IFO Business Climate is set to advance from 96.8 points reported in April to higher levels.

Coronavirus statistics continue falling across the old continent, allowing countries to reopen to travel – except flying above Belarus. The return of British tourists to Spain and Portugal serves as a sign of normality. EU countries have vaccinated nearly 40% of their populations with at least one dose. While the US leads with almost 50% receiving one jab, the pace of inoculations is slowing.

 

2) GBP/USD Shrugs Off Brexit Concerns And Advances To 1.42

GBP/USD extends íts gains and hits 1.42 amid dollar weakness. EU’s von der Leyen rejects changes to the NI protocol. The US dollar follows Treasury yields lower as Fed officials dismiss inflation.

From a technical perspective, the recent move up from April monthly swing lows has been along an upward sloping channel. This points to a well-established short-term bullish trend and supports prospects for additional near-term gains. The constructive set-up was reinforced by the emergence of some dip-buying on Monday. That said, bulls might still wait for a sustained move beyond the 1.4200 mark before positioning for any further appreciating move. The pair might then aim to surpass YTD tops, around the 1.4235 region and aim to challenge the trend-channel resistance near the 1.4275 area. A convincing breakthrough will be seen as a fresh trigger for bullish traders and set the stage for an extension of the ongoing positive momentum.

On the flip side, the 1.4145-40 region now seems to protect the immediate downside. This is followed by support near the overnight swing lows, around the 1.4110 zone, below which the pair might accelerate the fall towards the 1.4050 horizontal support. The corrective slide could further get extended towards the key 1.4000 psychological mark. This is closely followed by support marked by the lower boundary of a short-term ascending channel, currently around the 1.3985-80 region, which if broken decisively will shift the near-term bias in favor of bearish traders.

The GBP/USD pair witnessed some intraday selling on Monday, albeit attracted some dip-buying in the vicinity of the 1.4100 mark and finally settled nearly unchanged for the day. In the absence of any fresh fundamental developments, fears over the long-term impact of Brexit and the economic damage from the pandemic acted as a headwind for the British pound. That said, the optimistic outlook for the UK economy – amid the impressive pace of coronavirus vaccinations and the easing of lockdown measures – helped limit the downside.

According to the official data, more than 70% of adults have received their first jab of the COVID vaccine, while some 22 million have received their second dose. Adding to this, evidence that the vaccine is effective against the Indian variant bodes well with the UK government’s plan to end restrictions fully on June 21. The pair recovered around 60 pips from daily swing lows and was further supported by the emergence of some fresh selling around the US dollar.

Fears about runaway inflation in the US receded after the White House pared down its infrastructure bill to $1.7 trillion from $2.25 trillion. This comes on the back of the Fed’s stubbornly dovish view that the current rise in inflation will be transitory and dragged the yield on the benchmark 10-year US government bond to one-week lows. Various FOMC members, including the Fed Governor Lael Brainard, Atlanta Fed President Raphael Bostic, and St. Louis Fed President James Bullard, reiterated that any spike in inflation is likely to be temporary.

This, along with the prevalent risk-on environment, continued weighing on the safe-haven greenback through the Asian session on Tuesday and allowed the pair to build on the overnight bounce. There isn’t any major market-moving economic data due for release from the UK, leaving the pair at the mercy of the USD price dynamics. The US economic docket highlights the release of the Conference Board’s Consumer Confidence Index. Apart from this, the US bond yields and the broader market risk sentiment might influence the USD price dynamics and produce some trading opportunities around the major.

 

3) USD/CAD Hangs Near Multi-Year Lows, Below Mid-1.2000s

The USD/CAD pair traded with a mild negative bias heading into the European session and was last seen hovering around the 1.2040-35 region.

The pair, so far, has struggled to register any meaningful recovery and remained well within the striking distance of the lowest level since May 2015 touched last week. The US dollar languished near multi-month lows. Apart from this, bullish crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair.

Investors trimmed their bets over an inflation-driven rate hike after the White House pared down the infrastructure bill to $1.7 trillion from $2.25 trillion. Adding to this, FOMC members, including the Fed Governor Lael Brainard, Atlanta Fed President Raphael Bostic, and St. Louis Fed President James Bullard, reiterated that any spike in inflation will be temporary.

The developments reinforced the Fed’s stubbornly dovish view and dragged the yield on the benchmark 10-year US government bond to one-week lows. This, in turn, was seen as a key factor that continued weighing on the greenback. Apart from this, the prevalent risk-on environment further dented the greenback’s relative safe-haven status.

On the other hand, the Canadian dollar remained well supported by a more hawkish Bank of Canada and got an additional boost from some follow-through uptick in oil prices. It is worth recalling that the BoC brought forward the guidance for the first interest rate hike to the second half of 2022 at the April policy meeting.

The fundamental backdrop remains tilted in favor of bearish traders and supports prospects for further weakness. Moreover, the USD/CAD pair’s inability to find any buyers further adds credence to the negative outlook. That said, oversold RSI on short-term charts warrants some caution before positioning for an extension of the downtrend.

Market participants now look forward to the US economic docket, highlighting the release of the Conference Board’s Consumer Confidence Index. This, along with the US bond yields and the broader market risk sentiment, might influence the USD. Traders will further take cues from oil price dynamics for some short-term opportunities.

 

4) XAU/USD Supported By Weaker US Yields But Overbought Conditions Warrant Caution

Gold price (XAU/USD) kicked off the week on the negative footing, ending Monday marginally lower at $1881. Gold price faced rejection once again at higher levels just shy of the $1890 level, despite the weakness in the US dollar and Treasury yields. The US rates fell and dragged the greenback lower after a school of Fed policymakers poured cold water on rising inflation concerns, by calling the surge ‘transitory’. The Fed’s conciliatory remarks boosted the Wall Street indices and capped gold’s upside, as markets once again believed the Fed could maintain lower rates for longer. However, amid a lack of notable US economic news and holiday-thinned trading conditions, gold price stuck to its recent trading range between $1870-$1890 a day before.

So far this Tuesday’s trading, gold price remains under pressure below $1880, as the risk-on market mood overshadows the bearish undertone in the dollar and yields. Investors cheer easing inflation fears and expectations of stronger global economic recovery, reflective of the 0.20% rise in the S&P 500 futures. However, it remains to be seen if the broader market optimism extends ahead of the key US CB Consumer Confidence data release. Looking ahead, if the selling in the US rates intensifies, the gold price could rebound towards $1890.

Gold’s daily chart shows that the price lacks impetus, at the moment, as it wavers in a narrow range.

Having formed a Doji candlestick on Monday and a spinning top last Friday on the said time frame, the bulls seem to face exhaustion after the upsurge from $1766 seen so far this month.

The same is being reflected by overbought conditions on the 14-day Relative Strength Index (RSI), currently at 72.18.

Therefore, a deeper pullback towards the $1850 psychological barrier cannot be ruled should the bulls fail to find acceptance above the critical $1890 static resistance.

However, if the $1890 hurdle is taken out convincingly, recapturing the $1900 mark remains inevitable.

The next horizontal trendline resistance at $1918 could be on the buyers’ radars.