24-Nov-2020

1) GBP/USD: Ascending Channel Resistance Capped Gains, Bullish Potential Still Intact
2) EUR/USD: Bulls At The Mercy Of USD Price Dynamics, 1.1800 Mark Holds The Key
3) XAU/USD: Gold Looks To Threaten $1800 Level Amid Coronavirus Vaccine Optimism
4) USD/JPY Trades With Modest Losses, Just Below Mid-104.00s

1) GBP/USD: Ascending Channel Resistance Capped Gains, Bullish Potential Still Intact

The GBP/USD pair gained some strong positive traction on the first day of a new trading week and shot to the 1.3400 neighborhood, or the highest level since September 2. The British pound was well supported by the prospect of a last-minute Brexit deal and got an additional boost from better-than-expected UK PMI prints for November. Bulls largely shrugged off not so optimistic comments by the EU chief Brexit negotiator Michel Barnier, saying that fundamental differences remain in the trade talks with the UK. This comes on the back of the EU negotiating team’s briefing on Friday that Brexit talks remain unresolved on three sticking points – the so-called level playing field, fisheries and state-aid rules. Brexit anxieties, however, did little to hinder the intraday positive move for the sterling.

On the other hand, the US dollar remained depressed through the first half of the trading action on Monday on the back of the positive news of successful COVID-19 vaccine trials. Apart from this, speculations that the Fed might ease monetary policy further in December – amid concerns about the economic fallout from the continuous surge in new coronavirus cases – exerted some additional downward pressure on the greenback. However, a late pickup in the USD demand kept a lid on any further gains for the major, rather prompted some selling at higher levels. The greenback witnessed an intraday turnaround following the release of the preliminary estimates of Markit PMIs for November. The flash version of the US Manufacturing PMI unexpectedly jumped to a 74-month high level of 56.7 and Services PMI rose to 57.7 – a 68-month high – from 56.9 previous.

This, along with a strong rebound in the US Treasury bond yields, further benefitted the greenback and contributed to the pair’s retracement of over 75 pips from daily tops. Despite the pullback, the pair managed to end the day in the positive territory and managed to catch some fresh bids during the Asian session on Tuesday, news that the US President-elect Joe Biden was given the go-ahead to begin his White House transition added to an already upbeat market mood. This, in turn, prompted some fresh selling around the USD and was seen as a key factor behind the pair’s modest uptick. In the absence of any major market-moving economic releases from the UK, the incoming Brexit-related headlines will continue to play a key role in influencing the sentiment surrounding the pound and infuse some volatility around the GBP crosses.

Meanwhile, the US economic docket features the releases of the Conference Board’s Consumer Confidence Index and Richmond Manufacturing Index. This, along with the broader market risk sentiment and developments surrounding the coronavirus saga, will further be looked upon for some meaningful trading impetus.

From a technical perspective, the pair stalled its bullish trajectory near a resistance marked by the top end of a two-month-old ascending trend-channel. However, the fact that the pair has still managed to hold above a previous strong resistance, now turned support near the 1.3310 region, favours bullish traders. Hence, a move back towards challenging the trend-channel barrier, currently near the 1.3400 mark, remains a distinct possibility. Some follow-through buying will be seen as a fresh trigger for bullish traders and push the pair further towards September monthly swing highs, around the 1.3480 region, en-route the key 1.3500 psychological mark.

On the flip side, any subsequent fall below the 1.3310-1.3300 resistance-turned-support might now be seen as a buying opportunity. This, in turn, should help limit the downside near the 1.3260 horizontal support. Failure to defend the mentioned support levels might prompt some technical selling and drag the pair back towards the 1.3200 round-figure mark. The corrective slide could further get extended to the 1.3160 region before the pair eventually drops to test the next major support near the 1.3110-05 zone.

2) EUR/USD: Bulls At The Mercy Of USD Price Dynamics, 1.1800 Mark Holds The Key

The EUR/USD pair had good two-way price swings on the first day of a new trading week and the intraday volatility was exclusively sponsored by sentiment surrounding the US dollar. Further reports of successful COVID-19 vaccine trials revived hopes for a speedy global economic recovery and boosted investors’ confidence. This was evident from the upbeat mood across the global equity markets, which undermined safe-haven assets and kept the USD bulls on the defensive through the first half of the trading action on Monday. The greenback was also pressured by speculations that the Fed might ease monetary policy further amid concerns about the economic fallout from the continuous surge in new coronavirus cases, which assisted the pair to gain some positive traction.

The uptick seemed rather unaffected by data, which showed that the introduction of new lockdown measures to combat the rising tide of COVID-19 infections has had a disruptive impact on the region’s economic activity. In fact, the Eurozone Manufacturing PMI dropped to a three-month low level of 53.6 in November. Adding to this, the gauge for the services sector and the composite PMI plunged to six-month lows and came in at 41.3 and 45.1, respectively. Separately, the German Manufacturing PMI eased to 57.9 in November from 58.2 previous and Services PMI fell to 46.2 (six-month low) from October’s final reading of 49.6. Nevertheless, the pair climbed to two-week tops, albeit struggled to find acceptance above the 1.1900 round mark.

The pair witnessed a dramatic intraday turnaround on the back of resurgent USD demand following the release of the preliminary estimates of Markit PMIs for November. The flash version of the US Manufacturing PMI unexpectedly jumped to a 74-month high level of 56.7 and Services PMI rose to 57.7 – a 68-month high – from 56.9 previous. This, along with a strong rebound in the US Treasury bond yields extended some additional support to the greenback and contributed to the pair’s sharp intraday pullback of over 100 pips. The pair dived to over one-week lows but managed to find decent support near the 1.1800 mark and finally settled with only modest losses.

Meanwhile, news that the US President-elect Joe Biden was given the go-ahead to begin his White House transition added to an already upbeat market mood. This, in turn, prompted some fresh selling around the USD and assisted the pair to build on the overnight bounce. The pair moved back above mid-1.1800s as the focus now shifts to the release of the final version of the Eurozone GDP report for the third quarter of 2020. Apart from this, the German IFO Survey and a scheduled speech by the ECB President Christine Lagarde will influence the shared currency. Later during the early North American session, the release of the Conference Board’s US Consumer Confidence Index and Richmond Manufacturing Index will also be looked upon for some meaningful trading opportunities.

From a technical perspective, the overnight steep decline dragged the pair below support marked by the lower boundary of a short-term ascending trend-channel. However, the subsequent rebound warrants some caution for bearish traders. This makes it prudent to wait for some follow-through selling below the overnight swing lows, around the 1.1800 mark, before positioning for any further depreciating move. The pair might then accelerate the fall towards the 1.1750-45 support zone. A convincing break below will negate any near-term bullish bias and turn the pair vulnerable to weaken further below the 1.1700 mark, towards testing the 1.1625 intermediate support en-route the 1.100 mark.

On the flip side, the 1.1880-90 region might continue to act as immediate strong resistance and is followed by monthly swing highs, around the 1.1920 region. Above the mentioned hurdle, the pair is likely to aim back to reclaim the key 1.2000 psychological mark. A subsequent move beyond YTD tops, around the 1.2010 region, should pave the way for an extension of the upward trajectory and push the pair towards the 1.2065-75 intermediate resistance before the pair eventually darts to the 1.2100 round-figure mark.

3) XAU/USD: Gold Looks To Threaten $1800 Level Amid Coronavirus Vaccine Optimism

Gold (XAU/USD) resumed last week’s bearish momentum on Monday and fell 2% to the lowest levels in four months at $1831. Gold faced a double whammy amid a surge in the US dollar’s demand, in response to strong US business activity data, on one hand. While on the other hand, hopes of a quicker economic rebound on coronavirus vaccine progress drove investors towards riskier assets, which weighed on the yieldless gold. Reduced need for additional monetary and fiscal stimulus, as upbeat US data eased economic growth concerns, added to the downside on gold.

Looking ahead, the bright metal remains exposed to further downside risks, in the wake of the global market optimism amid vaccine progress and Biden transition process. The risk-on rally in the stocks could dash hopes of any recovery in gold, as markets will closely eye the US CB Consumer Confidence data due for release later in the NA session.

The path of least resistance for gold remains to the downside, as depicted by the hourly chart.

The price has charted a bear pennant breakout on the given timeframe, calling for a test of the measured target at $1800.

Since the hourly Relative Strength Index (RSI) trends in the oversold territory, a dead cat bounce cannot be ruled out towards the pattern support now resistance at $1836.

The next resistance is seen at the bearish 21-hourly moving average (HMA) at $1842. The long-held support at $1850 could then act as a strong resistance if the bulls extend the recovery momentum.

4) USD/JPY Trades With Modest Losses, Just Below Mid-104.00s

The USD/JPY pair remained depressed through the Asian session and was last seen trading with modest losses, just below mid-104.00s.

The pair witnessed a modest pullback from the 104.65 region, or one-week tops touched earlier this Thursday and eroded a part of the previous day’s strong intraday positive move of nearly 100 pips. The downtick was exclusively sponsored by a softer tone surrounding the US dollar, albeit the prevalent upbeat market mood helped limit deeper losses for the USD/JPY pair.

As investors looked past Monday’s upbeat US PMI prints for November, speculations that the Fed might ease monetary policy in December exerted some fresh downward pressure on the greenback. Apart from this, concerns about the economic fallout from the continuous surge in new coronavirus cases further contributed to the weaker tone surrounding the greenback.

Meanwhile, the latest optimism over a potential early rollout of COVID-19 vaccines remained supportive of the risk-on environment. The global risk sentiment was further supported by news that the US President-elect Joe Biden was given the go-ahead to begin his White House transition. This, in turn, undermined the safe-haven Japanese yen and extended some support to the USD/JPY pair.

Investors might also be reluctant to place aggressive bets ahead of Wednesday’s release of the FOMC meeting minutes, which will be scrutinized for the possibility of Fed easing in the December meeting. Hence, it will be prudent to wait for some strong follow-through selling before positioning for the resumption of the USD/JPY pair’s recent bearish trajectory.