25-Aug-2020

1) EUR/USD: Going Nowhere In A Hurry, German Macro Data Eyed For Some Impetus
2) Gold Price: US-China Trade Optimism To Limit XAU/USD’s Rebound
3) AUD Range Bound Amid Quiet Start To The Week

1) EUR/USD: Going Nowhere In A Hurry, German Macro Data Eyed For Some Impetus

The US dollar came under some renewed selling pressure on the first day of a new trading week and assisted the EUR/USD pair to gain positive traction. The global risk sentiment got a strong lift from positive news on a potential vaccine and treatment for the highly contagious coronavirus disease. The upbeat market mood undermined the greenback’s relative safe-haven status and was seen as one of the key factors behind the pair’s modest intraday uptick.

The Financial Times reported that the Trump administration is considering fast-tracking an experimental COVID-19 vaccine being developed by AstraZeneca and Oxford University for use in the United States ahead of the November 3 elections. Adding to this, the US Food and Drug Administration (FDA) on Sunday said that it has issued emergency authorization to use blood plasma from recovered patients to treat certain patients suffering from the COVID-19 virus.

Meanwhile, the intraday USD weakness remained limited as investors refrained from placing aggressive bets ahead of a speech by the Fed Chair Jerome Powell at the Jackson Hole symposium later this week. This coupled with a goodish bounce in the US Treasury bond yields extended some additional support to the greenback and capped the pair, instead led to an intraday pullback of around 65 pips. The pair finally settled nearly unchanged for the day, just below the 1.1800 mark.

On the trade-related front, the US Trade Representative’s Office said in a statement that both the US and China see progress made on resolving issues in phase one trade deal between the two countries. The development further boosted investors’ confidence and helped the pair to catch some fresh bids during the Asian session on Tuesday. Despite the two-way price moves over the past 24-hours, the pair remains bounded well within the last week’s trading range, awaiting breakout.

Market participants now look forward to the release of the final German GDP print for the second quarter of 2020 and the closely-watched German Ifo sentiment survey. A softer reading will be seen as early signs that the Eurozone economic recovery is losing momentum and pave the way for an extension of the recent corrective slide from two-year tops. Later during the early North American session, the release of the Conference Board’s US Consumer Confidence Index will also be looked upon for some meaningful trading opportunities.

From a technical perspective, nothing seems to have changed much and the pair is more likely to prolong its consolidative price action. Hence, any meaningful slide is more likely to find decent support near last week’s swing low, around the 1.1755 region. Some follow-through weakness might turn the pair vulnerable to accelerate the fall back towards testing sub-1.1700 level, or monthly lows set on August 3.

On the flip side, the 1.1850-60 region now seems to have emerged as an immediate hurdle, above which bulls are likely to aim for a move beyond the 1.1900 mark. A subsequent positive move has the potential to lift the pair further towards the 1.1940-50 supply zone, above which the momentum could further get extended towards the key 1.2000 psychological mark.

2) Gold Price: US-China Trade Optimism To Limit XAU/USD’s Rebound

Gold (XAU/USD) started out the week on the back foot and closed Monday below $1930, extending Friday’s weakness. The spot once again failed to sustain above the $1950 level, as the coronavirus vaccine optimism lifted the risk sentiment and dulled the haven appeal of gold. Wall Street closed at record highs while the rally in the US Treasury yields prompted the US to stage a solid comeback across the board. Markets cheered the US Food and Drug Administration’s authorization of the use of blood plasma from recovered COVID-19 patients as a treatment option. The vaccine hopes offset the concerns over the virus resurgence in Europe.

Gold is showing some signs of life in Tuesday’s trading so far, as the greenback eased broadly amid a risk-on market environment. The overnight optimism got a further boost from the US-China ‘constructive’ talks on phase one trade agreement. The yellow metal’s upside attempts appear limited, as the risk-on action on the global markets could weigh on the metal. Gold also remains at the risk of the dollar replicating Monday’s comeback moves, in light of the rally in the Treasury yields. Markets will closely watch out for fresh US-China trade developments and US CB Consumer Confidence data for fresh trading impetus. The main highlight for this week remains the Fed Chair Powell’s appearance at the Jackson Hole Symposium.

Gold is fighting hard to regain the robust resistance near $1937, the confluence of the 21 and 50-hourly Simple Moving Averages (HMA). The hourly Relative Strength Index (RSI), currently at 52.80, is inching higher, suggesting that the bounce from $1924 lows could extend.

Although the bearish 100-HMA at $1947 could offer stiff resistance. Acceptance above the latter, the horizontal 200-HMA at $1955 could be tested. A convincing break above that level is critical to revivng the bullish momentum in the near-term.

To the downside, a break below the rising trendline support at $1927 could trigger a fresh drop towards the daily lows.

3) AUD Range Bound Amid Quiet Start To The Week

The AUD offered little to excite investors through trade on Monday, maintaining a narrow range and bouncing between 0.7150 and 0.7205. With little headline data available to drive direction investors focus remained with broader risk flows choosing to chase positive sentiment and ignore negative developments. Victoria continues to see daily case numbers trend in the right direction while the rest of the country appears to be in control of outbreaks, containing wider community transmission for now. With lockdown restrictions seemingly stemming the spread of infection through Victoria there is hope community transmission will be back to zero before the end of the year, leaving the door open for a renewed economic rebound.

Positive sentiment continues to control direction, allowing the AUD to hold onto gains above 0.70 US cents. Having touched highs above 0.7250 the dollar appears range bound between 0.7130 and 0.7250 seeking that next catalyst to drive it higher. While the July rally has stalled there is ample scope for the AUD to trend higher into the end of the year with downward pressure on the USD still in play. We expect the worlds base currency will come under renewed selling pressure in the months ahead opening the door for a run toward 0.73 and 0.74. Of course, there are risks to this outlook as case numbers in Europe continue to rise. Alarmingly new infections in Germany, France and Italy have spiked in recent weeks. Should conditions worsen and targeted restrictions fail to contain the spread we may see a second lockdown period stymie the economic recovery.

Moves across currency markets were largely muted through trade on Monday with most majors maintaining a narrow range against the world’s base currency. The Euro tested 1.1850 before retreating toward 1.18/1.1790 and remains largely unchanged on open this morning, while the Yen bounced between 105.70 and 106. The Great British Pound moved back below 1.31 and fell against the Euro as concerns mount over a lack of progress in Brexit negotiations. Both sides admitted little progress was made in the last round of negotiations with both sides apportioning blame on the other. With the deadline date looming ever closer fear the stalemate will not be broken in beginning to mount, capping Sterling upside. While markets are refraining from making bets on direction the longer negotiations continue without a deal being struck the more volatility we are likely to see.

Attentions this week turn to the Bank of England and any sign it will cut interest rates below zero. We expect they will keep rates on hold at 0.1% for now, leaving the door open for further monetary policy adjustments in the future.