26-Jan-2021

1) USD/JPY: Sellers Elusive Even As BOJ Minutes Sound Dovish, Take Note of Yen Strength
2) GBP/USD Keeps the Red near Multi-Day Lows, below Mid-1.3600s Post-UK Jobs Report
3) EUR/USD: Weakens Of Dismal German Data, Downside Seems Limited Ahead Of FOMC
4) XAU/USD: Gold’s Upside Appears Limited Amid Strong US Dollar, Ahead Of Fed

1) USD/JPY: Sellers Elusive Even As BOJ Minutes Sound Dovish, Take Note of Yen Strength

USD/JPY quiet even as the BOJ minutes signal score for more eases. The minutes call for vigilance on the exchange rate. the BOJ minutes have failed to move the needle on the JPY pairs. The BOJ looks to have run out of ammo, making it look relatively less dovish than its US counterpart.

The USD/JPY pair is consolidating above the 38.2% retracement of its January advance at 103.70, the immediate support level. In the 4-hour chart, the pair is trading above all of its moving averages, which converge directionless in the 103.60 price zone. The Momentum indicator retreats within positive levels, while the RSI is flat around 53. A daily descendant trend line coming from March 2020 stands around 104.25, but the pair needs to advance beyond 104.40, the monthly high, to turn bullish.

Demand for the greenback of risk-aversion pushed USD/JPY to a daily high of 103.93, although the same dismal sentiment limited the pair’s advance, which finally settled around 103.80. The dollar’s demand eased in the last trading session of the day, as US indexes bounced from intraday lows. Meanwhile, US Treasury yields came under pressure, with the yield on the benchmark 10-year note down to 1.03%, weighed by news that US President Biden’s stimulus plan faces opposition from Republican and Democrat lawmakers.

Japan didn’t publish macroeconomic data at the beginning of the week, but will publish BOJ’s Monetary Policy Meeting minutes this Tuesday, alongside the December Corporate Service Price Index.

2) GBP/USD Keeps the Red near Multi-Day Lows, below Mid-1.3600s Post-UK Jobs Report

The GBP/USD pair remained depressed below mid-1.3600s, or near multi-day lows and had a rather muted reaction to upbeat UK employment details.

Following the previous day’s two-way price moves, the pair met with some fresh supply on Tuesday and retreated further from 32-month tops, around the 1.3745 region touched last week. A weaker tone around the equity markets drove some haven flows towards the US dollar and was seen as a key factor exerting pressure on the GBP/USD pair.

The global risk sentiment took a hit after German data added to worries about the economic fallout from the coronavirus pandemic. Apart from this, concerns about roadblocks to the US President Joe Biden’s $1.9 trillion stimulus plan. Adding to this, escalating US-China tensions in the South China Sea further weighed on investors’ sentiment.

On the other hand, the British pound failed to gain any respite following the release of upbeat UK jobs report. In fact, the number of people claiming unemployment-related benefits declined to 7K in December as against consensus estimates pointing to a fall to 35K from the previous month’s downwardly revised reading of 38.1K

Meanwhile, the UK unemployment rate edged high to 5.0% from 4.9% but was still better than a rise to 5.1% anticipated. The data, however, did little to impress the GBP bulls or provide any meaningful impetus to the GBP/USD pair. This, in turn, leaves the pair at the mercy of the broader market risk sentiment and the USD price dynamics.

Hence, the market focus will remain on this week’s key US event/data risk. The FOMC is scheduled to announce its monetary policy decision on Wednesday. This will be followed by the release of the Advance US Q4 GDP report. This, along with the US stimulus headlines, will drive the USD in the near-term and provide a fresh directional impetus to the GBP/USD pair.

3) EUR/USD: Weakens Of Dismal German Data, Downside Seems Limited Ahead Of FOMC

The EUR/USD pair witnessed some selling on the first day of a new trading week and erased a major part of its gains recorded over the past two trading sessions. The shared currency started losing ground following the disappointing release of the German IFO Business Climate Index, which dropped to a 6-month low level of 90.1 in January. Adding to this, the IFO Current Assessment and Expectations Index fell to 89.2 and 91.1, respectively, both missing consensus estimates.

The data added to worries that the current round of strict coronavirus restrictions could lead to a double-dip recession in the European economies and dampened the market mood. Apart from this, lingering concerns about potential roadblocks to US President Joe Biden’s $1.9 trillion stimulus plan further took its toll on the global risk sentiment. The lower risk appetite benefitted the safe-haven US dollar and further contributed to the pair’s intraday slide.

Despite the negative factors, the downside remains cushioned as investors seemed reluctant to place aggressive bets, rather preferred to wait on the sidelines ahead of this week’s key event/data risk. The FOMC will announce its policy decision on Wednesday. This will be followed by the release of the Advance Q4 US GDP report on Thursday. This, along with the US stimulus headlines, will influence the USD price dynamics and provide a fresh directional impetus to the major.

In the meantime, the focus will be on the timing and size of the US fiscal stimulus. Apart from this, developments surrounding the coronavirus saga will influence the broader market risk sentiment and the safe-haven USD. This, in turn, will be looked upon for some trading opportunities amid absent market-moving data from the Eurozone. The US economic docket highlights the release of the Conference Board’s Consumer Confidence Index, though is unlikely to be a major game-changer.

From a technical perspective, the pair’s repeated failures ahead of the 1.2200 round-figure mark could be seen as the first sign of bullish exhaustion. That said, investors might still wait for some follow-through selling below the 1.2080-75 horizontal support before positioning for any meaningful downside. The pair might then accelerate the fall towards the key 1.2000 psychological mark before eventually dropping to test the 1.1965-60 horizontal resistance breakpoint.

On the flip side, attempted positive moves might continue to confront stiff resistance near the 1.2190-1.2200 region. This is closely followed by the 1.2220-25 supply zone, which if cleared decisively will negate any near-term bearish bias. The subsequent strength has the potential to push the pair further beyond the 1.2270-75 intermediate hurdle, back towards reclaiming the 1.2300 round-figure mark en-route multi-year tops, around mid-1.2300s.

4) XAU/USD: Gold’s Upside Appears Limited Amid Strong US Dollar, Ahead Of Fed

After good two-way price action, Gold (XAU/USD) settled Monday almost unchanged above the key $1850 level. The XAU bulls failed to sustain at higher levels, as a stronger US dollar capped the upside attempts. The haven demand for the greenback returned, as the risk sentiment soured on skepticism over the US $1.9 trillion stimulus proposal. Rising concerns over the new UK covid strain also boosted the dollar at the expense of the riskier assets.

Additionally, speculative positioning and encouraging vaccine news also remained a drag on gold’s prices. The American pharma giant, Moderna, said its Covid-19 vaccine retains neutralizing activity against emerging variants detected in the UK and South Africa. However, the bears managed to draw support from the renewed US-China tensions over the Taiwan route. The US State Department hinted at arms sales while the carrier group enters the South China Sea.

Looking ahead, gold prices will continue to remain in the recent trading range, with the upside likely limited amid fading prospects of the stimulus package to approved by Congress anytime soon. Meanwhile, resurfacing US-Sino tensions could also buoy the safe-haven gold. Although, the gains could be capped if the risk-aversion worsens on dismal US Durable Goods and Consumer Confidence data and puts a fresh bid under the dollar. Although the losses also appear limited, as investors turn cautious ahead of the FOMC decision due on Wednesday.

Gold’s hourly chart shows that the price continues to wave in a symmetrical triangle since last Friday.

Over the last hours, gold prices has edged higher and recaptured the upward-sloping 100-hourly moving average (HMA) at $1860.

The uptick in the spot could be attributed to the confirmation of the bullish crossover after the 21-HMA pierced the 50-HMA from below.

If the buying pressure accelerates, gold could test the falling trendline resistance at $1867. A sustained move above that level is needed to take on the $1900 barrier once again.

The 14-day Relative Strength Index (RSI) points higher while above the midline, suggesting that there is more room to the upside in the near-term.

Alternatively, the 21-HMA support at $1857 could be probed if the 100-HMA support is taken out. Further south, $1851 is the level to beat for the XAU bears. That point is the intersection of the horizontal 200-HMA and rising trendline support.