26-Mar-2021

1) USD/JPY Hits Fresh Multi-Month Tops, Bulls Remain In Control
2) XAU/USD Remains Trapped Between Key Averages, Awaits US Data
3) EUR/USD Advances Toward 1.18 On Better Market Mood, Upbeat Data
4) GBP/USD Eases From Three-Day Tops, Holds Steady Near Mid-1.3700s Post-UK Data

1) USD/JPY Hits Fresh Multi-Month Tops, Bulls Remain In Control

The USD/JPY pair traded with a mild positive bias through the early European session and refreshed multi-month tops, around the 109.40-45 region in the last hour.

The prevalent risk-on mood – as depicted by a positive trading sentiment around the equity markets – undermined demand for the safe-haven Japanese yen. Bulls further took cues from a modest pickup in the US Treasury bond yields, through a subdued US dollar price action seemed to cap gains for the USD/JPY pair, at least for now.

Looking at the technical picture, the USD/JPY pair on Thursday move beyond a descending channel resistance. Given the recent strong move up over the past three months or so, the mentioned channel constituted the formation of a bullish flag pattern. A sustained breakthrough has already set the stage for additional gains.

Meanwhile, RSI (14) on the daily chart is still holding above the 70.00 mark, pointing to slightly overbought conditions. This might further hold back investors and warrants some near-term consolidation. Nevertheless, the constructive set-up favors bullish traders and supports prospects for a further appreciating move.

From current levels, the next relevant hurdle on the upside is pegged near May 2020 swing highs, around the 109.80-85 region, and is closely followed by the key 110.00 psychological mark. Some follow-through buying could push the USD/JPY pair beyond the 110.30 intermediate, towards the 110.75-80 supply zone.

On the flip side, the descending channel resistance breakpoint, currently near the 109.00 mark now seems to protect the immediate downside. Any subsequent slide is likely to find decent support and might be seen as a buying opportunity near the 108.60-55 region. This should now act as a strong near-term base for the USD/JPY pair.

2) XAU/USD Remains Trapped Between Key Averages, Awaits US Data

Gold (XAU/USD) is looking to regain $1730, as the US dollar bulls take a breather after the recent advance to multi-month peaks.

The greenback remains buoyed by the US economic optimism and higher Treasury yields. Stronger US Jobless Claims further fuelled expectations of a faster economic recovery. Meanwhile, speeding vaccines rollout in America also backs the recent gains in the buck.

Gold markets now await a fresh batch of US economic releases, including the Fed’s preferred inflation gauge – the Core PCE Index, for fresh trading impetus.

From a short-term technical perspective, gold has entered a downside consolidative mode after Thursday’s reversal from $1746 levels.

Gold remains locked in a tight range on the four-hour chart, looking for a fresh direction likely on the US data release.

The bearish 21-simple moving average (SMA) at $1732 caps the rebound from weekly lows of $1721.80.

Meanwhile, the downside appears cushioned by the horizontal 100-SMA at $1723.

The Relative Strength Index (RSI) has ticked higher to 45.59, still remains below the midline, suggesting that the bearish bias still remains intact for gold.

The previous month’s low of $1717 could offer some strong support, below which the $1700 mark could be put at risk.

Alternatively, a sustained move above the 21-SMA barrier could expose the 50-SMA hurdle at $1735. The XAU bulls would then gear up for a rally towards the descending 200-SMA resistance at $1755.

3) EUR/USD Advances Toward 1.18 On Better Market Mood, Upbeat Data

EUR/USD has been edging higher, rising toward 1.18. The safe-haven dollar is taking a breather from gains. Concerns about the EU ban on vaccine exports, the blockage of the Suez Canal, and rising US cases persist. The German IFO Business Climate beat estimates with 96.6 points.

Euro/dollar is suffering from downside momentum on the four-hour chart and is trading below the 50, 100, and 200 Simple Moving Averages. The Relative Strength Index is just above 30, outside oversold conditions and implying further falls are on the cards.

Support awaits at the new 2021 trough of 1.1760, followed closely by 1.1745, a cushion from November. Further down, 1.1695 and 1.16 may come into play.

Resistance is at 1.18, the round number that previously supported EUR/USD, and then by 1.1845, which was a low point in early March. Further above, 1.1875 and 1.1905 are eyed.

Dead-cat bounces again. That pattern of a significant downfall followed by a minor recovery and then a fresh dive is typical to EUR/USD – and maybe in play once again. The factors that have enabled the recovery are weak and may reverse swiftly.

EU leaders toned down their rhetoric regarding banning exports of vaccines amid concerns of hurting supply chains. Have cooler minds prevailed? The bloc still allows blocking of immunization shipments out of the EU and seems especially keen on punishing AstraZeneca – the partially British-owned firm which is Brussels’ favorite punching bag.

Coronavirus cases continue rising in the old continent and are also causing a rift between the largest countries – Germany will now ask people coming from France to show a negative PCR test due to rising infections. The move has caused tensions between Paris and Berlin, which have worked closely together in this crisis.

The German IFO Business Climate will likely show a minor uptick in confidence, but that is priced in after robust Purchasing Managers’ Indexes released earlier this week.

On the other side of the pond, investors were encouraged by the drop of US jobless claims to 684,000, the lowest since the pandemic broke out. However, Personal Spending and Personal Income due out on Friday may show a drop in February after a stimulus-related jump in January. Core PCE, the Federal Reserve’s preferred gauge of inflation, will likely remain subdued as well.

4) GBP/USD Eases From Three-Day Tops, Holds Steady Near Mid-1.3700s Post-UK Data

The GBP/USD pair held on to its modest intraday gains through the early European session, albeit has retreated around 20 pips from three-day tops. The pair was last seen trading around mid-1.3700s and had a rather muted reaction to the UK monthly Retail Sales figures.

The pair built on the previous day’s goodish bounce from the 1.3670 region, or six-week lows, and gained traction through the first half of the trading action on Friday. The uptick marked the second straight day of a positive move and was exclusively sponsored by a modest US dollar pullback.

Following the recent run-up to four-month tops, a generally positive risk tone prompted some profit-taking around the safe-haven USD. That said, the upbeat US economic outlook should continue to underpin the greenback and keep a lid on any meaningful upside for the GBP/USD pair.

The impressive pace of coronavirus vaccination and the passage of a massive stimulus package have been fueling expectations for a relatively faster US economic recovery. Adding to the optimism, US President Joe Biden made an ambitious pledge of administering 200 million vaccine shots in 100 days.

Moreover, Thursday’s better-than-expected US Jobless Claims, which fell to a one-year low of 684K, added the narrative of a relatively faster US economic recovery. This makes it prudent to wait for some strong follow-through selling before confirming that the USD has topped out in the near-term.

Apart from this, concerns about a further escalation in diplomatic tensions between the UK and China might also hold traders from placing aggressive bets around the British pound. It is worth reporting that China imposed sanctions on nine individuals and four organizations in the UK this Friday.

On the economic data front, the headline UK Retail Sales fell less than expected, by 1.1% in February, while core sales (excluding fuel) rose 2.1% MoM. Slightly better monthly readings, however, were offset by weaker yearly figures and did little to provide any fresh impetus to the GBP/USD pair.