27-Jan-2021

1) AUD/USD: Bulls Shrug off Upbeat Aussie CPI, Await FOMC for Fresh Impetus
2) EUR/USD: Bulls Need To Wait For Sustained Move Beyond 1.2200, FOMC in Focus
3) XAU/USD: Gold Looks South Ahead Of the Fed Decision

1) AUD/USD: Bulls Shrug off Upbeat Aussie CPI, Await FOMC for Fresh Impetus

The AUD/USD pair witnessed an intraday turnaround from over one-week lows and rallied around 85 pips from the 0.7670-65 region on Tuesday. Despite doubts over the size and timing of the US fiscal stimulus package, hopes for a strong global economic recovery remained supportive of the underlying bullish tone in the financial markets. This, in turn, prompted some fresh selling around the safe-haven US dollar and was seen as a key factor that benefitted the perceived riskier Australian dollar.

The upbeat market mood got an additional boost after the International Monetary Fund (IMF) upgraded its forecast for 2021 global economic growth to 5.5% from 5.2%. The IMF, however, warned that the second wave of infections and new variants of COVID-19 pose risk for the outlook. Meanwhile, the upbeat release of the Conference Board’s US Consumer Confidence Index, which improved to 89.3 in January from 87.1 previous, did little to impress the USD bulls. The pair finally settled near the top end of its daily trading range and refreshed weekly tops during the Asian session on Wednesday.

The aussie benefitted from hotter-than-expected Australian consumer inflation figures, which showed that the headline CPI rose 0.9% during the October-December quarter. Annual CPI also beat forecasts and climbed 0.9% versus an estimated 0.7%. The inflation report will go into policy considerations at the upcoming Reserve Bank of Australia (RBA) meeting on February 2. That said, the RBA has already made it clear that it will not tighten borrowing costs until inflation is sustainably within the 2-3% target band. This, in turn, failed to assist the pair to capitalize on the early uptick.

Apart from this, escalating US-China tensions in the South China Sea further collaborated to cap gains for the China-proxy Australian dollar. Investors also seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the latest FOMC monetary policy update on Wednesday. The Fed is scheduled to announce its decision later during the US session and is widely expected to leave its policy settings unchanged. Hence, the key focus will be on the accompanying policy statement and the Fed Chair Jerome Powell’s comments at the post-meeting conference.

 Investors will look for clues about the central bank’s plan to start tapering the asset purchases later this year, which will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the major.

From a technical perspective, the pair has been oscillating between two converging trend-line since the beginning of this year, forming a symmetrical triangle on short-term charts. Given the recent strong positive move, the triangle constitutes the formation of a bullish continuation (pennant) chart pattern and supports prospects for additional gains. That said, the direction of the next major move can only be determined after the occurrence of a valid breakout.

This makes it prudent to wait for a sustained move beyond the triangle resistance, currently near the 0.7770-80 region, before placing fresh bullish bets. Above the mentioned barrier, the pair seems all set to surpass the 0.7800 mark and test monthly swing highs, around the 0.7820 region touched on January 6.

On the flip side, the 0.7700 mark now seems to act as immediate strong support. This is followed by the lower boundary of the triangle, around the 0.7675 region. Failure to defend the mentioned support levels will negate the constructive set-up and turn the pair vulnerable. A subsequent fall below the 0.7635-30 area will reaffirm the bearish bias and drag the pair further below the 0.7600 mark, towards testing the 0.7575-65 support zone.

2) EUR/USD: Bulls Need To Wait For Sustained Move Beyond 1.2200, FOMC in Focus

The EUR/USD pair managed to find decent support ahead of the 1.2100 mark and staged a goodish bounce on Tuesday amid the emergence of some fresh US dollar selling. The risk sentiment witnessed an intraday turnaround amid hopes for a strong global economic recovery, which, in turn, undermined the safe-haven greenback. The optimism got an additional boost after the International Monetary Fund (IMF) upgraded its forecast for 2021 global economic growth to 5.5% from 5.2%. The IMF, however, warned that the second wave of infections and new variants of COVID-19 pose a risk for the outlook.

The pair rallied around 70 pips from daily swing lows, albeit struggled to capitalize on the move and remained below the 1.2200 mark. Doubts about the size and time of the US stimulus package turned out to be a key factor that kept a lid on any runaway rally for the major. Republicans raised objections on the expensive price tag and pushed back on the idea of passing a $1.9 trillion stimulus plan proposed by US President Joe Biden. Democratic Majority Leader Chuck Schumer further raised doubts over the timing and said that a comprehensive deal could be four to six weeks away.

On the economic data front, the Conference Board’s US Consumer Confidence Index improved from 87.1 to 89.3 in January. Apart from this, a cautious mood around the equity markets extended some support to the USD and collaborated towards capping the upside for the pair. Investors also seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the latest FOMC monetary policy decision later this Wednesday. Ahead of the key event risk, the pair was seen trading just above mid-1.2100s during the Asian session and remains at the mercy of the USD price dynamics.

There isn’t any major market-moving Eurozone economic data due for release on Wednesday. Meanwhile, the US economic docket highlights the release of Durable Goods Orders data and will be looked upon for some trading impetus, though is more likely to be overshadowed by the pre-Fed repositioning trade. The Fed is widely expected to maintain status-quo and hence, the focus will be on the accompanying policy statement. This, along with the Fed Chair Jerome Powell’s comments, will be scrutinized for clues about the central bank’s plan to start tapering the asset purchases later this year.

From a technical perspective, nothing seems to have changed much for the pair and the bulls might still need to wait for a sustained strength beyond the 1.2200 mark before placing fresh bets. The mentioned level is closely followed by the 1.2220-25 supply zone, which if cleared decisively should push the pair to the 1.2270-75 resistance zone. The momentum could further get extended and assist the pair to reclaim the 1.2300 mark before bulls eventually aim to retest multi-year tops, around mid-1.2300s.

On the flip side, the overnight swing lows, around the 1.2110-1.2100 area, now seems to have emerged as immediate support. Some follow-through weakness, leading to a subsequent fall below the 1.2080-75 horizontal support might turn the pair vulnerable. This, in turn, will set the stage for a slide towards challenging the key 1.2000 psychological mark en-route the 1.1965-60 resistance breakpoint, now turned support.

3) XAU/USD: Gold Looks South Ahead Of the Fed Decision

Gold (XAU/USD) wavered in a $10 range around $1855 on Tuesday, settling in the red amid a broadly firmer US dollar. Uncertainty over the US $1.9 trillion stimulus plan, covid growth concerns and US-Sino tussle weighed on the market mood and boosted the US dollar’s appeal as a safe-haven. Meanwhile, upbeat US CB Consumer Confidence data also added to the upbeat momentum in the greenback. The International Monetary Fund’s (IMF) upward revision of the 2021 global growth forecasts further exerted bearish pressures on gold.

On the Fed, gold remains depressed amid encouraging vaccine news from the US. President Joe Biden announced Tuesday that his administration will ramp up weekly vaccine supplies. However, expectations of the stimulus approval keep the buyers hopeful. Senate Majority Leader Chuck Schumer said Democrats will move forward on Biden’s covid relief package without Republican support if necessary.

However, markets remain nervous and refrain from placing any directional bets on the metal ahead of the Fed decision due later on Wednesday. The Fed is likely to strike a dovish tone at its first policy meeting of 2021, in the wake of new virus cases and the need to do more to stimulate the economic recovery. Ahead of the Fed outcome, the US durable goods orders data will be closely eyed for any impact on the greenback.

An impending bear cross on the given timeframe backs the case for additional weakness. Also, the Relative Strength Index (RSI) trends in the bearish zone, allowing for more declines.

Therefore, the price could drop further to test the January 22 low of $1837, below which $1832 (Jan 20 low) could be put at risk.

Meanwhile, any pullbacks could meet strong supply at $1851, which is the confluence of the horizontal 200-hourly moving average (HMA) and 21-HMA.

Further up, the pattern support now resistance at $1853 could be probed. The XAU bulls need to recapture 100-HMA at $1858 to negate the near-term downside bias.