27-Jul-2020

1) Gold: Bulls Are Driving The Car And Approaching The $2000 Level
2) EUR/USD: Next Relevant Target Emerges At 1.1815
3) The Negotiations On A New US Fiscal Package Remain A Wildcard

1) Gold: Bulls Are Driving The Car And Approaching The $2000 Level

Bulls have become too aggressive after providing the breakout of $1820 level, today in the morning session gold has made a high of $1945 level like a cake walk which is a life time high with a breakout of year 2011, well now sky is the limit.

In our previous report also we mentioned to buy the gold around $1850 and our targets were $1890 and $1920 level which have been achieved smoothly. Well the way pair is trading and sustaining it seems like bulls will arrive at the $2000 level in the coming trading session. The short term to long term trend is up so in an uptrend market, buy on dips which will be a profitable strategy. The way bulls are reacting it seems like they are approaching the $2000 level in the near term. On the contrary if gold trades and settles below the $1900 level then we may see selling pressure till $1860-1820 level support zone.

From a technical perspective we can see that a an uptrend line is lying which is providing us a bullish signal. Overall it is trading above all the major and minor EMA lines and favoring the bulls. From a longer term prospective we can see on weekly as well as monthly chart a rounding bottom pattern has been completed which means first phase of bull run has been completed.

RSI has arrived above70 level and providing full strength to bulls, which is a purely overbought territory so some correction can’t be ruled out but these corrections should be taken as buying opportunity. Odds are in favor of bulls and daily to weekly bias remains bullish on gold as long as $1800 level remains intact on a closing basis. A bullish crossover on the MACD is also supporting the bulls on the daily chart. Also, bulls are playing at the front foot for the time being and it seems like bulls are going to continue with this game and will not provide any chance to bears. The $1870 level can be considered as a key support level followed by $1820 where $1980 is a key resistance level followed by $2000 level.

2) EUR/USD: Next Relevant Target Emerges At 1.1815

Another day, another fresh top in EUR/USD. This time the pair surpassed the key 1.1700 mark and clinched tops in levels not seen since September 2018, always against the usual context of heightened dollar selling.

Indeed, the greenback continues to give ground at the beginning of the week in an atmosphere where investors’ preference for riskier assets seems to grow by the day. The backdrop, however, remains unaltered and dominated by firm hopes of a solid recovery in economies across the globe which in turn are supported by prospects of a COVID-19 vaccine to be delivered in the medium-term horizon.

Adding to the uncertain times surrounding the (former?) king dollar, the political factor is expected to start gaining momentum with less than 100 days for the US elections and vote intention tilted to Democrat candidate Joe Biden.

EUR/USD is navigating well into the overbought territory, as per the daily RSI, hinting at the idea that a corrective downside could well be in the offing. That said, interim support emerges at the previous June’s peak at 1.1495 seconded by the Fibo level (of the 2017-2018) rally near 1.1450. The latter is also reinforced by June’s top at 1.1422. Back to the upside, which is the favoured short-term scenario, a move further north of so far tops around 1.1730 should pave the way for a visit to September 2018 top at 1.1815 ahead of 1.1852 (June’s 2018 high).

3) The Negotiations On A New US Fiscal Package Remain A Wildcard

On Friday, EMU PMI’s rebounded sharply with the composite EMU measure rising from 48.5 to 54.8, signaling a solid rebound in activity at the start of Q3. In particular services sector growth (55.1) reaccelerated as lockdowns were eased. The impact of the PMI’s on markets was modest. European equities opened in negative territory. There was a temporary rebound after the PMI’s, but the move never gained traction. European indices closed with losses of up to 2%. The US Markit (composite) PMI printed exactly at the 50 boom-or-bust level, another indication (after Thursday’s jobless claims) that the spreading in the corona virus might slow the reopening of the economy. US equity indices also lost further ground. (Dow, -0.68%, The Nasdaq underperformed -0.94%). Uncertainty on a new US stimulus package and US-China tensions were additional sources of investor caution. Divergent data between the US and Europe this time resulted into a different performance of bond markets. German yields rose op to 3.4/3.0 bp for 5y to 30y maturities. US bonds outperformed with 30-y yield declining 0.2 bp. The 10-y yield rose a modest 1.1 bp.

The risk-off again didn’t help the dollar. On the contrary. The trade-weighted dollar (DXY) closed at 94.43, below the 94.65 key support. Initially, the strong EMU PMI’s had little impact on EUR/USD, but USD selling again intensified in US trading. EUR/USD closed at 1.1656 (1.1596 on Thursday). USD/JPY also joined the broader USD decline closing at 106.14. UK data (composite PMI at 57.1, June retail sales up 13.5% M/M) were much stronger than expected but sterling didn’t profit much even as UK yields rebounded intraday. EUR/GBP closed at 0.9110 (0.9102 on Thursday).

This morning, Asian equities are trading mixed. China June industrial profits rising 11.5% Y/Y (from 6.0% Y/Y) are a mild positive. The USD downtrend simply continues with the TW USD (DXY) at risk of falling below the 94 big figure. USD/JPY is trading in the 105.65 area, breaking below a sideways consolidation pattern in place since early April. Gains in the yuan (USD/CNY 7.00 area) remain modest given the broad USD decline. EUR/USD filled offers north of 1.17. The USD-decline also pushed gold ($ 1931 p/ounce ) to a new record.

Later today, German IFO Business confidence is expected to improve further from 86.2 to 89.3. US June durable goods orders also are expected to extend the May rebound. We assume markets to react rather guarded on any positive data news given rising worries on the impact of a second wave of the corona virus, both inside and outside the US. Belgium will sell 2025 and 2029 bonds today. The US Treasury will auction 2-y and 5-y bonds. Later this week, several countries including the US (Thursday) and EMU (Friday) will publish Q2 GDP data. Markets will also keep a close eye at timely confidence data, including US consumer confidence (Tuesday). The Fed will announce the outcome of a regular policy meeting on Wednesday. No change in policy is expected, but investors will closely monitor the Fed’s assessment on recent developments regarding the corona virus and its impact on the economy. The Fed will probably reiterate its commitment to keep policy as supportive as necessary. The negotiations on a new US fiscal package remain a wildcard.

German and US 10-y yields are holding near important support levels respectively at -0.5% and 0.54%. Especially, for US yields the room for a meaningful rebound is probably limited going into the Fed meeting. The going decline in US LT yields/flattening of the US yield curve of late was an additional negative for the dollar. The technical picture of the dollar deteriorated significantly after the break of DXY below 94.65. For now, we see no trigger to change the established USD downtrend. EUR/USD 1.1825 area is next important reference on the charts. There are no data in the UK today. More order driven trading in EUR/GBP might be on the cards, with 0.90 a strong support.