27-May-2021

1) EUR/USD Tops 1.22 As The Dollar Dips
2) GBP/USD Bounces Off 1.41 Ahead Of US Data
3) AUD/USD Struggles For Firm Intraday Direction, Flat-Lined Below Mid-0.7700s
4) XAU/USD Set To Retest Multi-Month Highs, Bullish Potential Appears Limited
5) NZD/USD Steadily Climbs Back Closer To Multi-Month Tops, Around 0.7300 Mark

 

 

1) EUR/USD Tops 1.22 As The Dollar Dips

EUR/USD has advanced above 1.22, taking advantage of dollar weakness. Safe-haven flows to the greenback are diminishing amid optimism from Sino-American talks. US Durable Goods Orders, GDP, and jobless claims are eyed.

Euro/dollar has slipped under the uptrend support line that accompanied it since mid-May and also dropped under the 50 Simple Moving Average on the four-hour chart. While momentum remains positive the currency pair is holding above the 100 and 200 SMAs, bulls are losing some ground.

Support awaits at the daily low of 1.2175, followed by 1.2155, 1.2105, and 1.2075.

Some resistance is at 1.22, which is the daily high. It is then followed by the former triple top of 1.2245, and then by the May peak of 1.2266.

“(Don’t Fear) The Reaper” – that 1970s song, included in any driving music collection – is now relevant for EUR/USD traders. The reaper is the Federal Reserve, which is tiptoeing towards tapering. Fear that the world’s most powerful central bank would begin cutting down on its $120 billion/month bond buys is boosting the dollar.

Randal Quarles, a Governor at the Fed, said that the bank could consider having a discussion on reducing purchases in one of the upcoming meetings if conditions improve. This subtlety echoes the Fed’s meeting minutes released last week and was blended with the Fed’s regular messages – inflation is transitory and the economy has a long way to go. The latter will come to a test.

Economists expect a minor upgrade of US first-quarter Gross Domestic Product growth from 6.4% to 6.5% in the second release. Without a major surprise in GDP, the focus will likely be the more recent Durable Goods Orders statistics for April, which are set to show a slower increase in investment. Low expectations mean that a minor upside surprise could boost the dollar.

Weekly Unemployment Claims are forecast to extend their gradual decline and Pending Home Sales will also be of interest amid signs of cooling in the housing sector.

Another factor supporting the greenback is end-of-month flows. As of Monday, May 31, is a bank holiday in the US and the UK, money managers are adjusting their portfolios and this seems to benefit the greenback.

Across the Atlantic, optimism about Europe’s vaccine-led recovery seems to be priced into the euro while fears of the variant first identified in India are creeping in. France joined Germany in demanding quarantines from UK visitors, potentially hurting the rebound of the tourism sector.

 

2) GBP/USD Bounces Off 1.41 Ahead Of US Data

GBP/USD recovers and trades above 1.41 as the dollar gives ground amid upbeat US-China trade headlines. Serious allegations were made by UK PM Johnson’s close aide Dominic Cummings on covid handling weigh on the pound. US data is eyed.

Pound/dollar has lost the 50 Simple Moving Average on the four-hour chart and momentum turned to the downside. On the other hand, it bounced off the 100 SMA. The picture has become less bullish.

Some support awaits at the daily low of 1.4090, followed by 1.4075, which cushioned the pair in mid-May. Further down, the next levels to watch are 1.4050 and 1.4010.

Some resistance is at the daily high of 1.4140, followed by 1.4175 and 1.4210.

Boris Johnson is unfit to be prime minister – that has been the message from Dominic Cummings, the former all-powerful aide to the PM. The political scandal surrounding the handling of the pandemic has been grabbing attention and also weighing on the pound. Thursday’s testimony from Secretary of State for Health Matt Hancock may also complicate matters for the government.

However, a bigger drag on the pound comes from the virus – the variant first identified in India is of concern in Britain and beyond. France joined Germany in demanding quarantine from those arriving from the UK. While the vaccination campaign continues at full speed and the economy continues reopening, fears are hurting sterling.

GBP/USD has been under pressure from both pound weakness and dollar strength. The greenback has been benefiting from subtle hints about tapering from Federal Reserve officials. The latest to open the door to reducing the bank’s massive $120 billion/month printing project was Randal Quarles, a governor at the Fed.

Quarles said that it might be appropriate to begin such a discussion in one of the upcoming meetings – echoing the sentiment from the meeting minutes. Despite the comments’ subtlety and conditionality, they were enough to send the greenback higher.

Moreover, end-of-month flows – ahead of a long weekend in both the US and the UK – have been contributing to some dollar strength. The greenback gained ground earlier in May.

Looking forward, top-tier US data is eyed on Thursday. Economists expect growth estimates for the first quarter to be marginally upgraded to 6.5% annualized, and weekly jobless claims are forecast to extend their decline. The most significant release is of Durable Goods Orders for April, which are set to rise, albeit at a slower pace than beforehand.

 

3) AUD/USD Struggles For Firm Intraday Direction, Flat-Lined Below Mid-0.7700s

The AUD/USD pair seesawed between tepid gains/minor losses through the first half of the European session and was last seen trading in the neutral territory, just below mid-0.7700s.

The pair found some support near the 0.7725-20 region on Wednesday and for now, seems to have stalled the previous day’s rejection slide from the vicinity of the 0.7800 mark. The intraday uptick lacked any obvious catalyst and remained capped amid a combination of factors.

Australia’s second-most populous state Victoria will enter a seven-day lockdown at midnight on Thursday to counter a fast-spreading outbreak. This was seen as a key factor that acted as a tailwind for the Aussie and kept a lid on any meaningful upside for the AUD/USD pair.

On the other hand, a modest uptick in the US Treasury bond yields and a softer tone around the US equity futures helped to put a tentative floor under the safe-haven greenback. The USD was also supported by indicators that the FOMC is edging closer to begin a discussion about tapering.

That said, caution ahead of key US economic data coming out on Thursday and Friday held traders from placing any aggressive bets around the AUD/USD pair, at least for now. This was seen as another factor that contributed to a subdued/range-bound price action on Thursday.

Thursday’s US economic docket features the releases of the Prelim Q1 GDP, the usual Initial Weekly Jobless Claims, Durable Goods Orders, and Pending Home Sales. The data might influence the USD, which along with the broader market risk sentiment might provide some impetus to the AUD/USD pair.

 

4) XAU/USD Set To Retest Multi-Month Highs, Bullish Potential Appears Limited

Gold price (XAU/USD) corrected sharply from four-month highs of $1913 to test the key support at $1891 on Wednesday. The pullback in gold prices was mainly driven by a rebound in the US dollar and Treasury yields, as the Fed’s tapering talks hit the headlines once again. The 10-year US rates jumped towards 1.60% after the Fed’s Vice Chair for Supervision Randal Quarles and Vice Chair Richard Clarida said that the central bank could begin tapering talks at upcoming policy meetings. Additionally, month-end fx readjustments also led to the inflows in the greenback, dragging gold prices lower. A quiet positive rally in Wall Street also added to the weight on the gold price.

The gold price has caught a fresh bid wave heading into Thursday’s European session. Bulls look recapture $1900, courtesy of the recovery in the risk sentiment that weighs on the safe-haven dollar. Renewed US-China trade optimism has lifted the market mood. Both sides officially confirmed that the US Trade Representative Katherine Tai and China’s Vice-Premier Liu He had candid and constructive trade talks. Meanwhile, gold remains supported amid the continued surge in covid cases in Asia and fresh lockdown in the Australian state of Victoria. Markets now shift their focus towards a fresh batch of US data due for release later on Thursday, with the Durable Good and Core PCE closely eyed. In the meantime, the narrative on the inflation risks and tapering bets will continue to impact the gold prices.

On the four-hour, gold price remains on track to retest the multi-month highs above $1900 so long as the 21-simple moving average (SMA) at $1891 holds.

The Relative Strength Index (RSI) edges higher while above the midline, keeping the buyers hopeful.

A break above Wednesday’s high would expose the January high of $1918.

However, a four-hourly closing below the critical 21-SMA support could trigger a drop towards the ascending 50-SMA at $1879.

 

5) NZD/USD Steadily Climbs Back Closer To Multi-Month Tops, Around 0.7300 Mark

The NZD/USD pair traded with a mild positive bias through the first half of the European session, with bulls still awaiting a sustained move beyond the 0.7300 mark.

Following the previous day’s pullback of over 35 pips from three-month tops, the pair managed to regain some positive traction on Thursday and was supported by a hawkish surprise from RBNZ. At its May meeting held on Wednesday, the Reserve Bank of New Zealand indicated that it could gradually hike interest rates from the third quarter of 2022.

The central bank also acknowledged the recent notable improvement in the economic outlook amid gradual progress in COVID-19 vaccinations and that economic uncertainty is diminishing. This was seen as a key factor that continued acting as a tailwind for the kiwi and allowed the NZD/USD pair to edge higher for the fourth consecutive session on Thursday.

On the other hand, the US dollar struggled to capitalize on its attempted recovery move from the lowest level since January amid dovish Fed expectations. That said, a modest pickup in the US Treasury bond yields helped to put a tentative floor under the greenback ahead of key US economic data coming out on Thursday and Friday.

Apart from this, a cautious tone around the equity markets might further collaborate to cap the upside for the perceived riskier kiwi. Market participants now look forward to the US economic docket, featuring the releases of the Prelim Q1 GDP, the usual Initial Weekly Jobless Claims, Durable Goods Orders, and Pending Home Sales.

The data, along with the US bond yields, might influence the USD price dynamics later during the early North American session. Traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the NZD/USD pair.