28-Jan-2021

1) USD/CAD: Bullish Wedge Breakout Comes Into Play Ahead Of US Q4 GDP
2) EUR/USD: Weighed Down By ECB, Risk-Off Mood; Focus Shifts To US Q4 GDP
3) XAU/USD: Downside Appears More Compelling Below 200-DMA, US GDP Eyed

1) USD/CAD: Bullish Wedge Breakout Comes Into Play Ahead Of US Q4 GDP

The USD/CAD pair added to the previous day’s strong momentum and climbed to one-month tops during the Asian session on Thursday. The US dollar was back in demand amid a fresh wave of global risk aversion, which, in turn, was seen as one of the key factors driving the pair higher. Against the backdrop of growing market worries about the potential economic fallout from the coronavirus pandemic, doubts over the timing and size of a new US economic stimulus package dampened the market mood. This was evident from a selloff in the US equity markets, which forced investors to take refuge in the safe-haven greenback.

The USD bulls seemed rather unaffected by Wednesday’s dovish sounding FOMC. As widely anticipated, the Fed left its monetary policy settings unchanged and downplayed speculations of tapering bond purchases sooner than expected. The US central bank, however, raised concerns about the pace of recovery and said that the ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the outlook. Hence, the focus now shifts to Thursday’s release of the Advance US Q4 GDP report, which will now play a key role in influencing the near-term USD price dynamics.

On the other hand, a softer tone surrounding crude oil prices undermined the commodity-linked loonie and provided an additional boost to the major. Oil prices remained depressed on the back of fresh concerns about weakening global fuel demand amid the reintroduction of strict COVID restrictions. The UK Prime Minister Boris Johnson indicated on Wednesday the lockdown in England would last until March 8 and also announced new measures to clamp down on travel to/from Britain. Adding to this, China – the world’s second-largest oil consumer – also sought to limit Lunar New Year trips to stem a surge in COVID-19 cases.

From a technical perspective, the momentum pushed the pair beyond an important resistance marked by an over two-month-old descending trend-line. The mentioned trend-line constituted the formation of a bullish falling wedge and a sustained breakthrough has already set the stage for additional gains. Hence, some follow-through strength beyond an intermediate resistance, near mid-1.2800s, looks a distinct possibility. The next relevant target on the upside is pegged near the 1.2900 mark ahead of late December swing highs, around the 1.2955 region.

On the flip side, the 1.2800 round-figure mark now seems to protect the immediate downside. Any subsequent fall might now be seen as a buying opportunity and remain limited near the wedge resistance breakpoint, around mid-1.2700s. That said, some follow-through weakness and failure to defend the 1.2700 mark will negate the constructive outlook. The pair might then turn vulnerable to resume its prior/well-established bearish trend.

2) EUR/USD: Weighed Down By ECB, Risk-Off Mood; Focus Shifts To US Q4 GDP

A combination of factors prompted some heavy selling around the EUR/USD pair and dragged it to one-and-half-week lows on Wednesday. The shared currency started losing ground after the ECB Governing Council member Klaas Knot said that the exchange rate would take prominence if it threatens inflation outlook. Knot added that the ECB is keeping a watchful eye on the euro strength and that the central bank has tools to counter any further appreciation. Knot also hinted that the ECB could decide to cut interest rates further to curb the common currency’s recent gains and keep the inflation target in sight.

Meanwhile, the German government slashed its 2021 growth forecast to 3% from its previous projection of 4.4%. This added to worries about the potential economic fallout from the second round of coronavirus lockdown and further undermined the shared currency. Apart from this, a selloff in the US equity markets provided a strong lift to the safe-haven US dollar and further contributed to the pair’s intraday decline. There was no obvious trigger for the rout, though doubts about the timing and size of the new US economic stimulus package turned out to be a key factor that dampened the market mood.

On the economic data front, the US Durable Goods Orders came in to show a modest 0.2% rise in December as against 0.9% anticipated. The disappointing print, to a larger extent, was offset by an upward revision of the previous month’s reading and better-than-expected core durable goods orders (excluding transportation items), which increased by 0.7% during the reported month vs 0.5% expected. The data did little to derail the intraday USD positive move. The pair, however, managed to find some support ahead of the monthly swing lows, around mid-1.2000s, after the Fed announced its policy decision.

As widely anticipated, the FOMC left its monetary policy settings unchanged and downplayed speculations of tapering bond purchases sooner than expected. The US central bank, however, raised concerns about the pace of recovery and said that the ongoing public health crisis continues to weigh on economic activity, employment, and inflation, and poses considerable risks to the outlook. Hence, the focus now shifts to Thursday’s release of the Advance US Q4 GDP report. Ahead of the key release, the pair was seen trading with a negative bias, below the 1.2100 mark during the Asian session.

From a technical perspective, repeated failures ahead of the 1.2200 round-figure mark could be seen as the first signs of possible bullish exhaustion. A subsequent slide below the 1.2055-50 region will add credence to the negative outlook and drag the pair further towards the key 1.2000 psychological mark. Some follow-through selling below the 1.1980-75 region will be seen as a fresh trigger for bearish traders and set the stage for an extension of the recent corrective fall from near three-year tops touched earlier this month.

On the flip side, the 1.2135 horizontal level now seems to act as immediate resistance. A sustained move beyond might assist bulls to make a fresh attempt to make it through the 1.2190-1.2200 heavy supply zone. The next relevant target on the upside is pegged near the 1.2240 region, above which the momentum could push the pair back towards the 1.2300 round-figure mark.

3) XAU/USD: Downside Appears More Compelling Below 200-DMA, US GDP Eyed

Gold (XAU/USD) fell as low as $1831 on Wednesday but recovered some ground, finishing the day down nearly $15. Gold traders were unimpressed by the Fed’s status-quo, as the central bank appeared less dovish than expected. Further, uncertainty over the US stimulus plan and the relentless covid surge added to the Fed-led pessimism and lifted the haven demand for the US dollar. Gold tumbled alongside Wall Street stocks amid broad US dollar strength.

Markets look forward to the US Q4 advance GDP and weekly jobless claims for a clear direction in the metal. Joseph Trevisani, FXStreet’s Senior, noted: “Annualized GDP in the fourth quarter expected to be 3.9% in the Reuters Survey. Dow Jones poll predicts 4.5%, Atlanta Fed GDPNow forecast at 7.5%.” The dollar’s strength amid continued risk-aversion could likely limit any upside attempts while the declines could still be guarded amid stimulus hopes. Although the risks remain tilted to the downside, as the technical setup continues to favor the bears.

Wednesday’s fall prompted gold to breach the critical 200-daily moving average (DMA) at $1850, with the path of least resistance seemingly downside after closing the day below the 200-DMA support.

The 14-day Relative Strength Index (RSI) points south below the midline, further backs the case for the bearish momentum.

Unless the XAU bulls recapture the 200-DMA on a sustained basis, the sellers remain hopeful and could target the January 18 low at $1803.

Wednesday’s low of $1831 could offer some initial support to the bulls.

On the flip side, the 100-DMA barrier at $1857 could return to play if the buyers find a foothold above the 200-DMA.