28-Jul-2020

1) USD Hits The Lowest Level In Almost Two-Years
2) Gold Has Steam Rolled Straight Through The 2011 Highs
3) EUR/USD: Profit-Taking Kicks In As Focus Turns To Fed
4) GBP/USD: Rally Pauses Near 1.2900, Bulls Remain At The Mercy Of USD Price Dynamics

 

 

1) USD Hits The Lowest Level In Almost Two-Years

The euro currency rose to a new 22-month high after prices rose to intraday highs of 1.1781.

The rapid appreciation in the euro comes as the dollar turns weaker. EURUSD has been in a steady uptrend and has gained almost 3% in a matter of just seven days.

The parabolic rise in the euro however puts focus on a possible correction. If price can close above the 1.1750 handle, then we expect EURUSD to potentially target the 1.1800 level next.

But given the upcoming FOMC meeting later this week, the euro could be at risk in the event that the dollar rebounds.

The Pound sterling is also lifted by a weaker greenback. Price action rose to nearly a 5-month high on Monday.

On an intraday basis, GBPUSD pushed toward 1.2902 before pulling back slightly.

Given the current momentum, GBPUSD could be looking toward the 1.3000 handle in the near term. Above this level, price will challenge the resistance level at 1.3122.

A move to this level will, however, see GBPUSD erasing the Covid-19 led declines since March this year.

Oil prices are trading below the 41.00 handle at the time of writing. The commodity is down over 1.5% intraday. Even a weaker USD has failed to lift oil prices higher.

The declines come amid concerns of weaker demand. If oil prices close below the 41.00 level, then we expect further declines.

Alternately, a close above the 41.00 level could keep price action ranging. The next lower support is at the 37.5 – 38.00 level in the event of a downside breakout.

The minor rising trend line might provide some dynamic support for prices in the near term.

The precious metal surged ahead as it hit a new all-time high record. Gold prices rose to intraday highs of 1945.52 as it continues its bullish momentum.

The gains come amid fears of economic recovery as well as more stimulus packages around the world.

In terms of a technical support, given the sharp gains, there are none. Therefore, price action is likely to carve out some form of support near the current levels.

For the moment, the only key level is seen at the 1850 handle.

 

2) Gold Has Steam Rolled Straight Through The 2011 Highs

Gold has steam rolled straight through the 2011 highs, with silver following suit though not nearly as spectacularly as gold. The rise of gold in 2020 has truly been a site to behold, the pandemic, the political minefield and of course the stimulus have all contributed to varying affects that have created the perfect storm. Though the rise in gold has been derived from the unprecedented pandemic driven turmoil and investors seeking safe havens, there are factors that cause concern, especially for firms who may deal in the physical aspects of gold trading.

Gold prices have always fluctuated based on supply and demand principles with strong correlations to the health of the economy. During in economic growth the demand for gold as an investment option is usually reduced, however, the manufacturing requirements of gold tend to remain consistent. In an economy that is struggling, or suffering from undue challenges, were uncertainty is rife, the demand for gold has historically risen to protect capital.

The best gauges of economic health have usually been derived from inflation and interest rates, which have high levels of correlation with a variety of asset classes. Most notably cash, when inflation rises, the cash devalues. Under normal economic conditions you may see investors pick up bonds or even exchange one currency for another to try and offset the value devaluation. But we are not in normal economic conditions and when the real yields decline, like we are seeing now, then the next best option to protect capital is gold.

 Now the real concern is the supply of gold, it has been speculated upon before but with the current state of world events its even more relevant. Gold is seeing a bit of a pinch on the supply side, with so many investors uncertain about the economy its no wonder that they have moved into gold. What wasn’t foreseen as readily was the level of individuals choosing to take delivery as opposed to rolling contracts over. This could very well have the same effect as a run on a bank, gold exchanges operate in a similar compacity after all, they don’t necessarily have all the actual gold in the bank.

Regardless of the above concerns, investors will likely continue to pile into gold, provided: Rates remain at historic lows, monetary and fiscal policy remains accommodative, the USD stays on the weaker end of the spectrum, stimulus remains infinite, the debt keeps growing, and yields don’t return to civilised levels. Which is likely to linger until some clarity around the pandemic and recovery becomes concrete.

 

3) EUR/USD: Profit-Taking Kicks In As Focus Turns To Fed

The EUR/USD pair prolonged its recent strong bullish momentum and rallied to its highest level since September 2018 on the first day of a new trading week amid a broad-based US dollar weakness. Investors remain worried that the economic recovery in the US could be grinding to a halt in the wake of the resurgence in coronavirus cases. This, in turn, fueled speculations of more stimulus from the Fed and continued exerting some heavy pressure on the greenback. The bearish pressure surrounding the buck remained unabated following the release of mixed Durable Goods Orders data from the US. In fact, the headline orders rose 7.3% MoM in June, slightly better-than-expected. Excluding transportations, orders increased by 3.3% and ex-defense, orders were up 9.2%, both missing consensuses estimates.

On the other hand, the euro remained well supported by the latest optimism over a landmark agreement on the EU’s €750 billion pandemic recovery fund – aimed at aiding the region’s worst-hit economies. The shared currency got an additional boost from Monday’s release of German IFO Business Climate Index, which climbed to 90.5 in July as against the anticipated rise to 89.3 from 86.2 previous. Meanwhile, the Current Economic Assessment fell short of market expectations and arrived at 84.5, still marked improvement from last month’s 81.3. The pair touched an intraday high level of 1.1782, though extremely overbought conditions kept a lid on any further gains, at least for the time being.

The pair finally settled around 30 pips off daily tops and witnessed some follow-through retracement during the Asian session on Tuesday. The pullback lacked any obvious fundamental catalyst and could be solely attributed to a modest USD rebound ahead of the two-day FOMC meeting, which gets underway later this Tuesday. In the meantime, traders might take cues from the US economic docket, highlighting the release of the Conference Board’s Consumer Confidence Index and Richmond Manufacturing Index. There isn’t any major market-moving data due for release from the Eurozone and hence, the USD price dynamics might continue to act as an exclusive driver of the pair’s momentum on Tuesday.

From a technical perspective, the pair is likely to find immediate support near the 1.1700 round-figure mark. Any subsequent profit-taking slide might still be seen as a buying opportunity near mid-1.1600s. That said, some follow-through selling has the potential to drag the pair further towards the 1.1600 mark. The mentioned level represents an important resistance breakpoint, marked by the 50% Fibonacci level of the 1.2555-1.0636 downfall, and should now act as a strong base for the pair.

On the flip side, the 1.1750 area might act as an immediate resistance, above which the pair is likely to reclaim the 1.1800 mark and test September 2018 swing highs resistance near the 1.1815-20 region. The latter coincides with the 61.8% Fibo. level and prove to be a tough nut to crack for bulls.

 

4) GBP/USD: Rally Pauses Near 1.2900, Bulls Remain At The Mercy Of USD Price Dynamics

The heavily offered tone surrounding the US dollar allowed the GBP/USD pair to build on last week’s strong positive move and gain some follow-through traction on Monday. The USD kicked off the new week on a downbeat note and tumbled to near two-week lows amid worries that the economic recovery in the US could be grinding to a halt in the wake of the resurgence in coronavirus cases. This, in turn, fueled speculations that the Fed would add more stimulus for a longer period of time and in bigger quantities to support the economy. The USD bulls failed to gain any respite following the release of mixed Durable Goods Orders data from the US. In fact, the headline orders rose 7.3% MoM in June, slightly better-than-expected. Excluding transportations, orders increased by 3.3% and ex-defense, orders were up 9.2%, both missing consensuses estimates.

The positive momentum seemed largely unaffected by renewed fears of a no-deal Brexit. It is worth reporting that the latest round of negotiations ended last Thursday without any significant progress on the post-Brexit trade deal. Both the UK and the EU said that talks remain at a stalemate and they were still some way off reaching an agreement. Britain’s chief Brexit negotiator David Frost said that they will not achieve the goal of striking a preliminary agreement by the UK Prime Minister Boris Johnson’s July deadline and the UK should be prepared for the possibility that a deal will not be reached. Nevertheless, the pair shot to the highest level since March 11, albeit struggled to capitalize on the move beyond the 1.2900 mark and edged lower during the Asian session on Tuesday.

The pullback lacked any obvious fundamental catalyst and was sponsored by some USD short-covering move amid some repositioning trade ahead of the two-day FOMC meeting, which gets underway later this Tuesday. In the absence of any major market-moving economic releases from the UK, the pair remains at the mercy of the USD price dynamics. Later during the early North American session, traders will look forward to the US economic docket – highlighting the release of the Conference Board’s Consumer Confidence Index and Richmond Manufacturing Index – for some meaningful opportunities.

From a technical perspective, any meaningful slide is likely to find some support near the June swing high resistance breakpoint, around the 1.2815-10 region. Some follow-through weakness below the 1.2800 mark might prompt some technical selling and accelerate the slide further towards the 1.2765-60 region. That said, the dip might still be seen as a buying opportunity and is more likely to remain limited.

On the flip side, bulls might now wait for a sustained move beyond the 1.2900 round-figure mark. Above the mentioned level, bulls are likely to aim towards reclaiming the key 1.3000 psychological mark. A subsequent strength should pave the way for an extension of a multi-week-old bullish trend.