28-Jul-2021

1) NZD/USD Drops To One-Week Lows, Below Mid-0.6900s
2) GBP/USD Drifts Lower Below 1.3900 Amid Firmer US Dollar
3) EUR/USD Clings To 1.18 As Tensions Mount Ahead Of The Fed
4) Gold’s Battle With $1800 Extends, Levels To Watch Ahead Of Fed

 

 

1) NZD/USD Drops To One-Week Lows, Below Mid-0.6900s

The NZD/USD pair extended the previous day’s rejection slide from the key 0.7000 psychological mark and edged lower for the second consecutive session on Wednesday. The downward trajectory dragged the pair to one-week lows, further below mid-0.6900s during the early European session.

Worries about the economic fallout from the fast-spreading Delta variant of the coronavirus, along with China’s regulatory crackdown, sent ripples through the global equity markets. The risk-off impulse drove some haven flows towards the US dollar and was seen as a key factor exerting downward pressure on the perceived riskier kiwi.

The greenback was further supported by a modest uptick in the US Treasury bond yields, though expectations that the Fed will stick to its dovish stance capped gains. Hence, it will be prudent to wait for some strong follow-through selling before placing fresh bets around the NZD/USD pair and an extension of the ongoing downfall.

The Fed is scheduled to announce its policy decision at the conclusion of a two-day meeting later during the US session. Market participants will look for a clear answer to the crucial question of when the tapering will begin. This will influence the near-term USD price dynamics and provide a fresh directional impetus to the NZD/USD.

Heading into the key event risk, the US bond yields and the broader market risk sentiment will drive the greenback amid absent relevant market moving economic releases. This, in turn, should allow traders to grab some short-term opportunities around the NZD/USD pair.

 

2) GBP/USD Drifts Lower Below 1.3900 Amid Firmer US Dollar

GBP/USD drops towards 1.3850 amid resurgent demand for the US dollar and a cautious mood. The pound benefits from the fall in UK covid cases and fresh Brexit optimism after the EU paused legal action against the UK over the NI protocol. The Fed is awaited.

The US Dollar Index (DXY), which tracks the greenback performance against its six major rivals, trades near  92.50, with 0.01% gains. Investors expected a sooner than expected rate hike from the Fed in today’s meeting. The mixed economic data adds little to the USD valuations. The US New Home Sales data fell for the straight third month. The US Durable Goods Orders rose 0.8% in June, much below the market expectations of 3.2% growth.

On the other hand, the sterling remained in higher spirit after the Bank of England (BOE) official Gertjan Vlieghe said on Monday that the central bank should keep its stimulus possibly until 2022.

Meantime, the EU pauses legal action against the UK over the Northern Ireland (NI) protocol. As for now, investors await the Fed’s Interests  Rate Decision to gauge the market sentiment.

 

3) EUR/USD Clings To 1.18 As Tensions Mount Ahead Of The Fed

EUR/USD is trading close to 1.18, marginally lower as investors eye the Federal Reserve’s decision. The Fed is likely to refrain from any signal of tapering its bond buys. Covid headlines are eyed.

Euro/dollar is benefiting from upside momentum on the four-hour chart and has surpassed the 50 and 100 Simple Moving Averages, bullish signs that enhance the narrative of an uptrend.

Resistance awaits at Tuesday’s high of 1.1840, followed by 1.1880, a stubborn cap from early in July. Further above, 1.19 awaits.

Some support is at 1.17790, where the 50 SMA hits the price, followed by 1.1770 and July’s low of 1.1750.

More than a dead-cat bounce – EUR/USD has set higher highs and higher lows for several days, providing hope for the bulls. The world’s most popular currency pair also has reasons to rise, which may result in further gains.

All eyes are on the Federal Reserve’s decision later in the day. That has been dampening price action and tension will likely confine currencies to narrow ranges until the world’s most powerful bank releases its statement. The Fed is unlikely to change its policy – nor hint it is nearing tapering bond-buys, as Fed Chair Jerome Powell said recently that it is “a ways off.”

Rising inflation prompted the bank to open the debate about buying fewer bonds, but there are good reasons to believe it is still transitory and related to the rapid reopening. Moreover, the quick spread of the Delta COVID-19 variant creates high uncertainty that could result in a wait-and-see approach. US authorities now recommend using face masks – even for the vaccinated – under specific conditions.

There are additional reasons to expect a dovish decision by Powell and co. one that would keep the dollar printing presses at full-speed and weigh on the dollar.

There are additional reasons to be optimistic and expect a risk-on mood – one that is unfavorable to the safe-haven dollar. After several disappointing data points, Tuesday’s data releases were upbeat. The Conference Board’s Consumer Confidence beat estimates and Durable Goods Orders also look upbeat when considering upward revisions.

And while US and European coronavirus infections are rising, they are falling in Britain. The UK is ahead in both vaccinations and the prevalence of Delta and it has finally turned a corner, with seven consecutive days of drops. Hospitalizations remain elevated and the full effect of the reopening is still to be seen, but Britain serves as a “leading indicator” to the world.

 

4) Gold’s Battle With $1800 Extends, Levels To Watch Ahead Of Fed

Gold price is rising back above $1800, defending the key support area around $1798 amid a cautious market mood heading into the Fed decision. The sell-off in the Chinese stocks seems to have paused, offering some support to the Asian indices.

100-DMA defends gold buyers and so does the upbeat Momentum line but the receding bullish bias of the MACD histogram indicates challenges for the buyers on the way ahead. Also testing the gold optimists is a horizontal line from early May and 200-DMA, close to $1,815 and $1,821 in that order.

It’s worth mentioning that the monthly high near $1,835 and May 10 peak around $1,845 offer extra hurdles to the north.

Hence, a bumpy road to the north tests the gold’s upside whereas the alternative path has fewer blocks, namely 100-DMA and an ascending trend line from March-end, respectively around $1,799 and $1,775. In a case where the gold prices drop below $1,775, June’s low surrounding $1,750 should return to the chart.

The US Centers for Disease Control and Prevention (CDC) edits mask mandate and Australia’s key coronavirus infected state, New South Wales (NSW) is up for refreshing the 16-month high of the daily cases. Further, the UK reports the highest death toll since March 17 and offers another reason to be worried.

In addition to the mixed data and COVID-19 fears, China’s crackdown on technology and tuition stocks, as well as the Sino-American tussles, also weighs on the market’s mood. Against this backdrop, Wall Street benchmarks snapped a five-day uptrend and the US 10-year Treasury yields also slipped 3.7 basis points (bps) to 1.23% by the press time.

Although the risk-off mood puts a safe-haven bid under the US dollar, bulls are cautious ahead of the key US Federal Open Market Committee (FOMC) verdict.

While inflation pressure remains the concern to press the Fed policymakers towards tapering, recently escalating Delta covid strain woes may stop Chairman Jerome Powell and Company to replay the old art of defending easy-money but keeps bulls on the edge.