28-Oct-2021

1) XAU/USD Needs To Crack $1781 For Further Downside
2) EUR/USD Treads Water Around 1.1600 Ahead Of ECB, US GDP
3) GBP/USD Steadies Near 1.3750 Amid Brexit Woes, Ahead Of US GDP

1) XAU/USD Needs To Crack $1781 For Further Downside

The US dollar resurgence amid risk-off markets at full steam has once again taken the wind out of the gold price rally, downing the bright metal for the second day in a row. Investors liquidate their USD shorts and reposition themselves ahead of the critical US Q3 GDP report due later this week. Further, rising global inflationary pressures and their potential negative impact on the economic recovery also spurs the safe-haven bids in the dollar at gold’s expense. However, falling US Treasury yields could help put a floor under the gold price.

Sellers need a strong foothold below $1781 to extend the additional downside. That level is the confluence of the Fibonacci 61.8% one-week and pivot point one-day S1.

Further south, the SMA100 four-hour at $1777 could come to the buyers’ rescue. The next powerful support awaits at $1772, the Bollinger Band one-day Middle.

Alternatively, gold bulls will run into immediate supply pressure at a dense cluster of healthy resistance levels around $1793. Around that region, the SMA5 one-day, SMA200 one-day, Fibonacci 38.2% one-day and Fibonacci 61.8% one-month coincide.

Gold bulls will next target $1799, the meeting point of the Fibonacci 61.8% one day and SMA50 one hour.

The Fibonacci 23.6% one-week at $1801 will be the level to beat for gold optimists.

2) EUR/USD Treads Water Around 1.1600 Ahead Of ECB, US GDP

EUR/USD is trading in a tight range around 1.1600 amid a cautious market mood and firmer US dollar. US Treasury yields rebound from weekly lows amid global tightening spree. ECB policy decision, US GDP holds the key.

Following Monday’s decline, EUR/USD has been moving sideways around 1.1600 as investors await the highly-anticipated European Central Bank (ECB) policy announcements and the US growth data.

The ECB is set to announce adjustments to its Pandemic Emergency Purchase Programme (PEPP) while leaving key rates unchanged.

Although a reduction in PEPP could be seen as a hawkish move at first glance, ECB policymakers have been downplaying inflation fears and opposing the market pricing of a 10 basis points rate hike in the second half of 2022. Moreover, major European economies have revised their 2021 growth forecasts lower lately, forcing the ECB’s hand in continuing to support the economic recovery.

Unless ECB President Christine Lagarde adopts a clearly optimistic tone regarding the economic outlook or suggests that keeping price pressures under control will be the ECB’s priority, the common currency is likely to remain on the back foot against its rivals.

Due to the monetary policy divergences between, the greenback and the loonie are likely to outperform the common currency.

Meanwhile, the US Bureau of Economic Analysis will release its first estimate of the third-quarter GDP growth at 1230 GMT, when Lagarde begins her press conference. A stronger-than-expected GDP print is likely to provide an additional boost to the USD. On the other hand, a disappointing reading could force investors to reassess the Fed’s tapering timeline and cap the dollar’s gains.

3) GBP/USD Steadies Near 1.3750 Amid Brexit Woes, Ahead Of US GDP

GBP/USD is trading close to 1.3750, despite the uptick in the US dollar alongside the Treasury yields. France threatens to block UK ships, Britain vows to retaliate in a fresh Brexit tussle. BOE rate hike calls renew on reduced bond issuance in Budget 2021. US GDP awaited.

Despite the recent recovery, the Relative Strength Index (RSI) indicator on the four-hour chart stays below 50, suggesting that buyers are struggling to retain control of GBP/USD’s action.

On the downside, the initial support is located at 1.3700 (100-period SMA, psychological level) before 1.3680 (Fibonacci 23.6% retracement, 200-period SMA). In case the pair drops below the latter and turns it into resistance, additional losses toward 1.3620 (Fibonacci 50% retracement) could be witnessed.

The first resistance is located at 1.3780 (50-period SMA) ahead of 1.3800 (psychological level, ascending channel resistance) and 1.3830/40 (October 20 high, October 21 high, middle line of the channel).

The British pound has struggled to hold its ground against the greenback as the sharp decline witnessed in the UK gilt yields during the budget presentation made it difficult for the currency to find demand on Wednesday. Nevertheless, GBP/USD seems to have gone into a consolidation phase after finding support around 1.3700.

In its budget presentation, the UK government announced that it will reduce the planned bond sales for the 2021-22 fiscal year by nearly £60 billion to £198.4 billion, compared to Reuters’ estimate for a decrease of £34 billion.

Meanwhile, France released a list of sanctions that will come into effect next Tuesday unless they resolve the issues surrounding the post-Brexit fishing arrangements. A French government spokesperson said that they could even include the electricity supply to Britain as one of the measures.

Richard Hughes, the chairman of the UK’s Office for Budget Responsibility, said that Brexit would have a larger impact than the coronavirus outbreak on the economy in the long run.

Brexit concerns and falling UK gilt yields suggest that the GBP could remain on the back foot against its rivals. However, in case the European Central Bank’s (ECB) policy announcements trigger a euro selloff, EUR/GBP could fall sharply and limit GBP/USD’s downside. On the other hand, the third-quarter GDP data from the US could have a significant impact on the greenback’s market valuation. Unless this report changes markets’ view on the possibility of the Fed starting to reduce asset purchases in November, the greenback could regather its strength and weigh on GBP/USD.