29-Jul-2020

1) Dollar Declines Stall Ahead Of Fed Meeting
2) GBP/USD: Move Beyond 1.30 Mark Remains A Possibility, FOMC In Focus
3) EUR/USD: Awaits Dovish Fed Before The Next Leg Up
4) Gold: Buyers Hopeful Amid Dovish Fed Expectations, Favorable Technicals

 

 

1) Dollar Declines Stall Ahead Of Fed Meeting

The common currency is trading a tad weaker but not before prices attempted to breakout above the 1.1750 level.

Price action closed with a strong bearish engulfing near this level suggesting that resistance is likely forming here. But a breakdown of the steeper trend line will confirm if the downside will be validated.

For the moment, the bullish momentum is still in play meaning that price action can still rebound to the upside.

A daily close above 1.1750 will confirm the potential for a move higher.

The British pound sterling continues with this bullish streak. Price action is now close to the 1.3000 handle which could potentially open the way to 1.3122 next.

To the downside, support is found at 1.2813 which could stall the currency pair from further declines. But ahead of the Fed meeting, the pound sterling could see some volatility.

Only a strong close below 1.2813 could signal a move even lower. The next lower support is at 1.2643 level.

For the moment, we expect the cable to potentially settle above the 1.3000 handle in the near term.

The consolidation in the oil markets continue. Price action is testing the lower end of the range at 41.00.

This marks the second test of this level which has held up so far. To the upside, the range high near 42.00 remains strong to breach at this point.

However, given the short term bias in oil, there is scope for price action to breakdown lower. A close below 41.00 could confirm a decline toward the 38 – 40 level next.

The minor trend line could also act as support in the short term to prevent the commodity from further declines.

The precious metal rose to highs of 1975 before retreating. Price action is still bullish although the pace of gains is relatively muted compared to the past few days.

For the moment, support is at the 1931 level. If prices break down below this area, we could expect a larger correction to take place.

However, given that gold is now a buy on dips, we could see a rebound higher.

Volatility will, however, pick up heading into today’s FOMC meeting. This will potentially set the short term range in place for the precious metal.

 

2) GBP/USD: Move Beyond 1.30 Mark Remains A Possibility, FOMC In Focus

The GBP/USD pair added to its recent strong gains and jumped to the highest level since March 11, around mid-1.2900s on Tuesday. The positive momentum seemed rather unaffected by a modest US dollar rebound from two-year lows and even shrugged off fears of a no-deal Brexit. Hopes of some sort of an agreement over the next round of the US fiscal measures helped ease the bearish pressure surrounding the greenback, albeit expectations of a dovish shift in the policy stance by the Fed capped any strong gains. Investors remain worried that the resurgence in coronavirus cases could undermine the US economic recovery, which, in turn, has been fueling speculations of more stimulus from the Fed and held the USD bulls from placing aggressive bets.

On the economic data front, the Conference Board’s US Consumer Confidence Index fell to 92.6 in July from 98.3 previous. This was well short of consensus estimates pointing to a reading of 94.5 and did little to impress the USD bulls. Apart from this, a sharp intraday turnaround in the US Treasury bond yields further collaborated towards keeping a lid on the attempted USD bounce.

Meanwhile, the British pound got an additional boost following the release of UK CBI realized sales, which unexpectedly rose to 4 in July as compared to a modest improvement to -25 from -37 previous. Apart from this, possibilities of some short-term trading stops being triggered on a sustained move beyond the 1.2900 mark further contributed to the pair’s move up for the eighth consecutive session. The pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range through the Asian session on Wednesday. It will now be interesting to see if the pair is able to capitalize on the move as the focus now shifts to the highly-anticipated FOMC decision, scheduled to be announced later during the US session.

The Fed is widely expected to keep its policy measures unchanged at the end of a two-day meeting. However, the accompanying could provide hints of a potential change in the Fed’s policy stance at the upcoming meeting in September. The forward guidance will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus for the major.

Looking at the technical picture, the pair has been trending higher along an upward sloping channel held over the past 2-1/2 month or so. This coupled with the recent breakthrough the very important 200-day SMA supports prospects for additional gains. Hence, some follow-through strength towards reclaiming the key 1.3000 psychological mark, en-route the trend-channel resistance near the 1.3030 region, looks a distinct possibility.

That said, slightly overbought conditions on daily RSI (14) warrant some caution before placing fresh bullish bets, rather prompt some near-term profit-taking. The pair might slip back below the 1.2900 mark, though any subsequent weakness might still be seen as a buying opportunity. The emergence of dip-buying should help limit the downside near the June swing high resistance breakpoint, around the 1.2815-10 region.

 

3) EUR/USD: Awaits Dovish Fed Before The Next Leg Up

The EUR/USD pair edged lower on Tuesday and snapped seven consecutive days of the winning streak amid a modest US dollar rebound from two-year lows. Hopes of some sort of an agreement over the next round of the US fiscal measures aided the USD recovery through the first half of the trading action on Tuesday. It is worth recalling that Senate Republicans formally unveiled a draft plan to provide $1 trillion in funding for COVID-19 relief. The proposed package was lower than the $3 trillion passed by Democrats in May, though clears the path for talks in a bid to pass the bill before the expiry of some earlier measures at the end of this week.

Despite the optimism, investors remain worried over the strength of the US economic recovery amid the continuous surge in coronavirus cases. In fact, four states reported record numbers of COVID-19 cases over a 24-hour period on Tuesday and the nationwide tally stood at over 4.3 million cases as of July 29. This, in turn, has been fueling speculations of more stimulus by the Fed and kept a lid on any strong gains for the greenback. On the economic data front, the Conference Board’s Consumer Confidence Index fell to 92.6 in July from 98.3 previous. This was well short of consensus estimates pointing to a reading of 94.5 and did little to impress the USD bulls.

Apart from this, a sharp intraday turnaround in the US Treasury bond yields further collaborated towards capping the attempted USD bounce. The pair dipped to the 1.1700 neighbourhood, albeit lacked any strong follow-through selling and managed to regain some traction during the Asian session on Wednesday. Market participants now look forward to the highly-anticipated FOMC decision, scheduled to be announced later during the US session.

The Fed is widely expected to keep its policy measures unchanged at the end of a two-day meeting on Wednesday. Hence, the key focus will be on the accompanying, where the US central bank could provide hints of a potential change in the monetary policy stance at the upcoming meeting in September. A more dovish signal will be enough to exert some additional pressure on the already weaker greenback and pave the way for an extension of the pair’s recent strong bullish momentum.

From a technical perspective, the bias still seems tilted firmly in favour of bulls and the overnight dip might be categorized as corrective amid overbought conditions. Hence, any further slide will 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, immediate resistance is pegged near the 1.1750 area, above which bulls are likely to make a fresh attempt to reclaim the 1.1800 mark. A subsequent move beyond September 2018 swing highs resistance near the 1.1815-20 region, which coincides with the 61.8% Fibo. level, will be seen as a fresh trigger for bulls and set the stage for additional gains.

 

4) Gold: Buyers Hopeful Amid Dovish Fed Expectations, Favorable Technicals

After witnessing massive volatility, Gold (XAU/USD) settled Tuesday above the psychological $1950 level, as the US dollar stalled its broad recovery and saw late-selling amid a resurgence of the coronavirus-led economic concerns. The US Conference Board Consumer Confidence fell more than expected in July, underscoring the virus impact on the growth prospects. Also, the US fiscal aid impasse weighed down on the greenback and helped the bright metal to recover from the sharp corrective slide to $1907. Gold recorded fresh all-time highs at $1981.34 in Tuesday’s Asian trading.

In the lead up to the Fed showdown, gold is consolidating the previous moves in a tight range around $1950. The bullish bias still remains in place amid dovish Fed expectations, as the US economic recovery stalls on the back of the virus second-wave ramping up across the US. Fed could hint at adopting yield curve control, which could send the real yields further into the negative zone, triggering a fresh sell-off in the US dollar.

The hourly chart for the precious metal looks promising while the price trades in a narrow range within a symmetrical triangle formation.

Given that gold closed above the critical 21-hourly Simple Moving Average (HMA) on a daily basis, then at $1946, suggests that the upside bias still remains favored.

The hourly Relative Strength Index (RSI) trades flatlined but holds above the 50 levels, keeping the buyers hopeful.

Therefore, the metal could likely chart a symmetrical triangle bullish breakout above the falling trendline resistance at $1962 on an hourly closing basis.

Subsequently, the bulls will retest the record highs, as the quest to conquer the $2000 level continues.

On the flip side, the $1945 demand area will continue to cushion the downside. That level is the confluence of the bullish 21 and 50-HMAs.

Sellers could look for entries below the latter to test the next crucial support seen around $1920-18 region, which is the confluence of the upward sloping 100-HMA and rising trendline support.

Further south, the $1900 level will be the level to beat for the bears, in order to negate the near-term bullish perspective.