29-Sep-2020

1) Dollar Falls Broadly As Rebound In Global Stocks Boosts Risk Sentiment
2) EUR/USD: Steadies Below 1.1700 Mark, Trump-Biden Debate Awaited
3) GBP/USD: Not Out Of The Woods Yet, Focus Remains On Brexit Talks

1) Dollar Falls Broadly As Rebound In Global Stocks Boosts Risk Sentiment

The greenback fell across the board against its key counterparts on Monday as intra-day rebound in Asian equities as well as U.S. stock futures boosted risk appetite. Sterling jumped in Europe on mild Brexit optimism and comments by Bank of England’s Deputy Governor Ramsden before paring intra-day gains in New York session.

On the data front, the only data released in the U.S. was the Federal Reserve Bank of Dallas’ monthly manufacturing index, September index came in at 13.6 versus previous reading of 8.00.

European stocks rallied bradly with Germany’s Dax closed up by 3.22% while the Dow closed up by $$$%.

Versus the yen, despite initial gain to 105.68 in Australia, failure to re-test Friday’s 105.69 high prompted profit taking and the apir hit session lows of 105.27 ahead of European open before rebounding to 105.66 in New York due to renewed broad-based yen selling as gains in global stocks boosted risk appetite.

The euro moved narrowly in subdued Asian morning after hitting an 8-week low at 1.1613 last Friday. Price rebounded due to intra-day rally in cable and climbed to session highs of 1.1679 in early New York trading before retreating in tandem with the pound to 1.1644.

In other news, ECB’s Lagarde who was testifying before the European Parliament said “it was clear that external value of euro has impact on inflation, we monitor fx movements”.

Reuters reported dissent on the European Central Bank executive board is normal and healthy, ECB president Christine Lagarde said on Monday amid a growing rift among policymakers, fuelled in part by commentary from board members.    Sources close to the discussion told Reuters earlier that there is growing tension at the bank over how to steer the economy through the pandemic, which could spill over into the public domain and endanger Lagarde’s hard-won peace.

The British pound staged an impressive rally in European trading. Price climbed from 1.2752 (New Zealand) to as high as 1.2930 ahead of New York open on mild market optimism that The U.K. could clinch a Brexit deal with the European Union by October or at least avoid a cliff-edge exit from the bloc. Sterling also rose broadly on less dovish comments from Bank of England’s Deputy Governor Ramsden who said said he thought the floor for the central bank’s key interest rate was 0.1% but the BoE was “duty-bound” to consider whether it could take rates below zero. However, cable quickly pared intra-day gain in New York session and later fell back to 1.2828. Price last traded at 1.2833 at the close.

2) EUR/USD: Steadies Below 1.1700 Mark, Trump-Biden Debate Awaited

The US dollar kicked off a new week on a downbeat note and assisted the EUR/USD pair to stage a modest bounce from two-month lows. Upbeat Chinese data released over the weekend and optimism over additional US fiscal stimulus provided a strong boost to the global risk sentiment. The upbeat market mood dented the greenback’s perceived safe-haven status against its European counterpart. However, signs that the Eurozone’s coronavirus situation was worsening amid the second wave of the outbreak held bulls from placing any aggressive bets. Market worries were further fueled by the European Central Bank (ECB) President Christine Lagarde’s comments, saying that the external value of the shared currency has an impact on inflation. Lagarde further added that policymakers will monitor currency movements, which further collaborated towards capping gains for the major.

Meanwhile, the USD pullback lacked any strong follow-through on the back of worries about a surge in new COVID-19 infections and political uncertainty in the US. Investors remain concerned about a smooth transfer of power if President Donald Trump losses the election in early November. Hence, the key focus will be on the first presidential debate, scheduled later this Tuesday. Apart from this, developments on the US fiscal stimulus bill and important US macro data, including the closely watched US monthly jobs report (NFP), will play a key role in influencing the near-term USD price dynamics. In the meantime, investors are likely to remain cautious, rather prefer to stay on the sidelines in the absence of any major market-moving economic releases from the Eurozone. This, in turn,  could lead to a subdued/range-bound trading action.

Later during the early North American session, speeches by influential FOMC members will be looked upon for some impetus. On the economic data front, the release of the Conference Board’s Consumer Confidence Index will be looked upon to grab some short-term trading opportunities.

From a technical perspective, the attempted is likely to confront a stiff resistance near the 38.2% Fibonacci level of the 1.1168-1.2011 positive move, around the 1.1700 mark. Any subsequent move up will be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.1760-65 strong horizontal support breakpoint. That said, some follow-through buying beyond 100-day SMA, currently near the 1.1790 area – nearing the 23.6% Fibo. level – will negate any near-term bearish bias.

On the flip side, immediate support is now pegged near the 1.1625-20 region and is closely followed by 50% Fibo. level, around the 1.1600 mark. A convincing breakthrough will be seen as a fresh trigger for bearish traders and set the stage for a slide to challenge the key 1.1500 psychological mark. The latter marks an important confluence region – comprising of the 61.8% Fibo. level and 100-day SMA – and should now act as a strong base for the major.

3) GBP/USD: Not Out Of The Woods Yet, Focus Remains On Brexit Talks

The GBP/USD pair witnessed some aggressive short-covering move on the first day of a new trading week and was being supported by a combination of factors. The British pound’s strong outperformance was fueled by the optimism over a breakthrough in this week’s Brexit trade negotiations. Reports indicated that the two sides remain optimistic that some kind of a deal will be struck before the very important EU summit in mid-October. The UK PM spokesman reinforced market expectations and said that a Brexit agreement was still possible. The spokesman, however, added that there are significant gaps and the EU must adopt a more realistic policy position.

The sterling got an additional boost after the Bank of England (BoE) policymaker, Dave Ramsden, downplayed the possibility of negative interest rates in the short-term. In an interview with the Society of Profession Economists, Ramsden was noted saying that he still sees the effective lower bound in the bank rate at 0.10%. He further said that the central case sees GDP recovering steadily but there are real uncertainties and risks from the pandemic, Brexit and the US election. BoE is ready to act further if needed. This, along with some US dollar profit-taking, pushed the pair to one-week tops, or levels beyond the 1.2900 round-figure mark.

Upbeat Chinese data released over the weekend and optimism over additional US fiscal stimulus triggered a strong rally in the global equity markets. The risk-on mood dented the greenback’s perceived safe-haven status and remained supportive of the pair’s intraday positive move of around 180 pips. However, worries about a surge in new COVID-19 infections and political uncertainty in the US helped limit the USD pullback. Investors remain concerned about a smooth transfer of power if President Donald Trump losses the election in early November. Hence, the key focus will be on the first presidential debate, scheduled later this Tuesday.

Apart from this, the incoming headlines from the ninth and the final round of Brexit talks, starting this Tuesday, will influence the sentiment surrounding the British pound and further contribute to produce some meaningful trading opportunities.

From a technical perspective, the overnight rally could be solely attributed to some short-covering from a technically significant moving average (200-day SMA). The lack of any strong follow-through buying and a subsequent pullback of around 100 pips points to the prevalent selling bias at higher levels. Hence, any move back towards the 1.2925-30 region might still be seen as a selling opportunity. This, in turn, should continue to cap the pair near the key 1.3000 psychological mark. Only a sustained move beyond will negate any near-term bearish bias and pave the way for additional gains.

On the flip side, the 1.2800 mark now seems to protect the immediate downside and is closely followed by the 1.2775 horizontal support. Failure to defend the mentioned levels would turn the pair vulnerable to slide back towards the 1.2700 round-figure mark (200-DMA). Some follow-through selling below the recent swing lows, around the 1.2675 level, will set the stage for the resumption of the downward trajectory. The pair might then accelerate the fall further towards mid-1.2500s before eventually dropping to the key 1.2500 psychological mark.