30-Oct-2020

1) Dollar Gains On Upbeat U.S. Data, Euro Falls As Lagarde Hints At Additional Stimulus
2) XAU/USD: Gold Sees A Dead Cat Bounce, $1849 In Sight Amid Covid, Election Jitters
3) EUR/USD: Post-ECB Slide Stalls Near 100-DMA, Eurozone Data Eyed For Fresh Impetus
4) GBP/USD: Turning Bearish Again Amid Growing COVID-19 Worries

1) Dollar Gains On Upbeat U.S. Data, Euro Falls As Lagarde Hints At Additional Stimulus

The greenback rose across the board on Thursday as data from the U.S. showed record growth for the third quarter. Euro dropped as European Central Bank President Christine Lagarde hinted at further monetary easing in December.

Reuters reported the U.S. economy grew at an unrivaled pace in the third quarter as the government poured out more than 3 trillion worth of pandemic relief which fueled consumer spending, but the deep scars from the COVID-19 recession could take a year or more to heal.

Gross domestic product rebounded at a 33.1% annualized rate last quarter, the Commerce Department said in its advance estimate on Thursday. That was the fastest pace since the government started keeping records in 1947 and followed a historic shrinkage rate of 31.4% in the second quarter. A separate report from the Labor Department on Thursday showed 751,000 people filed for state unemployment benefits in the week ending Oct. 24, compared to 791,000 in the previous period.

Versus the Japanese yen, although dollar gained to 104.50 in Asia due to a rebound in U.S. stock futures, price erased intra-day gains and dropped to a fresh 5-week low at 104.03 in Europe on safe-haven JPY buying. However, the pair found renewed support there and later rallied to 104.72 in New York due to the release of upbeat U.S. growth figures as well as USD’s strength.

The single currency edged up to 1.1758 in the Asian morning and traded sideways ahead of the European open. The pair then came under renewed selling pressure and later tumbled to 1.1696 at New York open as European equities surrendered their initial gains. Later, price ratcheted lower after ECB kept its rates unchanged, and as President Lagarde signaled there would be additional monetary easing in December and fell to a 1-month low at 1.1651 in New York before rebounding to 1.1678 on short-covering.

Reuters reported the ECB left its benchmark rate unchanged at 0.00% on Thursday but hinted at more support in December for a eurozone economy struggling with a fresh wave of the coronavirus pandemic.    While the European Central Bank committed on Thursday to take new action to contain the growing fallout from the second wave of coronavirus infections, saying it would hone its response by the time of its December meeting.  “We agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting,” ECB President Christine Lagarde told a news conference.    She said ECB staff was already working on “all instruments”, meaning the ECB could do more than just add to its 1.35 trillion euro ($1.60 trillion) Pandemic Emergency Purchase Programme at its next meeting on Dec. 10.

The British pound traded with a firm bias in Asia and gained to 1.3025 before retreating to 1.2982. The pair then met renewed selling at 1.3025 in the European morning and tumbled to a 12-day low at 1.2882 in New York morning on USD’s broad-based strength. Cable later rebounded to 1.2936 on short-covering and then moved sideways.

In other news, Reuters reported a deal on fisheries and rules governing state subsidies are the two critical issues in negotiations with Britain, European Commission President Ursula Von Der Leyen said on Thursday following a video conference with Canada’s prime minister. “We are making good progress but the two critical issues, level playing field, and fisheries, there we would like to see more progress,” Von Der Leyen told a news conference.

On the data front, Reuters reported unemployment in Germany fell much more than expected in October, data showed on Thursday as the labour market in Europe’s largest economy continued its recovery from the first wave of the coronavirus pandemic. The labour office said the number of people out of work fell by 35,000 in seasonally adjusted terms to 2.863 million. A Reuters poll had forecast a smaller decline of 5,000. The unemployment rate decreased to 6.2% in October from 6.3% in the previous month.

2) XAU/USD: Gold Sees A Dead Cat Bounce, $1849 In Sight Amid Covid, Election Jitters

Following a close below the 100-day moving average (DMA), Gold (XAU/USD) extended its declines into the second straight day on Thursday. The bright metal fell to fresh monthly lows of $1860 before recovering some ground to settle the day near $1868. “Sell everything mode” returned to markets in the first half of the day, as the coronavirus fears dominated and bolstered the haven demand for the US dollar across the board. However, the risk sentiment stabilized in the American session after the US GDP data showed a sharp recovery in the third quarter and helped Wall Street rebound. The greenback continued to draw bids and reached monthly highs above 94.00 vs, its main competitors, underpinned by the US fiscal stimulus impasse, election anxiety, and dovish ECB.

So far this Friday’s trading, gold is attempting a tepid bounce, as the US dollar bulls take a breather after the solid upsurge. The market mood remains sour amid risk-off action in the Asian stocks and US equity futures, in light of a mixed bag of earnings reports from top-tier US tech companies failed to impress the investors. With the US reporting record 91K new virus infections and tighter restrictions in the EU, the risk-off flows could intensify going forward and revive the haven bids for the greenback. Therefore, the risks remain skewed to the downside for gold, as the metal is on track for the worst week in over a month.

 Gold gave a daily closing below the critical 100-DMA, now at $1890, for the second day in a row, convincing investors that the path of least resistance is to the downside.

The 14-day Relative Strength Index (RSI) sees an upturn but remains below the midline, within the bearish region, adding credence to the bearish outlook.

Therefore, the next stop for the bears is seen at $1849, the September month low. Acceptance below the latter could trigger a fresh sell-off towards the horizontal trendline (orange) support at $1791.

Alternatively, recapturing the 100-DMA barrier on a daily closing basis is critical to easing off the selling pressure in the near-term.

3) EUR/USD: Post-ECB Slide Stalls Near 100-DMA, Eurozone Data Eyed For Fresh Impetus

The EUR/USD pair witnessed some heavy selling for the fourth consecutive session on Thursday – also marking the fifth day of a negative move in the previous six – and dived to one-month lows. The US dollar retained its safe-haven status and shot to four-week tops amid growing market worries about the potential economic fallout from the continuous surge in new coronavirus cases. On the other hand, the shared currency was being weighed down by the imposition of fresh COVID-19 restriction in Germany and France, the Eurozone’s two largest economies. The already weaker sentiment surrounding the euro deteriorated further after the European Central Bank (ECB) signalled further monetary easing by the end of the year.

As was widely expected, the ECB kept interest rates on hold and explicitly mentioned that it is ready to recalibrate its instruments in December. The sense of urgency for more easing has been exacerbated by the alarming pace of growth in new coronavirus cases in Europe, which is expected to dent growth. In the post-meeting press conference, the ECB President, Christine Lagarde said that the risk to the region’s recovery was tilted to the downside and that the Governing Council has agreed to take action at the next policy meeting. Lagarde further added that inflation is expected to remain negative until early next year and that the near-term outlook has deteriorated. The ECB’s dovish outlook and commitment to take action intensified the bearish pressure surrounding the euro.

Meanwhile, the USD bulls largely shrugged off the uncertainty over the actual outcome of the US presidential election next week, instead took cues from stronger-than-expected US GDP report. According to the advance estimates released by the US Bureau of Economic Analysis, the world’s largest economy expanded by 33.1% annualized pace during the third quarter of 2020 as against a growth of 31% anticipated. Separately, the US Initial Weekly Jobless Claims came in at 751K during the week ended October 24, down from 791K reported in the previous week. As investors looked past Thursday’s key event and the US macro data, a modest recovery in the US equity markets kept a lid on any further gains for the greenback and ease the bearish pressure surrounding the major.

The pair finally settled around 25 pips off daily lows and built on the modest recovery move through the Asian session on Friday. The uptick, however, lacked any strong bullish conviction and the pair remained below the 1.1700 level. Market participants now look forward to the preliminary estimates of the third-quarter German and Eurozone GDP. This, along with the flash version of the Eurozone consumer inflation figures, will influence the shared currency. The US economic docket features the release of Core PCE Price Index, Chicago PMI, and revised Michigan Consumer Sentiment. The second-tier US macro data might further assist traders to grab some short-term opportunities on the last day of the week.

From a technical perspective, the pair this week broke through a one-month-old ascending trend-line support. A subsequent fall below the 1.1700 mark managed to find some support near 100-day SMA. However, the near-term bias still seems tilted in favour of bearish traders. Hence, some follow-through weakness back towards testing September monthly swing lows, around the 1.1615-10 region, looks a distinct possibility. Some follow-through selling below the 1.1600 mark should pave the way for an extension of the downward trajectory further towards challenging the key 1.1500 psychological mark in the near-term.

On the flip side, any meaningful recovery back above the 1.1700 mark might now be seen as a selling opportunity near the mentioned trend-line support breakpoint, around the 1.1730 region. This, in turn, should cap the upside for the major near the 50-day SMA, which is currently pegged near the 1.1785 region.

4) GBP/USD: Turning Bearish Again Amid Growing COVID-19 Worries

The GBP/USD pair failed to capitalize on its intraday positive move on Thursday, instead met with some fresh supply near the 1.3025 region and dropped to two-week lows. In the absence of any fresh Brexit-related headlines, the downfall was sponsored by a broad-based US dollar strength. Growing market worries about the economic fallout from the ever-increasing coronavirus cases continued driving some haven flows towards the greenback. Adding to these fears that the UK government could take stricter lockdown measures to curb the rapid pace of growth in new COVID-19 infections further took its toll on the British pound.

On the economic data front, the advance US GDP report came in to show that the world’s largest economy expanded by 33.1% annualized pace during the third quarter of 2020 as against a growth of 31% expected. Separately, the US Initial Weekly Jobless Claims fell to 751K during the week ended October 24 from 791K reported in the previous week. The upbeat data provided an additional boost to the already stronger greenback and dragged the pair to the 1.2880 region. However, the uncertainty about the actual outcome of the US presidential election next week, coupled with a modest bounce in the US equity markets capped any further gains for the USD and assisted the pair to find some support at lower levels.

The pair finally settled around 45 pips from daily swing lows, albeit struggled to gain any follow-through traction. The pair remained depressed for the third consecutive session on Friday – also marking its sixth day of a negative move in the previous seven – and was last seen hovering near the 1.2900 mark. The USD was back in demand amid a fresh leg down in the US equity futures, which, in turn, was seen as a key factor exerting some pressure on the major through the Asian session. There isn’t any major market-moving economic data due for release from the UK on Friday. The US economic docket features the second-tier releases of Core PCE Price Index, Chicago PMI, and revised Michigan Consumer Sentiment. The data, along with the broader market risk sentiment, will influence the USD price dynamics and produce some meaningful trading opportunities on the last day of the week.

From a technical perspective, the recent rejection slide from the 61.8% Fibonacci level of the 1.3482-1.2676 downfall has now pushed the pair closer to the 23.6% Fibo. level. Sustained weakness below the mentioned support, around the 1.2880-75 region, will negate any near-term positive bias and prompt some fresh technical selling. The pair might then accelerate further towards the 1.2800 mark before eventually dropping to the next major support near the 1.2735-30 region. The latter near the very important 200-day SMA, currently pegged near the 1.2710 region, which if broken decisively will set the stage for a further near-term depreciating move.

On the flip side, any meaningful recovery attempted might now confront a stiff resistance near the 1.2980 region (38.2% Fibo. level). That said, some follow-through buying beyond the key 1.3000 psychological mark has the potential to lift the pair further towards 50% Fibo. level, around the 1.3075-80 region. This is closely followed by the 1.3100 mark, above which the pair is likely to aim back to retest recent daily closing highs resistance near mid-1.3100s.