30-Sep-2020

1) Dollar Remains On The Back Foot Ahead Of Trump/Biden’s U.S. Presidential Debate
2) XAU/USD: Gold Downed By US Dollar Comeback After Presidential Election Debate
3) GBP/USD: The Recent Recovery Might Have Already Started Losing Steam
4) EUR/USD: Bulls Remain At The Mercy Of USD Price Dynamics

1) Dollar Remains On The Back Foot Ahead Of Trump/Biden’s U.S. Presidential Debate

The greenback weakened across the board versus its major peers especially against euro on Tuesday as traders unwound recent long dollar positions ahead of the first U.S. presidential debate between President Trump and former U.S. Vice President Joe Biden scheduled at 01:00GMT on Wednesday.

On the U.S. data front, Reuters reported U.S. consumer confidence rebounded more than expected in September as households’ views of the labor market improved.   The Conference Board said on Tuesday its consumer confidence index increased to a reading of 101.8 this month from 86.3 in August. Economists polled by Reuters had forecast the index edging up to a reading of 89.5 in September.

Versus the Japanese yen, despite initial dip to session lows of 105.35 shortly after Asian open, price climbed on renewed yen-selling and climbed to a near 2-week high of 105.73 in European morning. The pair retreated to 105.54 in New York morning on profit-taking before rebounding again to 105.70.

The single currency rose initially above Monday’s 1.1679 high to 1.1683 at Asian open but retreated on profit taking to 1.1666 in Europe. However, price rallied due to broad-based euro buying to 1.1743 in New York morning before retreating to 1.1710 on profit-taking. Later, renewed buying there pushed the pair higher to an intra-day high at 1.1745 in New York afternoon.

Reuters reported euro zone economic sentiment improved more than expected in September, data showed on Tuesday, mainly thanks to a rise in optimism in the services sector despite concerns about a second wave of the COVID-19 pandemic.     The European Commission’s monthly survey showed sentiment in the 19 countries sharing the euro rising to 91.1 points this month from 87.5 in August, beating market expectations of an improvement to 89.0 points.

The British pound swung broadly sideways below Monday’s 1.2930 high in hectic trading. Despite initial bounce to 1.2882 ahead of Asian open, price ratcheted lower to 1.2835 in Europe and rose to 1.2887 but only to move back to 1.2838. Cable spiked to session highs at 1.2902 on the back of interest rate comments by BOE Governor Adrew Bailey but only to erase intra-day gains and fall back to 1.2824 in New York. Cable later found renewed buying there and rebounded to 1.2868 in New York afternoon.

Reuters reported Bank of England Governor Andrew Bailey said on Tuesday he did not rule out using negative interest rates but that the central bank was realistic about the challenges they would pose for the banking system.     Bailey, in an online speech given to Queen’s University Belfast, reiterated that the BoE had not yet reached a judgment on whether or when to use sub-zero rates for the first time.

2) XAU/USD: Gold Downed By US Dollar Comeback After Presidential Election Debate

Gold (XAU/USD) extended its recovery rally from two-month lows on Tuesday, only to face rejection at $1900 but settled near daily highs. The main catalyst behind gold’s rise was the extended corrective declines in the US dollar from two-month highs amid cautious optimism. Expectations over a likely US coronavirus relief bill and solid Chinese economic data buoyed the sentiment, although investors remained cautious amid the coronavirus resurgence and ahead of the first US Presidential election debate.

In Wednesday’s trading so far, the yellow metal turned south after failing to regain the $1900 barrier once again. The $10 drop in gold was fuelled by a broad-based US dollar comeback after election debate wrapped up. The debate was largely unimpressive, although US President Donald Trump’s warning on the election outcome delay knocked down the risk sentiment and refueled the US dollar’s demand as a safe-haven. Further, the sell-off could be also chart-driven. It remains to be seen if the dollar sustains the bounce ahead of the US ADP and GDP data while the sentiment on Wall Street will also play a key role in gold’s price movement.

As observed in the hourly chart, gold has confirmed a rising wedge breakdown following an hourly closing below the pattern support at $1892.55.

The rejection from the $1900 mark has prompted the bears to take out the 21 and 200-hourly Simple Moving Averages (HMA) support levels, with the upward-sloping 50-HMA support at $1881 next in sight.

The hourly Relative Strength Index (RSI) has turned flat while at the midline, suggesting a tepid pull back from the daily lows. However, recapturing the 200-HMA at $1894 on a sustained basis could only revive the upside momentum towards $1900 and above.

3) GBP/USD: The Recent Recovery Might Have Already Started Losing Steam

The GBP/USD pair edged higher on Tuesday, albeit lacked any strong follow-through and remained confined well within the previous day’s broader trading band. The latest optimism over a breakthrough in Brexit trade negotiations continued underpinning the British pound. Adding to this, a weaker tone surrounding the US dollar – amid a further improvement in the global risk sentiment – extended some additional support to the major and remained supportive. The pair climbed to an intraday high level of 1.2902, albeit struggled to capitalize on the move and lost some ground in reaction to dovish comments by the BoE Governor Andrew Bailey.

Speaking at an online event organized by Queen’s University Belfast, Bailey said that the BoE was not out of ammunition with regards to additional quantitative easing. Bailey also comments on the possibility of using negative rates and added that policymakers do not rule out using negative interest rates but are realistic about challenges from banking retail deposits. The pair finally settled around 40-45 pips off daily tops and had a rather muted reaction to the first US presidential debate. The pair finally settled with only modest gains and witnessed some fresh selling during the Asian session on Wednesday.

The US President Donald Trump’s latest comments, saying that the election result might not be known for months, added to the political uncertainty and triggered a fresh wave of the global risk aversion trade. This was evident from a turnaround in the equity markets, which drove haven flows towards the greenback and exerted some downward pressure on the major. The sterling had a rather muted reaction to the final UK GDP print, which came in to show that the economy contracted by 19.8% QoQ during the second quarter of 2020 as against -20.4% expected.

Market participants now look forward to the US economic docket, highlighting the release of the final GDP print, Chicago PMI and Pending Home Sales data. The data, along with speeches by influential FOMC members will influence the USD price dynamics and produce some trading opportunities later during the North American session.

From a technical perspective, the pair has been oscillating in a downward sloping channel over the past three weeks or so. The set-up favours bearish traders and supports prospects for additional weakness. That said, traders might still need to wait for a sustained break below the 1.2800 mark before positioning for any further depreciating move. The pair might then turn vulnerable to slide back towards challenging the very important 200-day SMA, around the 1.2720-15 region. Some follow-through selling below the 1.2700 mark, leading to a subsequent breakthrough the recent swing lows, around the 1.2675 level, will be seen as a fresh trigger for bearish traders.

On the flip side, the 1.2900 mark now seems to have emerged as immediate resistance and is closely followed by the top end of the mentioned channel, around the 1.2920-25 region. Only a convincing breakthrough the mentioned barrier will negate any near-term bearish bias and trigger a short-covering move, which might assist the pair to conquer the key 1.3000 psychological mark.

4) EUR/USD: Bulls Remain At The Mercy Of USD Price Dynamics

The EUR/USD pair recorded gains for the second straight session on Tuesday and recovered further from two-month lows, set last week. Bulls shrugged off the previous day’s dovish comments by the ECB President, Christine Lagarde, saying that policymakers remain deeply concerned about the high exchange rate and its impact on inflation. A further improvement in the global risk sentiment undermined the US dollar’s safe-haven status, which, in turn, was seen as a key factor driving the pair higher.

The shared currency seemed rather unaffected by worries for the Eurozone’s economic performance amid the second wave of coronavirus infections and weaker German consumer inflation figures. According to the preliminary estimates, the headline German CPI is seen contracting 0.2% MoM in September. Adding to this, the Harmonized Index (HICP), slumped to -0.4% YoY in September from -0.1% and missed market expectations pointing to a reading of -0.1%. Separately, the Eurozone Economic Sentiment Indicator improved to 91.1 in September from 87.5 in the previous month.

From the US, the Goods Trade Balance data showed that deficit widened to $82.9 billion in August from the previous month’s $-80.1 billion. The disappointment, to a larger extent, was negated by upbeat Conference Board’s Consumer Confidence Index, which jumped to 101.8 in September from 86.3 and hence, did little to provide any meaningful impetus. Nevertheless, the pair settled near the top end of its daily trading range, just below mid-1.1700s, and climbed to over one-week tops during the Asian session on Wednesday.

Meanwhile, the first debate between Republican President Donald Trump and Democratic rival Joe Biden also failed to move the markets. However, Trump’s latest comments that the election result might not be known for months added to the uncertainty and triggered a fresh wave of the global risk aversion trade. This was evident from a turnaround in the equity markets, which extended some support to the greenback and kept a lid on any further gains for the major.

Market participants now look forward to a slew of second-tier economic releases from the Eurozone. This, along with the ECB President Christine Lagarde’s speech might influence the common currency. The US economic docket highlights the release of the final GDP print, Chicago PMI and Pending Home Sales data. This, along with speeches by influential FOMC members will also be looked upon for some short-term trading opportunities.

From a technical perspective, the pair now seems to have found acceptance above the 38.2% Fibonacci level of the 1.1168-1.2011 positive move. However, any subsequent move up might still 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 1.1700 mark ahead of the 1.1660 horizontal zone. A convincing breakthrough will negate prospects for any further positive move and turn the pair vulnerable to slide back to the recent swing lows, around the 1.1615-10 region. The latter coincides with the 50% Fibo. level, which if broken decisively will set the stage for a move towards challenging 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.