31-Dec-2020

1) GBP/USD: Bulls Turn Cautious Amid Further COVID-19 Restrictions In UK
2) XAU/USD: Gold Can Ignore US Dollar Bounce On The Way To $1,900
3) EUR/USD Fades Upside Momentum Around 1.2300 On US Dollar Retreat

1) GBP/USD: Bulls Turn Cautious Amid Further COVID-19 Restrictions In UK

The GBP/USD pair gained some strong follow-through traction on Wednesday and jumped back above the 1.3600 mark amid the heavily offered tone surrounding the US dollar. Investors looked past the effective rejection of a measure to raise the direct payments to most US households to $2,000 and remain convinced about the likelihood of additional US financial aid. This, along with hopes for a strong global recovery in 2021, remained supportive of the upbeat market mood. The already strong risk sentiment got an additional boost after UK regulators approved the use of the AstraZeneca/Oxford coronavirus vaccine. This, in turn, was seen as a key factor that continued undermining the safe-haven greenback and driving the pair higher.

The British pound largely shrugged off an unprecedented level of COVID-19 infection across the UK. Several areas of the country went into the toughest tier-4 restrictions on Wednesday after the UK reported over 50,000 news cases for the second day in a row. The positive momentum also seemed rather unaffected by the fact that the Brexit agreement excluded the crucial services sector, which makes up 80% of the British economy. In the latest Brexit-related development, UK lawmakers approved the post-Brexit trade deal with the European Union, and reports indicate that the queen has granted the accord royal assent. In a knee-jerk reaction to the news, the pair shot to fresh 32-month tops, around mid-1.3600s, during the Asian session on Thursday.

The uptick, however, lacked any strong follow-through buying, instead ran out of steam and forced the pair to erase its early gains. The pair now seems to have stabilized just above the 1.3600 mark and is more likely to consolidate in a range amid typical year-end thin trading volumes. There isn’t any major market-moving economic data due for release from the UK. Meanwhile, the US economic docket highlights the only release of the usual Initial Weekly Jobless Claims. This, in turn, leaves the pair at the mercy of the USD price dynamics. That said, developments surrounding the coronavirus saga might influence the broader market risk sentiment and infuse some volatility, allowing trades to grab some meaningful opportunities on the last day of the year.

From a technical perspective, a move beyond a double-top resistance near the 1.3620-25 region could be seen as a fresh trigger for bullish traders. However, the pair’s inability to capitalize on the move warrants some caution before placing aggressive bullish bets. Nevertheless, the pair still seems poised to prolong its recent upward trajectory and aim to reclaim the 1.3700 mark. Some follow-through buying has the potential to lift the pair further towards the next major hurdle near the 1.3745-50 region.

On the flip side, any meaningful pullback below the 1.3600 mark might now find decent support near mid-1.3500s. Failure to defend the mentioned support might prompt some long-unwinding and turn the pair vulnerable to accelerate the corrective slide further below the key 1.3500 psychological mark, towards retesting weekly swing lows support near the 1.3430-25 region.

2) XAU/USD: Gold Can Ignore US Dollar Bounce On The Way To $1,900

Although gold prices snap a two-day winning streak while declining 0.21% to $1,889.50 during early Thursday, it’s the ability to stay beyond the key support near $1,887/88 keeps the buyers hopeful.

The yellow metal recently dropped after the US dollar index (DXY) bounced off the lowest since April 2018, flashed early in Asia. The DXY currently takes rounds to 89.64, up 0.04% on a day, following its extended south-run to 89.51 before a few minutes.

Trading sentiment remains sluggish amid a lack of major data/events and uncertainty over the US coronavirus (COVID-19) stimulus. However, the latest fears over the virus spread in the US, the UK and Japan seemed to have triggered the greenback’s retreat.

On the other hand, Brexit passage and vaccine developments, coupled with mixed activity numbers from China, probes the bears amid expectations of further stimulus from the US, Japan, and China.

While the risk-on mood weighs on the greenback and favors gold in turn, any challenges to the trading sentiment could drag the yellow metal.

Looking forward, a light calendar and New Year Eve will challenge market moves.

 A sustained break of $1,887/88 confluence comprising 38.2% Fibonacci retracement of one day move (1D) and 61.8% Fibonacci retracement of the weekly move, coupled with the previous low on the 15-minute chart (15 Min), favor the gold buyers.

Though, the previous top on the 15 Min joins the earlier lows on the four-hour (4H) and the hourly (1H) moves, together with 23.6% Fibonacci retracement on 1D and lower band of the Bollinger on 15 Min, to probe the buyers around $1,890.

Should the bulls manage to cross the $1,890 immediate hurdle, the previous high on 1D and upper Bollinger band on the 4H, near $1,894, will precede the earlier top of 4H and 100-SMA on 1D, close to $1,896, to offer a bumpy road before a smooth drive past-$1,900.

Meanwhile, a downside break of $1,887 can recall the $1,883 level on the chart, including SMA 200 on 15 Min and 61.8% Fibonacci retracement level on 1D.

3) EUR/USD Fades Upside Momentum Around 1.2300 On US Dollar Retreat

EUR/USD wavers around recently flashed intraday low of 1.2285, at 1.2288 now, during the early Thursday’s trading. The currency major’s latest drop took clues from the US dollar index (DXY) bounce off April 2018 low. While EU-US trade war and fears of the coronavirus (COVID-19) are heard to have triggered the greenback’s corrective recovery, the European Central Bank (ECB) policymaker Jens Weidmann’s comments favor the bulls as we approach the end of 2020.

Having earlier refreshed the lowest levels since April 2018, DXY bounces off 89.51 to currently up 0.04% intraday around 89.64.

Earlier in Asia, California registered the second US case of the covid variant, found in the UK, after Colorado began the disappointment the previous day. The virus strain has a faster transmission rate and is likely to have weighed on the risks of late. Also souring the mood could be the US Trade Representative’s announcement of levying additional tariffs on the German and French products including wine, aircraft parts, etc.

Meanwhile, Bundesbank President Weidmann ruled out expectations that the second coronavirus wave to inflict more economic damage than the first wave. However, the policymakers also said that the economic outlook ultimately depends on how covid infections develop after lockdown.

It’s worth mentioning that the passage of the Brexit deal in the parliament and the covid vaccine developments favor risks. Furthermore, hopes that the Joe Biden government will break the US stimulus deadlock also probe the bears.

Against this backdrop, S&P 500 Futures seesaw above 2,700 while markets in Asia-Pacific trades mixed with off in Japan.

Looking forward, US Initial Jobless Claims for the week ended on December 25, expected 833K versus 803K prior, may entertain EUR/USD traders before they join the New Year Eve party.