31-May-2021

1) GBP/USD Hovers Around 1.42 Amid UK Reopening Concerns
2) XAU/USD Consolidates Near Multi-Month Tops, Holds Steady Above $1,900
3) EUR/USD Clings To 1.22, Shrugs Off Mixed Chinese Data, Ahead Of German CPI

1) GBP/USD Hovers Around 1.42 Amid UK Reopening Concerns

GBP/USD is hovering around 1.42 in thin trading on the UK and US bank holidays. Investors are shrugging off concerns of an overheating US economy and worries that the final stage of the UK reopening could be delayed due to the spread of virus variants.

GBP/USD retreats to 1.4185, down 0.05% intraday, amid Monday’s Asian session. In doing so, the cable respects a downward sloping trend line from Thursday amid sluggish MACD signals. That said, the pair drops towards a convergence of 100 and 200-HMA around 1.4160 but the following declines will be tested by a two-day-long support line, near 1.4150.

Although the bearish impulse is likely to fade around 1.4150, any further weakness may not refrain from challenging the 1.4100 thresholds, comprising the previous week’s low.

The sterling posted gains on strong economic recovery as the economy re-opens, and is confident to enter into the fourth stage of re-opening on 21st June, despite the Indian variant covid-19 threat. The upbeat economic data overshadowed inflation and new virus variants, keeping the cable on edge against the USD and euro.

Meanwhile, the preliminary data from the UK’s Office of National Statistics (ONS) said that after five months of Brexit,  both UK and EU, trade and investments remained largely affected on the negative side. The Q1 trade dropped 23%, compared with 0.8% with the rest of the world.

Having said that, the EU commission defended the Northern Ireland (NI) protocol, calling on the UK government to find out the solutions to iron out the disruption to business caused by the protocol, a key part of the Brexit agreement.

As for now, in the absence of any major fundamental catalyst, the dynamics surrounding the US dollar continue to influence GBP/USD price movement for the time being.

2) XAU/USD Consolidates Near Multi-Month Tops, Holds Steady Above $1,900

Gold edged higher during the first half of the trading action on Monday and inched back closer to multi-month tops, albeit lacked any follow-through buying. The commodity was last seen trading around the $1,904-05 region, nearly unchanged for the day.

The US data released on Friday showed that the core PCE Price Index – the Fed’s preferred inflation gauge – jumped 3.1% YoY in April. The reading was considerably above the central bank’s nominal 2% target and validated the higher inflation narrative. Gold, which is extensively used as a hedge against inflation, drew its strength from rising inflationary pressure.

Investors now seem aligned with the Fed’s stubbornly dovish view that the recent spike in prices should prove temporary. Hence, the latest inflation read did little to shift Fed rate hike expectations. This was evident from a fresh leg down in the US Treasury bond yields, which was seen as another factor that extended some support to the non-yielding gold.

The combination of factors acted as a headwind for the US dollar, which further inspired bullish traders and remained supportive. A weaker greenback tends to benefit dollar-denominated commodities, including gold. That said, the underlying bullish sentiment in the financial markets kept a lid on any further gains for the safe-haven XAU/USD, at least for the time being.

The market already seems to have digested US President Joe Biden’s proposed $6 trillion budget plan for the fiscal year 2022 that was unveiled on Friday. Given that markets in Britain and the United States are closed for a holiday, relatively thin liquidity conditions further held investors from placing aggressive bets.

The major trigger for gold this week would be important US macro data scheduled at the beginning of a new month, especially the closely-watched US monthly jobs data. The popularly known NFP report is scheduled for release on Friday and expected to show that the US economy added 621K jobs in May. The unemployment rate is expected to edge lower to 5.9% during the reported month from 6.1% in April. Another blockbuster data could fuel speculations for an earlier than anticipated Fed lift-off and trigger a meaningful corrective slide for the gold.

Looking at the technical picture, gold has been trending higher along an upward sloping channel since the beginning of this month. This points to a well-established short-term bullish trend and supports prospects for additional gains. That said, RSI (14) on the daily chart is flashing overbought conditions and seemed to be the only factor capping the upside for the commodity.

Hence, it will be prudent to wait for some strong follow-through buying beyond multi-month tops, around the $1,1912 region before positioning for any further gains. Gold might then accelerate the momentum further towards challenging the trend-channel resistance, currently around the $1,940 region. Bulls are more likely to pause near the mentioned barrier, which if cleared decisively should pave the way for an extension of the upward trajectory.

On the flip side, any meaningful slide below the $1,900 mark might still be seen as a buying opportunity and remain limited near the trend-channel support, around the $1,888 region. This coincides with 50-period SMA on the 4-hourly chart. Sustained weakness below might prompt some long-unwinding and accelerate the corrective fall further towards the $1,870-68 horizontal support. Some follow-through selling has the potential to drag gold towards the $1,852-50 support en-route the very important 200-day SMA, around the $1,845-44 region.

3) EUR/USD Clings To 1.22, Shrugs Off Mixed Chinese Data, Ahead Of German CPI

EUR/USD is trading around 1.22, clinging to that level after recovering on Friday. Mixed Chinese PMIs and worries of US overheating are put aside as both the UK and the US are on holiday. Preliminary German CPI figures are due out later in the day.

Momentum on the four-hour chart has turned lower and EUR/USD has failed to recapture the 50 Simple Moving Average (SMA) it lost last week. On the other hand, it managed to top the 100 SMA.

Some support awaits at 1.21, which was a cushion last week. It is followed by 1.2160, then by 1.2130.

Resistance is at the daily high of 1.2205, followed by 1.2245, the former triple top. Further above, 1.2266, May’s peak, awaits bulls.

Calm between the storms – bank holidays in the US and the UK allow the euro to recover from Friday’s storm, but there are reasons to resume its falls. Money managers balanced their portfolios in erratic moves late last week, first sending the dollar up, then sharply higher.

Here is why EUR/USD could fall as the dust settles. First, the US economy is heating up the Core Personal Consumption Expenditure (Core PCE), which surged to 3.1% yearly. The Federal Reserve prefers this inflation gauge over others, and an increase well above the bank’s 2% target may raise concerns that price increases are more than “transitory.”

Another core figure is also pointing to an economy firing on all cylinders. Durable Goods Orders non-defence ex-air jumped by over 2% in April. This “core of the core” measure of investment is pointing to long-term expansion.

On the other side of the pond, it seems that Europe’s catch-up vaccination campaign is already priced into the euro. What about the potential damage from COVID-19 variants? While sterling has been grappling with concerns that its reopening may be delayed, the common currency has yet to price such a road bump.

Later in the day, Germany releases its preliminary Consumer Price Index (CPI) estimate for May, which will likely show an increase of core inflation to 2.4% yearly. While that may alarm the country’s hawks, it will also serve as a stark reminder that the old continent’s price rises are well behind those in America. The European Central Bank is unlikely to tighten its policy anytime soon.

Another factor that may push the pair lower is subdued Chinese growth. The world’s second-largest economy reported that its Manufacturing Purchasing Managers’ Index hit 51 points in May, weaker than estimated. Worries about slower global growth could boost the safe-haven dollar.