The Bank of Canada (BoC) will have a monetary policy decision today at 14:00 GMT, the first lead by new Governor Tiff Macklem. BoC’s likely to maintain its current monetary policy unchanged in July. USD/CAD is unlikely to leave its monthly boundaries though an upbeat stance could send the loonie below 1.36, FXStreet's Chief Analyst Valeria Bednarik briefs.
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“Policymakers are expected to maintain the main rate at 0.25%, the level set last March when the ongoing coronavirus pandemic forced them into three rate cuts within a month. Speculative interest will be looking for any change in the bond-buying program, although chances of that happening are quite a few. Meanwhile, negative rates in Canada are off the table for now, as well as a rate hike, given the high levels of uncertainty surrounding how the economic recovery will unfold.”
“Back in April, the BoC launched the Government of Canada Bond Purchase Program (GBPP), a program to purchase Government of Canada securities in the secondary market, which targets a minimum of $5 billion per week across the yield curve. No changes are expected in the GBPP either this month, as long-term bond yields remain at historical lows, in line with the BOC’s target.”
“A horizontal 200-DMA around 1.3490 has provided support, while sellers have been strong around the current 1.3630 price zone. The top of the monthly range comes at 1.3715. It seems unlikely that the BoC can trigger a movement strong enough to push the pair outside the mentioned boundaries.”
“An optimistic stance could see it pulling down to 1.3600, while below this last, an approach to the mentioned 1.3490 level seems likely, particularly considering the market is quick when it comes to selling the greenback. A test of the 1.37 area is possible only if risk aversion returns alongside dovish Canadian policymakers.”
Economists at Rabobank expect the EUR/USD pair to trade around the 1.13 level on a one to three-month view while see a dip below 1.10 on a six-month view.
“In response to the changes in EUR fundamentals we revised higher our forecasts for EUR/USD in the spring, expecting to see EUR/USD fluctuating around the 1.13 level on a one and three-month view. Beyond that we saw risk of another dip below 1.10. The rationale behind that view is the assumption that risk appetite will dip again on the back of another wave of covid-19 or on associated weak economic and corporate news. In view of the USD’s safe-haven characteristics, we continue to expect a pullback in risk appetite to support the USD.”
“While we leave our forecast of another dip below EUR/USD 1.10 on a six-month view unchanged, we acknowledge that the EUR could see some additional near-term support at the end of the week from the EU summit.”
“From a technical perspective EUR/USD would have to break above the long-term downside trendline at 1.1655 for a bullish scenario to materialise.”
Negotiations with the UK on Brexit have failed to make enough progress, Germany's Europe Minister Michael Roth said on Wednesday, as reported by Reuters.
"There has been a shortage of realism on the British side," Roth added.
These comments don't seem to be having a significant impact on market sentiment or the GBP's performance against its rivals. As of writing, the UK's FTSE 100 was up 2.02% on the day at 6,304 and the GBP/USD pair was gaining 0.75% at 1.2643.
The price of gold has been somewhat limited to a narrow range just above $1,800. There are several technical lines explaining why XAU/USD stuck, but also bullish targets for the precious metal, once it loses its chains.
The Technical Confluences Indicator is showing that gold is mired between $1,804 and $1,806, which is a dense cluster including the Simple Moving Average 200-15m, the SMA 50-1h, the Bollinger Band 1h-Lower, the Fibonacci 23.6% one-day, the BB 15min-Lower, the BB 4h-Middle, the Fibonacci 23.6% one-week, and more.
Initial resistance awaits at $1,818, which is the meeting point of the Pivot Point one-day Resistance 1 and the previous weekly high.
The upside target is $1,821, which is the convergence of the PP one-month R1 and the PP one-week R1.
Looking down, support is at $1,795, which is the confluence of the PP one-day Support 1, the SMA 200-1h, and the BB 4h-Lower.
The next cushion is at $1,786, the previous monthly high.
Here is how it looks on the tool:
The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.
This tool assigns a certain amount of “weight” to each indicator, and this “weight” can influence adjacents price levels. These weightings mean that one price level without any indicator or moving average but under the influence of two “strongly weighted” levels accumulate more resistance than their neighbors. In these cases, the tool signals resistance in apparently empty areas.
Learn more about Technical Confluence
- The sell-off on the stock market may put BTC under pressure.
- At the time of writing, BTC/USD is glued to $9,200.
The China-US conflict is heating and threatening to derail the rally on the global stock markets. The US President Donald Trump dashed hopes for “Phase 2” trade negotiations with China by accusing Beijing of spreading coronavirus and causing a global pandemic.
We made a great trade deal. But as soon as the deal was done, the ink wasn’t even dry, and they hit us with the plague, he said, as cited by Reuters.
While the stock market reaction has been muted so far, further signs of the conflict escalation might pull the rug from under the risk asset markets. Once this happens Bitcoin won't be left unaffected due to an increased correlation between the digital asset and the US stocks, which is especially strong on the way down. Moreover, the prolonged period of range-bound trading increases the risks of exaggerated moves and spikes of volatility.
However, currently, the market is supported by the vaccine news that brought optimism to financial markets and diverts the attention of the China-US issues.
The vaccine news is clearly a positive development. But it’s still a long way off. The fear of the W-shaped recovery is probably very high at the moment. Good news is that markets still have a chance to ride it out because the Fed has bought time, so financial conditions can stay easy until growth kicks in, Mark Nash, head of global fixed income at Merian Global Investors commented as cited by Bloomberg.
BTC/USD: Technical picture
Contradictory fundamental factors keep BTC/USD locked in a tight range. The coin has been moving around $9,200 since the start of the week with little progress so far. Low volatility and decreasing trading volumes leave no hope for the bulls and keep bears in check at the same time.
On the intraday charts, BTC/USD recovery is limited by a confluence of 1-hour SMA50, SMA100 and the middle line of the 1-hour Bollinger Band at $9,250. Once this barrier is cleared, the upside momentum may be extended towards $9,345 (July 12 high).
The local support for BTC/USD is created by the lower line of the 1-hour Bollinger Band on approach to $9,200. If it is broken, the sell-off may be extended towards $9,104 (the lowest level of July 14) and psychological $9,000.
BTC/USD 1-hour chart
The USD/JPY pair is down to the 106.90 region, not affected by the Bank of Japan monetary policy decision which left its monetary policy unchanged and downgraded inflation and growth forecasts, FXStreet’s Chief Analyst Valeria Bednarik reports.
“As expected, the BoJ kept rates unchanged at -0.1%, and its 10-year JGB target around 0%. Also, policymakers downgraded growth forecast, now seeing the economy shrinking between 4.5% and 5.7% in the current fiscal year. Core inflation is expected to stay between -0.5% and -0.7% in the same period.”
“To turn bearish, USD/JPY would need to break below the 106.60 level, as it met buyers in the area several times throughout June and July.”
“The 4-hour chart shows that the pair remains below all of its moving averages, which remain directionless, reflecting the lack of a clear trend. Technical indicators, in the meantime, have turned flat, although the RSI stands around 40, skewing the risk to the downside.”
OPEC and its allies’ (OPEC+) will focus on easing output cuts to 7.7 million barrels per day (bpd) at Wednesday's Joint Ministerial Monitoring Committee (JMMC) meeting, Reuters reported, citing OPEC+ sources.
Sources further told Reuters that there are no proposals so far to extend record cuts of 9.7 million bpd. "OPEC+ oil cuts in August-September is expected to 7.7 million bpd plus 0.842 million bpd of compensations by Iraq and others."
Crude oil prices largely ignored this headline. As of writing, the barrel of West Texas Intermediate was up 1.25% on the day at $40.90.
- AUD/USD is rising for the second straight day on Wednesday.
- Upbeat market mood dampens demand for safe-haven greenback.
- Focus shift to mid-tier data releases from the US.
The AUD/USD pair finished the day modestly higher on Tuesday and preserved its bullish momentum on Wednesday. After rising above 0.7000, the pair extended its climb and touched its highest level in nearly five weeks at 0.7024. As of writing, the pair was up 0.7% on the day at 0.7022.
Risk rally picks up steam
Earlier in the day, the data from Australia showed that the Westpac Consumer Confidence Index in July slumped to -6.1% from 6.3% in June. However, despite the disappointing data, coronavirus vaccine hopes provided a boost to market sentiment and helped the risk-sensitive AUD gather strength against its peers.
Reports suggesting that vaccines developed by Moderna and Oxford showing positive results allowed risk flows to start dominating financial markets. Reflecting the positive market environment, major European equity indexes are up between 1.75% and 2% and S/P 500 futures are gaining 1.3%.
On the other hand, the greenback is having a tough time attracting investors as a safe haven with the US Dollar Index dropping below 96 for the first time in more than a month. In the second half of the day, Industrial Production, Capacity Utilization and Federal Reserve Bank of New York's Empire State Manufacturing Survey will be looked upon for fresh catalysts.
Meanwhile, market participants will keep a close eye on Wall Street and a decisive rally in US stocks could force the USD to continue to weaken.
Technical levels to watch for
S&P 500 has held key price and 13-day average support, starting at 3144 and stretching down to 3116 to keep the immediate risk higher. Only below 3116/13 would warn a further correction lower, according to analysts at Credit Suisse.
“The S&P 500 yesterday tested and is so far holding what we have flagged as key support, seen starting now at its 13-day exponential average at 3144 and stretching down to last week’s low at 3116 and the subsequent rebound has recovered much of the losses from Monday. With the market also back above its downtrend from February this sees a mild upside bias again in what remains seen as a broader sideways range.”
“Resistance is seen next at 3214, above which can see a move back to 3224, then the 3233/35 highs, with fresh sellers expected here. Above can see a challenge on the bottom of the February ‘pandemic’ gap at 3260.”
“Support is seen at 3166, then the 13-day average and price support at 3154/44, which we look to try and hold. Only below 3116/13 would mark a top to warn of a more concerted correction lower within the broader range.”
- NZD/USD pushes higher after testing 0.6500 on Tuesday.
- US Dollar Index drops below 96.00 amid positive market sentiment.
- Industrial Production data will be featured in the US economic docket.
The NZD/USD pair dropped to 0.6500 on Tuesday but closed the day flat at 0.6540. With risk-on flows starting to dominate the financial markets on Wednesday, the pair gained traction and rose to a daily high of 0.6572. As of writing, NZD/USD was trading a couple of pips below that level, gaining 0.47% on a daily basis.
Upbeat mood weighs on USD
In the absence of significant macroeconomic data releases on Wednesday, risk perception remains as the primary driver of currencies' performance. Earlier in the day, reports showed that Moderna's coronavirus vaccine candidate showed promising results. Additionally, ITV's political editor Robert Peston said Oxford's COVID-19 vaccine was generating "the kind of antibody and T-cell (killer cell) response that the researchers would hope to see."
Boosted by these developments, the risk-sensitive NZD is gathering strength against its rivals. On the other hand, the greenback continues to lose interest as a safe-haven with the US Dollar Index slumping to fresh five-week lows below 96.00.
In the second half of the day, Industrial Production and NY Empire State Manufacturing data will be featured in the US economic docket. More importantly, investors will keep a close eye on Wall Street's performance. At the moment, the S&P 500 futures are up 1.1% on the day.
Technical levels to watch for
EUR/JPY has cleared key resistance at 122.13, as currently sits around 122.30, to confirm a base to see the core trend turn higher again for an eventual move back to the 124.44 June high, the Credit Suisse analyst team reports.
“EUR/JPY strength has continued after holding key price support at 120.32/27 for the expected break above pivotal resistance from the top of the sideways range of the past month at 121.96/122.13. This sees the looked for base established to see the core trend turn higher again with resistance seen next at the 61.8% retracement of the June fall at 122.48/51. Whilst a pause here should be allowed for, a break in due course can see resistance next at 123.52/62 and eventually the 124.44 June high.”
“Big picture, with our broader outlook for the EUR higher we look for a move above here in due course also, with resistance then seen next at 125.94 – the 50% retracement of the 2018/2020 downtrend.”
“Near-term support moves to 121.97, then 121.78, with 121.48/46 now ideally holding to keep the immediate risk higher. A break can see a retreat back into the range with support then seen next at 121.22, then 120.75.”
Oxford's COVID-19 vaccine that is backed by AstraZeneca is reportedly generating "the kind of antibody and T-cell (killer cell) response that the researchers would hope to see," Robert Peston, ITV News’ political editor, wrote on Wednesday.
"As I understand, not all of the many vaccines under development across the world increase both antibodies and T-cells. But the Oxford vaccine looks as though it has this twin effect," Peston added.
Risk-on flows continue to dominate financial markets on Wednesday. As of writing, major equity indexes in Europe were up between 0.95% and 1.2% and the S&P 500 were gaining 0.8% on the day.
- EUR/JPY clinched new 5-week tops in the 122.50 region.
- The better tone in the Japanese safe haven caps the upside.
- The BoJ left its monetary policy stance unchanged earlier on Wednesday.
The buying pressure in the Japanese yen has forced EUR/JPY to abandon the area of new multi-week highs near 122.50 recorded earlier in the session.
EUR/JPY shifts its focus to YTD highs
After climbing as high as the vicinity of 122.50 during early trade, EUR/JPY sparked a correction lower to the current 122.20 region amidst the persistent selling bias in the dollar (thus lending oxygen to the Japanese safe haven and dragging USD/JPY lower).
In the meantime, the risk-on sentiment remains firm in the global markets, this time fuelled by news of a probable COVID-19 vaccine (this time under development by US biotech Moderna, Inc,) and usual optimism over the global economic recovery.
Earlier on Wednesday, the Bank of Japan (BoJ) left its monetary conditions unchanged, with the key rate at -0.10% and the yield of the 10-year JGB at 0.00%, all matching consensus estimates.
At his press conference following the bank’s decision, Governor H.Kuroda, reiterated the need to rump up stimulus if needed and the appropriateness of aggressive bond purchases.
Later in the NA session, Industrial/Manufacturing Production figures are due followed by the NY Empire State index and the publication of the Fed’s Beige Book.
EUR/JPY relevant levels
At the moment the cross is advancing 0.01% at 122.25 and faces the next up barrier at 122.49 (monthly high Jul.15) followed by 122.87 (monthly high Jan.16) and finally 124.43 (2020 high Jun.5). On the other hand, a drop below 120.26 (monthly low Jul.1) would expose 119.77 (200-day SMA) and then 119.31 (monthly low Jun.22).
Euro Stoxx 50 is set to test key resistance from the 200-day average and June high at 3358/95 and a close above here would change the tactical view of the Credit Suisse analyst team to positive.
“Euro Stoxx remains well supported and is now seeing a fresh challenge on its 200-day average, currently at 3358. A close above here would significantly increase the risk the range of the past month is in the process of being resolved higher, with a move above the 3395 high of June needed to confirm a conclusive break to change our tactical view to positive and neutralize our negative one month view, with resistance then seen next at the late February/early March price gap and price resistance at 3438/48.”
“Support is seen initially at 3277, then 3241/39, below which would ease the immediate upside bias to reinforce the sideways range with support then seen next at the potential uptrend from March, currently at 3223.”
Today, the Bank of Canada (BoC) Interest Rate Decision is scheduled at 14:00 GMT and as we get closer to the release time, here are the expectations as forecasted by the economists and researchers of nine major banks, regarding the upcoming announcement. The market consensus is for the Boc to leave the rates unchanged at 0.25%. What’s more, Governor Macklem’s first Monetary Policy Report will be released at 15:00 GMT.
“We do not expect any change to BoC policy which should keep the focus centered around the Bank's messaging and updated forecasts in the July MPR. The latter will be key to the overall tone and we expect the Bank's central scenario to project a contraction of roughly 6.0% in 2020 with the economy returning to pre-COVID levels around the end of next year. The statement should continue to emphasize heightened uncertainty and a widening output gap that will weigh on inflation. While we expect the Bank to maintain its messaging that LSAP will continue until the recovery is well underway, there is some scope for the Bank to announce further scaling back of its smaller and less utilized liquidity programs.”
“With negative interest rates not being seriously considered, this suggests the policy rate will remain at 0.25% for a prolonged period – perhaps two years in our view – with any additional support most likely to come through additional asset purchases. However, we don't think there is any urgency for a policy change via this tool. there is a risk of CAD having more sensitivity than the previous meetings even if no new policy measure is announced, as investors will be looking for any hint that Macklem’s policy stance is different from the previous governor. However, we do not expect CAD's reaction to be very pronounced or long-lived.”
“Judging by the rough scenarios laid out in April and the data since then, the better end of BoC scenarios could imply a narrow enough output gap to be consistent with a first hike in the latter half of 2022. But expect the report to emphasize greater risks to downside. This MPR is unlikely to deliver a major rethinking of the BoC’s asset purchase program, under the grounds that if it ain’t broke, don’t fix it. But doing what it takes to keep yields in check could soon require greater weekly bond purchases, given the increases we’re seeing in the issuance calendar to meet rising government financing needs. The Bank has only set minimum purchase levels for Government of Canada bonds, so strictly speaking it doesn’t need to actually announce a higher floor to ramp up its purchases if need be. But we expect to see it use this opportunity to at least remind investors of its willingness to do so.”
“Taking rates into negative territory does not seem to be in the plans of the central bank, and we therefore believe rates will remain unchanged this week. We don’t expect any change to the asset purchase program either, with the Bank likely to reaffirm that large scale asset purchases will continue “until the economic recovery is well underway”. At some point in the future as the economic outlook become clearer, Macklem and the Bank will need to provide more guidance on the policy rate. We expect this to come in the form of explicit forward guidance, likely in the fall.”
“Central Bank Governor Macklem’s first Monetary Policy Report is expected to provide a ‘central scenario’ outlook. This comes after policymakers opted to show just a range of (all-bad) future possibilities in the April report. The BoC’s Q2 Business Outlook Survey highlighted some of the challenges expected once the initial rebound dims. Businesses were clearly concerned that demand would be slow to recover, and cut investment and hiring plans in response. And some form of containment measures are likely to remain for the foreseeable future. Our own current projection has GDP still 5.2% below its year-ago level in Q4 2020, and not fully recovered to pre-shock levels until beyond 2021. That demand shortfall will keep monetary policymakers focused on downside more than upside risks to inflation, and should reinforce expectations the central bank will continue to provide as much liquidity as necessary to ensure interest rates remain low and financial markets continue to function well. On that front, continued narrowing in credit spreads from April highs should provide reassurance that exceptional monetary policy interventions have been working (and also argue that additional significant measures are not needed at this point.)”
“BoC is expected to keep rates unchanged and retain its weekly bond purchases of CAD 5 billion. The July meeting will also feature an updated Monetary Policy Report to serve as BoC’s base case for activity this year. Inflation estimates will likely show inflation below the 2% target in 2020 and into next year.”
“We expect the Bank of Canada to leave the policy rate unchanged at 0.25%. This is fully expected by both analysts (Bloomberg survey) and traders (CAD OIS). We expect the policy rate to remain at 0.25% at least through 2020 and 2021. In light of the plan to issue CAD 400 billion this year (more than triple last year), we may see an upsizing of the BoC’s asset purchase programme but don’t expect any fireworks in terms of market reaction. In fact, if we don’t see an upsizing, or at least a nod to potential upsizing, then this would likely trigger a larger reaction. USD/CAD is still primarily at the mercy of equities in line with the general ‘risk on, risk off’ (RoRo) dynamic driving price action. USD/CAD trading so far in Q3 feels similar to the range-bound nature of early Q2, although we are of course five big figures lower this time around.”
“Both Westpac and the market expect the BoC to keep rates at the lower bound (0.25%) in the face of COVID headwinds.”
“Any assertion suggesting a more open mind towards easing further to 0% and below would represent a major dovish surprise, as Canada currently has the highest forward OIS rate across G10. Our bias is to expect the BoC to want to retain full optionality on the composition and timing of purchases, and as such would not expect this meeting to bring a stated end date for asset purchases. Any temporal deadline, especially if in 2021, would also represent an upset compared to market expectations, which are set for close to one 25bp hike in the first half of 2022. An increase in the nominal weekly purchase amount however is a distinct possibility, in the light of the government’s increased issuance schedule, and it would represent a dovish development overall. One of the measures discussed in the press is the possible introduction of a yield curve control type framework, along the lines of 3-year government bond yield target. While we do not deem such an outcome as completely unlikely, we point out that it might be a premature measure, with front-end yields still pricing in hikes 18 months out. We suspect that other dovish steps would likely precede such policy decision. Today’s rate decision will also feature a monetary policy report. While normally this would attract a certain amount of attention, we suspect that curiosity about the new Governor, combined with the highly uncertain nature of the economic outlook (and therefore healthy scepticism of any sort of medium-term economic forecast), might result in reduced market focus this time.”
- Upside appears more compelling amid a potential bull flag.
- A test of 3250 likely as buyers cheer vaccine hopes.
- 3191 is the level to beat for the bears in the near-term.
Having faced rejection below Monday’s high in Asia, S&P 500 futures, the risk barometer, holds sizeable gains to battle 3200 levels amid broad market optimism, courtesy of Moderna’s coronavirus vaccine progress.
The price has entered a phase of consolidation since then, which has now taken the form of a bullish flag on the hourly chart. This is a bullish continuation pattern and an hourly close above the falling trendline resistance at 3210 will confirm the formation.
The bulls will likely target Monday’s high at 3226 en route the psychological level of 3250 in the near-term.
Alternatively, the immediate downside will be limited by the falling trendline support at 3197, below which the bullish 21-hourly Simple Moving Average (HMA), now placed at 3,191, will test the bears’ commitment.
The next support awaits at the 50-HMA of 3180, which could offer some temporary respite to the bulls.
All in all, the path of least resistance appears to the upside, with bullish hourly Relative Strength Index (RSI) at 58.81.
S&P 500 Futures: Hourly chart
- WTI sees a fresh leg higher as OPEC+ meeting gets underway.
- Risk-on mood amid virus hopes adds to oil’s uptick.
- All eyes on EIA data and OPEC+ outcome for fresh directives.
WTI (August futures on Nymex) broke the Asian consolidative mode to the upside in Europe, as the bulls tested the 41 mark amid a fresh risk-on wave that gripped the markets. Moderna's promising results towards a coronavirus vaccine lifted the overall market sentiment.
Further, traders resorted to cover their shorts positions ahead of the key OPEC and its allies’ (OPEC+) decision on the output cuts policy. The black gold dipped as low as 39.13 on Tuesday after expectations over OPEC+ easing output cuts picked-up pace. The cuts are expected to taper to 7.7 million bpd until December.
The oil bulls, however, were rescued by a bigger-than-expected drop in the US crude inventories, as reported by the American Petroleum Institute (API). The API data showed late Tuesday, the US crude stockpiles fell by 8.3 million barrels in the week to July 10, beating expectations for a decline of 2.1 million barrels, per Reuters.
Looking ahead, it remains to be seen if the upside bias remains intact in the barrel of WTI ahead of the critical OPEC+ decision and Energy Information Administration (EIA) weekly crude supplies report. The sentiment on the global market will also remain in play.
WTI technical levels to watch
“In a case where the oil prices remain weak past-$39.15, the late-June month’s bottom surrounding $37.10 should return to the charts. Alternatively, a clear break beyond $41.00 needs validation from June month’s top of $41.65 and 200-day EMA, currently around $41.80, to aim for February’s low close to $44.00,” explains Anil Panchal, FXStreet’s Analyst.
WTI additional levels
- USD/JPY came under some intense selling pressure amid a broad-based USD weakness.
- The risk-on mood, a goodish pickup in the US bond yields failed to impress the USD bulls.
- Technical selling below the 107.15-10 support aggravated the intraday bearish pressure.
The heavily offered tone surrounding the greenback pushed the USD/JPY pair further below the 107.00 mark, back closer to the lower end of its weekly range.
As investors looked past the BoJ policy decision, the pair met with some aggressive supply during the early European session and broke down of its early consolidative range amid a broad-based US dollar weakness. The latest optimism over a possible vaccine for the highly contagious disease dented the greenback's status as the global reserve currency and turned out to be one of the key factors exerting pressure on the USD/JPY pair.
Meanwhile, worries about worsening US-China relations further benefitted the Japanese yen's relative safe-haven status against its American counterpart. It is worth recalling that the US President Donald Trump on Tuesday signed a bill sanctioning Chinese officials involved in enacting Hong Kong’s national security laws. China was quick to respond and threatened to impose retaliatory sanctions against US individuals/entities.
This comes on the back of a surge in new COVID-19 cases in the US, which pushed Californian back into lockdown and further undermined sentiment surrounding the greenback. A goodish pickup in the US Treasury bond yields failed to impress the USD bulls. Even the prevalent upbeat market mood, which tends to dent the Japanese yen's safe-haven demand, also did little to stall the USD/JPY pair's sharp intraday downfall.
Adding to this, possibilities of some short-term trading stops being triggered on a sustained break below the 107.15-10 horizontal support further seemed to have aggravated the selling pressure. Some follow-through weakness below weekly lows, around the 106.80-75 region, will now be seen as a fresh trigger for bearish traders. The USD/JPY pair might then accelerate the fall to mid-106.00s before eventually dropping to challenge the 106.00 mark.
Market participants now look forward to the US economic docket, highlighting the release of Empire State Manufacturing Index and Industrial Production. The data might influence the USD price dynamics and produce some meaningful trading opportunities later during the early North American session.
Technical levels to watch
GBP/USD has been advancing amid coronavirus vaccine hopes and upbeat UK CPI but Britain's relations with China and Brexit uncertainty may weigh on sterling, according to FXStreet’s analyst Yohay Elam.
“The British government decided to phase out its dependence on Huawei amid concerns about having backdoors to the Chinese army. Beijing responded angrily and stated that the UK breached promises, accusing it of political manipulation.”
“Back in the days of the Empire, Britain held onto Hong Kong, and the city-state is another point of contention. Prime Minister Boris Johnson opened the door to receiving mass immigration from HK, a response to China's tighter grip on the territory.”
“Brexit talks remain deadlocked, with progress expected only closer to the year-end, when the transition period expires.”
“Pound bulls may be encouraged by the stronger-than-expected increase in annual inflation. CPI rose by 0.6% yearly, showing stability and a lower chance of disinflation. Nevertheless, Silvana Ternyero, a member of the BoE, said that she would vote for further stimulus if needed.”
“GBP/USD has been benefiting from dollar weakness, stemming from hopes for a coronavirus vaccine. Moderna, a Massachusetts-based pharma firm, reported further progress in developing immunization after 45 humans developed a robust level of antibodies.”
- EUR/USD keeps the firm note and advance beyond the 1.14 mark.
- Further upside could see the yearly highs below 1.1500 re-tested.
EUR/USD is posting strong gains for the fourth session in a row and flirting with a Fibo level in the mid-1.1400s on Wednesday.
If the buying bias picks up pace, there is increasing chances of a move to the 2020 peaks in levels just shy of 1.15 the figure (March 9).
Further out, as long as the 200-day SMA, today at 1.1053, holds the downside, further gains in EUR/USD remains well on the table.
EUR/USD weekly chart
- DXY remains under heavy pressure around the 96.00 yardstick.
- A deeper pullback exposes June’s lows in the 95.70 region.
DXY has intensified the sell-off on Wednesday, breaking below the key support at the 96.00 mark and exposing further downside in the short-term horizon.
The ongoing price action opens the door to another visit to the June lows in the 95.70 zone (June 10) ahead of 2020 low at 94.65 recorded on March 9.
The negative outlook on the dollar is expected to remain unaltered while below the 200-day SMA, today at 98.22.
DXY daily chart
- EUR/JPY extends the weekly recovery to levels beyond 122.00.
- Further up emerges the YTD peaks in the 124.40/45 band.
EUR/JPY briefly tested the mid-122.00s earlier in the session on Wednesday, losing some upside momentum soon afterwards.
If the buying interest picks up pace and manages to clear this region, there is a minor hurdle at the January’s top at 122.87 ahead of the 2020 peaks beyond the 124.00 mark.
As long as the 200-day SMA at 119.77 holds the downside, the outlook on the cross is seen as constructive.
EUR/JPY daily chart
AUD/USD has reverted back higher from key support at 0.6922/21 as trades up 0.34% on the day to 0.70. A break above 0.7005 would see a breakout from the near-term consolidation range with next resistance seen at 0.7032, per Credit Suisse sources.
“AUD/USD has sharply reverted back higher from key support at 0.6922/21 as expected, maintaining the bull ‘triangle’ continuation pattern, with the market now testing above the upper end of its consolidation range at 0.7005.”
“We keep our bias to the upside and look for a closing break above 0.7005 in due course, removal of which would see a breakout from the nearterm consolidation range, with resistance seen thereafter at the more important 0.7032/63 highs, where we would expect the market to take a breather at first. Above here in due course would see the ‘neckline’ to the 2019 top at 0.7076 and the 78.6% retracement of the 2019/2020 fall at 0.7092 next.”
“Support is initially seen at 0.6980, then 0.6962, ahead of 0.6922/21, which ideally continues to hold. Below here would negate the bullish pattern to see the rangebound environment extend further, with support seen next at 0.6902/00, which then ideally holds if reached.”
- Gold eyes $1818.17 and beyond going forward.
- Dollar weakness amid risk-on mood boosts XAU bulls.
- Technical set up suggests additional upside.
Gold (XAU/USD) caught a fresh bid-wave and hit the highest levels in four days at $1815.10 in the last hour, helped by a fresh leg lower in the US dollar across the board amid the risk-on market mood.
The European traders cheered the optimism over Moderna’s coronavirus vaccine while the US-China escalation also offered fresh impetus to the gold bulls.
From a near-term technical perspective as well, gold remains poised for further upside, especially after it managed to reverse a quick dip below the 21-hourly Simple Moving Average (HMA), then placed at $1806.13.
The bulls also cleared the stiff horizontal barrier placed at $1813 while they now target the eight-year highs at $1818.17. Further north, the round figure of $1820 could be put to test. The hourly Relative Strength Index trades at 61 levels, suggesting more room for upside.
Meanwhile, the bullish bias will likely remain intact in the near-term as long as the spot holds above the upward sloping 21-HMA, now seen at $1808.78.
On an hourly closing below the latter, strong support around $1805 will be back in play. That level is the confluence of the 50 and 100-HMAs.
Gold: Hourly chart
Gold: Additional levels to consider
The GBP/USD pair has recovered the 1.26 level though Wednesday's 4-hour chart is showing that momentum remains weak. Yohay Elam, an analyst at FXStreet, signals tough resistance for the cable at 1.2670 whereas initial support is seen at 1.2570.
“While GBP/USD has been moving up from the lows and above the 50, 100, and 200 Simple Moving Averages on the 4-hour chart, momentum remains to the downside. Moreover, the cable faces fierce resistance at 1.2670, which held it down three times in recent days.”
“The daily high of 1.2627 is the first cap, ahead of 1.2670 mentioned earlier. It is closely followed by 1.2690, a peak that was seen in early June.”
“Support is awaited at 1.2570, a low point last week, and then by 1.2510, a swing low from last week. The next line to watch is 1.2480, the weekly low.”
Lee Sue Ann, Economist at UOB Group, suggested the Federal Reserve could implement Yield Curve Control (YCC) at the September meeting.
“The Fed has demonstrated it will do whatever it takes, beyond interest rate cuts and asset buying, to restore financial market stability, smooth out US dollar funding conditions and safe-guard the economy.”
“Going forward, we expect the Fed to keep its rates near 0% until at least 2022 and the next move will be to introduce Yield Curve Control (in Sep) to make monetary policy even more accommodative.”
- EUR/USD gained traction for the fourth straight session on Wednesday amid sustained USD weakness.
- The prevalent risk-on environment weighed heavily on the safe-haven USD and remained supportive.
- The strong intraday positive move took along some short-term trading stops near the 1.1410-15 area.
The USD selling picked up pace during the early European session and lifted the EUR/USD pair closer to mid-1.1400s – highest since March 10.
The pair prolonged its recent positive momentum and gained strong follow-through traction for the fourth consecutive session on Wednesday. The upbeat market mood continued denting the US dollar's relative safe-haven status and was seen as one of the key factors driving the EUR/USD pair higher.
The optimism over a vaccine for the highly contagious disease overshadowed concerns about a surge in COVID-19 cases across the world. The global risk sentiment was further supported by receding fears about deflationary pressures stemming from the economic downturn led by coronavirus-induced lockdowns.
On the other hand, the shared currency benefitted from hopes that European Union leaders may agree on stimulus and deepen fiscal integration to shield the Eurozone economy from the pandemic. The EUR/USD pair surged to over four-month tops and took along some trading tops near the 1.1410-15 region.
It will now be interesting to see if bulls maintain their dominant position or opt to take some profits off the table ahead of the ECB policy decision on Thursday. In the meantime, the US economic docket – featuring the release of Empire State Manufacturing Index and Industrial Production data – will be looked upon for some short-term trading opportunities later this Wednesday.
Technical levels to watch
The Bank of England (BOE) policymaker Silvana Tenreyro, in a scheduled speech on Wednesday, talks about the disinflationary pressures and on further monetary policy action.
“Headline inflation will continue to weaken in the near term, given a continuing sizeable impact from lower energy prices, and a negative contribution from the recent cut in VAT.”
“Already seeing indications of a sharp recovery in purchases that were restricted by business closures.”
“Believes that recovery will be interrupted by continued risk aversion and voluntary social distancing in some sectors.”
“Ready to vote for further action as necessary to help the economy.”
“No personal view on negative rates.”
GBP/USD is off the highs but adds 0.52% to trade at 1.2612, at the press time.
Broad-based US dollar weakness amid a better market mood is behind the run higher in the cable.