- GBP/USD’s bounce remains capped near 1.2780.
- UK Sunak’s furlough scheme offers temporary reprieve.
- US dollar looks to regain poise ahead of Durable Goods data.
Having faltered the bounce once again near 1.2780 region, GBP/USD remains side-lined near 1.2750 ahead of the London open, as the bull-bear tug-of-war extends amid a stall in the US dollar’s rally and cautious optimism.
The greenback is off the overnight lows and holds steady so far this Friday, prompting subdued trading in the cable amid a lack of fresh catalysts.
The market mood remains cautiously optimistic amid hopes over a UK COVID-19 late-stage vaccine trial and US stimulus deal, which limits the bounce in the US dollar across its major peers. The US dollar index trades modestly flat at 94.37, having partially recovered from the NY lows to 94.20 reached amid mixed US data and Wall Street bounce.
The cable once again attempted a modest recovery after the UK’s Finance Minister Rishi Sunak rolled out measures in its job protection scheme, as the country battles the second-wave of coronavirus-induced restrictions. The unexpected jump in the September CBI Distributive Trades Survey on realized sales also offered some reprieve to the GBP bulls.
Meanwhile, optimism over a post-Brexit transition trade deal also aided the rebound in the major from two-month lows of 1.2675. On Thursday, the Bank of England (BOE) Governor Andrew Bailey reiterated that it is in the interest of both sides to have a trade deal between the UK and the EU.
Next of note for the pair remains the BOE’s Q3 Quarterly Bulletin and US Durable Goods data for near-term trading opportunities.
GBP/USD: Technical levels
Technically, the price is ranging in a symmetrical triangle formation on the hourly chart since Tuesday. The bulls are now eyeing to clear the falling trendline resistance at 1.2769 to confirm a bullish breakout, which could add legs to the correction move higher. Alternatively, the rising trendline support at 1.2705 is the level to beat for the bears.
GBP/USD: Additional levels
- EUR/USD is down more than 1% this week.
- The pair last suffered a 1% weekly drop in May.
- Coronavirus resurgence to keep euro under pressure in the near-term.
- Dollar to benefit from the US fiscal impasse, election uncertainty.
EUR/USD is on track to register its first 1% weekly decline since the first week of May.
The pair is currently trading at 1.1665, representing a 1.46% decline on a week-to-date basis, having reached a two-month low of 1.1626 on Thursday.
The single currency picked up a bid after IFO data showed that Germany's business morale improved for the fifth month in a row in September.
Bias remains bearish
While the pair has regained some poise, the path of least resistance is still to the downside, according to BK Asset Management's Kathy Lien.
That's because the Eurozone is facing a second wave of coronavirus. According to BloombergQuint, France and the UK have reported a record number of new coronavirus cases in the past 24 hours. "At this rate, there's no question that further restrictions are on their way," Lien noted in her daily analysis.
New lockdown restrictions could cause more significant economic damage. "There is a "big risk of a double-dip" in the fourth quarter, Chris Williamson, the chief business economist at IHS Markit, told CNBC's "Street Signs" earlier this week.
As such, traders are unlikely to put a strong bid under the euro any time soon. Meanwhile, the dollar could continue to draw haven bids, courtesy of the lack of additional US fiscal stimulus, and the US election uncertainty.
As per technical charts, the bias will remain bearish as long as the pair is trading below the now descending 10-day simple moving average (SMA), currently at 1.1768.
The Eurozone data calendar is light on Friday. Across the pond, the US Durable Goods Orders figure for August is scheduled for release at 12:30 GMT. BK Asset Management's Lien does not expect the Durable Goods Orders to impact markets significantly. "Currency traders should take cues from equities and Treasuries," Lien noted.
Gold's options market shows the strongest bearish bias in 4-1/2 months, according to data source Reuters.
One-month risk reversals (XAU1MRR), a gauge of calls to puts, fell to -0.475 in favor of puts, the lowest level since May 14.
The gauge traded at 0.625 in favor of calls on Sept. 21, having peaked at 2.125 on Aug. 7.
The decline indicates investors are adding bets (put options) to position for losses in the yellow metal.
Gold is currently trading at $1,870 per ounce, having reached a two-month low of $1,849 on Thursday. Prices reached a record high of $2,075 on Aug. 7.
Adding to the upbeat market mood in Asia this Friday, Reuters reported that Novavax Inc on Thursday started a clinical late-stage trial of coronavirus vaccine in the UK.
The experimental vaccine is developed in partnership with the government’s Vaccines Taskforce. The study, which could take about four-six weeks, comes after the vaccine candidate produced high levels of antibodies against the novel coronavirus in the early trial.
Novavax said it could produce up to 2 billion annualized doses, once all capacity is brought online by mid-2021.
The Asian equities are mostly higher, led by a 1.30% rally in the Australian benchmark, the ASX200 index. The Nikkei 22 index advances 0.60% to 23,225 levels.
The Asian markets cheer the positive close on Wall Street, as investors remain expectant of a fiscal stimulus deal likely to be agreed by the US policymakers.
The S&P 500 futures jump 0.53% to 3,255, at the press time.
- EUR/JPY's hourly chart shows a sideways channel pattern.
- A range breakdown would imply a continuation of the sell-off from recent highs near 126.00.
EUR/JPY is trading near 123.05 at press time, representing marginal gains on the day, having faced rejection at 123.15 a few minutes ago.
The pair has carved out a sideways channel on the hourly chart with the upper end and lower end at 123.20 and 122.57, respectively.
A breakout would open the doors for 123.83 (target as per the measured move method). However, the bias would remain bearish as long as the pair holds below 124.41 – the former support-turned-resistance of the head-and-shoulders (H&S) breakdown confirmed on Sept. 16.
Alternatively, a range breakdown, if confirmed, would reinforce the bearish view put forward by the H&S breakdown and expose support at 122.00 (100-week simple moving average).
Trend: Bearish below 122.57
The Yomiuri Shimbun, a Japanese national newspaper, cited on Friday, the government is a corporate tax cut for small and medium enterprises, Bloomberg reports.
The likely tax cut is under consideration in order to boost Mergers & Acquisitions in the country.
USD/JPY remains in a familiar range around 105.50, unable to benefit from an uptick in the Asian equities amid a broad-based US dollar pullback. The focus shifts to the US Durable Goods data after the downbeat Jobless Claims and stronger New Home Sales releases.
- USD/JPY bulls testing critical resistance to no avail
When asked about the impact of the new coronavirus restrictions on the UK job market, in an interview with ITV, Bank of England (BOE) Chief Economist Andy Haldane said: “It’s for us to seize that opportunity, as it was at the end of the Second World War.”
Additional quotes (via Reuters)
“I’ve been quite reassured during this crisis how quickly governments and central banks have responded, how quickly businesses and indeed workers have adapted their way of working.”
“So, I’ve got some hope that the searing experience of the COVID crisis may have flexed that muscle, the ability to change at greater pace than in the past.”
- GBP/USD Price Analysis: Teasing a triangle breakout on 1H chart
- USD/CAD has bounced up from Thursday's low of 1.3325.
- The immediate bias remains neutral with pair stuck in Thursday's trading range.
USD/CAD is trading at 1.3353 at press time, having defended Thursday's low of 1.3325 early today.
Despite the recovery, the immediate bias remains neutral. That's because the pair is still trading well within the range of Thursday's candle, whose long upper and lower wicks indicate indecision.
A move above Thursday's high of 1.3418 would mean the period of indecision has ended with a bullish breakout. That would open the doors to the 100-day simple moving average (SMA), currently at 1.3462.
Alternatively, acceptance below Thursday's low of 1.3325 would confirm a bearish reversal.
With the 5- and 10-day SMAs trending north and the daily chart reporting a higher low and higher pattern, the odds appear stacked in favor of a break above Thursday's high of 1.3418.
Trend: Bullish above 1.3418
- GBP/USD consolidates the corrective bounce amid USD pullback.
- Teasing a symmetrical triangle breakout on the hourly chart
- Hourly RSI points north in the bullish territory.
GBP/USD turned positive for the first time in five days on Thursday, having bounced once again to near 1.2780 region on the US dollar’s retreat across its main competitors.
The improvement in the sentiment on Wall Street amid solid US New Home Sales data tempered the demand for safe-havens such as the greenback.
At the time of writing, the cable is consolidating the previous corrective bounce around 1.2750, awaiting a fresh impetus for a sustained move above 1.2780.
Technically, the price is ranging in a symmetrical triangle formation on the hourly chart since Tuesday.
The bulls are now eyeing to clear the falling trendline resistance at 1.2769 to confirm a bullish breakout, which could add legs to the correction move higher, with the pattern target at 1.2912 on the buyers’ radars.
The bullish crossover between the 21-hourly Simple Moving Average (HMA) and 50-HMA also backs the case for the further upside while the hourly Relative Strength Index (RSI) points north above the midline.
Alternatively, the immediate downside is capped by the 21-HMA at 1.2744, below which the horizontal 50-HMA support at 1.2732 will come into play. The rising trendline support at 1.2705 is the level to beat for the bears.
GBP/USD: Hourly chart
GBP/USD: Additional levels
- AUD/USD keeps gains above 0.7050 after Australia reports a drop in trade surplus.
- Australia's imports dropped by 7% in August and imports fell by 2%.
Australia's trade surplus decreased in August, the official data released at 01:30 GMT showed. So far, however, that has failed to elicit an adverse reaction from AUD/USD.
The nation's imports tanked 7% month-on-month in August following July's 7% rise. Meanwhile, exports fell by 2% in August, having declined by 4% in July. The trade surplus decreased to AUD 4,294 million from AUD 4,607 million.
The sharp decline in inbound shipments indicates a weakening of domestic demand. Meanwhile, the consecutive monthly drop in outbound shipments indicates weak demand conditions in the global economy.
The data comes a day after Australia's retail sales for August showed a 4.2% decline in consumer spending.
As such, AUD/USD is likely to have a tough time charting a strong recovery rally. The currency pair rose from 0.7042 to 0.7062 ahead of the trade data, having printed a two-month low of 0.7016 on Thursday. At press time, AUD/USD is trading near 0.7055.
The pair's daily chart shows a bearish lower high, lower low pattern, a below-50 or bearish reading on the RSI, and descending short-term moving averages.
Hence, a drop to the 100-day simple moving average (SMA) support, currently at 0.70, looks likely.
According to the Preliminary August Trade Balance data published by the Australian Bureau of Statistics (ABS) on Friday, “while both exports and imports declined in August 2020 a goods trade surplus of $4,294m (original, current price, merchandise trade basis) has been recorded”.
“Exports of goods in August 2020 declined from the revised July 2020 estimate of $28,935m by $616m (-2%) to $28,319m.”
“Imports of goods in August 2020 declined from the revised July 2020 estimate of $25,811m by $1,785m (-7%) to $24,026m.”
“From July to August 2020 imports from China decreased, down $1,007m (-13%) to $6,647m, with declines across a broad range of commodities.“
The aussie dollar remains unfazed by the trade figures, with AUD/USD keeping its recovery mode intact above 0.7050.
- Dollar's retreat from two-month highs puts brakes on gold sell-off.
- Gold's daily chart shows the market has turned indecisive.
- Risks, however, remain skewed in favor of deeper losses.
Gold bears are taking a hiatus amid the US dollar's pullback from two-month highs.
The yellow metal witnessed two-way business and closed on a flat note on Thursday, forming a Doji candle – an indecision sign.
The selling ran out of steam at $1,848 as the uptrend in the dollar index (DXY) paused at 94.59, the highest level since July 24. The DXY closed Thursday at 94.33 and remains sidelined near that level at press time.
Meanwhile, gold is currently trading near $1,863 per ounce, having ended Thursday at $1,867.
Downside risks persist
While the dollar index has pulled back from multi-week highs in the last 12 hours or so, the upside breakout from the two-month trading range of 92.00-94.00 confirmed earlier this week is still valid.
Besides, disappointment that Federal Reserve's recent decision to adopt average inflation targeting did not translate into more stimulus, renewed coronavirus fears, and growth concerns could continue to push the dollar higher in the run-up to the US elections.
As such, the path of least resistance for gold appears to be on the downside.
The federal government debt has jumped to nearly 25% of gross domestic product (GDP), courtesy of the significant surge in the increased welfare payments amid the coronavirus crisis, the Australian Treasurer Josh Frydenberg said at a news briefing in Canberra on Friday.
“Government debt for the year ending June 30 totaled A$491.2 billion ($346.6 billion), or 24.8% of the country's GDP.”
“The figure is slightly higher than Australia's official forecast in July of A$488.2 billion, or 24.6% of GDP.”
“The budget swung into a massive deficit of A$85.3 billion, slightly lower than its July forecast of A$85.8 billion.”
Amid risk-on buying and broad US dollar pullback, the recovery in the AUD/USD pair is gaining momentum above 0.7050. The AUD bulls ignore the above comments. The spot adds 0.13% to now trade at 0.7056.
In a statement released on Friday, China’s Commerce Ministry said that they will conduct an anti-dumping investigation on imports of some chloride products from the US, starting September 25.
The probe is at the request of domestic producers and would normally last for a year, but it could be extended to March 25, 2022, the Commerce Ministry added.
Earlier this month, the Ministry launched an anti-subsidy probe on certain glycol ethers imports from the US, effective from September 14.
Beijing, however, maintains that these investigations have nothing to do with the US-Sino trade deal.
AUD/USD is trying hard to extend the recovery from two-month lows of 0.7016, with the US dollar stalling its recent bullish momentum.
At the press time, the aussie trades 0.07% higher at daily highs of 0.7062.
The People's Bank of China (PBOC) has set the yuan reference rate at 6.8121 versus Thursday's fix at 6.8028.
The investment banking giant Goldman Sachs foresees Washington's stalemate on additional fiscal stimulus leading to a slower than expected US economic growth in the fourth quarter.
Economists have lowered their fourth-quarter gross domestic product forecast to 3% from 6% on a quarter-on-quarter basis after revising its base case to include a lack of additional fiscal stimulus until 2021, according to Business Insider.
Key quote (Source: Goldman's client note via Business Insider)
"We had previously assumed that Congress would attach a $1 trillion stimulus package to the continuing resolution at the end of this month that would include a partial extension of the extra unemployment benefit and additional PPP loans. We now think that any further stimulus will wait until early 2021," Thursday's client note said.
We are more confident that the widespread distribution of a coronavirus vaccine to the entire population will be achieved by Q3 rather than Q2 of the next year.
The emerging market currencies have been slammed over the past week or so. Names like Brazilian real, Mexican peso and South African rand have declined by 5.65% to 4.48%, respectively.
"We are in a real EM sell-off now," Robin Brooks, chief economist at the Institute of International Finance (IIF) and former chief strategist at the investment banking giant Goldman Sachs tweeted on Wednesday.
According to Brooks, traders have put a bid under the US dollar on disappointment that Federal Reserve's recent decision to adopt average inflation targeting did not translate into more stimulus and due to renewed coronavirus concerns and fading hopes for US fiscal stimulus.
- USD/JPY testing critical resistance structure in Tokyo on strength in the US dollar and equities.
- US dollar could be due to a bearish correction, making advances through 105.50 tough.
USD/JPY is currently trading at 105.48 between a range of 105.38 and 105.48, with the bulls in charge and pressuring the pair to test the bear's commitments at the newly formed resistance.
Overnight on Thursday, USD/JPY ranged between 105.20 and 105.53 while the US dollar was mixed against G10 currencies in the sessions.
US stocks ended in the green ina choppy session on Wall Street with a mixed sentiment in regards to the economic recovery.
US data mixed
US data showed that jobless claims lifted to 870k although continuing claims also fell by less than expected.
On the more positive front, US housing data was strong with New Home Sales for August smashing expectations.
The data showed a rise of 4.8% MoN on top of a near 15% rise the previous month (a 1.2% fall was expected).
This marked the fourth monthly rise, helped by record-low mortgage rates, but also, anecdotally, people reassessing where they’d prefer to live in a pandemic world. This takes the annualised pace of sales to 1m, the highest since 2007,
analysts at Westpac explained.
In other news, as investors await for updates with regards to further stimulus, US Treasury Secretary Mnuchin said in testimony that he hopes to restart negotiations on another fiscal relief bill with House Speaker Pelosi.
I'm willing to sit down anytime for bipartisan legislation, let's pass something quickly.
USD/JPY technical analysis
Meanwhile, the bulls are testing a critical resistance area market dup earlier this week in the surge in the value of the US dollar.
- USD/JPY Price Analysis: This could be the bull's last dance in the 105, eyes on 103.50s
It was called in the above analysis and there has been no real change to market nor the forecasting.
At this juncture, the US dollar is playing out as expected:
- EUR/USD created a Doji candle on Thursday, signaling indecision.
- Other daily chart studies continue to call a bearish move.
EUR/USD carved out a Doji candle on Thursday as it witnessed two-way business and ended the day on a flat note.
A Doji candle represents indecision. However, in this case, the candle has appeared at two-month lows. As such, one may take it to represent seller exhaustion and adopt a neutral stance.
However, other chart studies remain biased bearish. For instance, the 5- and 10-day simple moving averages (SMA) continue to trend south, and the 14-day relative strength index is hovering below 50.
The head-and-shoulders breakdown confirmed earlier this week remains valid, and the pair remains below the former support-turned-resistance at 1.1696 (Aug. 3 low).
As such, the odds remain stacked in favor of deeper declines. Key support levels are located at 1.1626 (Thursday's low) and 1.1495 (March 9 high). Meanwhile, resistance is seen at 1.1696 (Aug. 3 low) and 1.1768 (10-day SMA).
This is a developing story
- NZD/JPY is showing signs of bullish potential for a day trade.
- Bulls will look for a restest of the support structure for a run higher.
NZD/JPY has made a move to the upside following a healthy correction of the hourly impulse.
This gives rise to the prospects of further gains before the week is out offering a 1:3 risk to reward ratio (R/R) and high probability trade setup on the hourly time frame, administered and monitored from a 15-min time scale.
The hourly chart shows that the price has made a concerted effort to the upside and has corrected in what could be the start of the next bullish impulse.
There is a buy limit that needs to be filled if the price doesn't just bolt, that will reward the position with a 1:3 risk to reward ratio.
The stop loss will be moved to breakeven if there is a new support structure formed to the upside.
This is now a free ride towards the target.
- NZD/USD is likely to correct a portion of the downside, holding at support.
- Bears will be waiting patiently for the next downside confirmation.
NZD/USD is playing out in the makings of a reverse head and shoulders on the monthly time frame.
In the meantime, the bulls have an opportunity to clean up some of the destruction left behind by the bears in the latest sell-off to support structure.
The following is a top-down analysis of the monthly, weekly and daily chart which illustrates the various compelling patterns and markets structures.
Monthly reverse head and shoulders in the making
Weekly support and resistances
The weekly chart offers a triple top scenario with the makings of a head and shoulders and the case for the downside once the bulls complete the correction to the shown resistance structure.
Bulls will be looking to the lower time frames, such as the 4-hour charts, in order to take advantage of any progress to the upside.
However, the bears will have bigger fish to fry if the upside target is achieved where there is a more compelling case for the downside in the reverse head and shoulders pattern on the monthly chart.
- Gold is on the verge of a major run to the downside on the long term charts.
- The US dollar is stalling and could give some meanwhile room to the upside for gold.
The price of gold is currently trading at $1,868.30 between $1,867.51 and $1,871.37 following a session in North America where the precious metal managed a bid from a low of $1,847.90 to a session high of $1,877.03.
Gold's bullish case has been challenged by the broad dollar's gains of late which have catalyzed an aggressive positioning squeeze in the yellow metal.
To date, there have been a number of fundamentals going for the US dollar, including the Justice Ginsberg's passing and its implications for a Phase 4 deal, election uncertainty and the global spread of the coronavirus.
The US dollar, however, has stalled in its impulse and could be destined to a downside correction which should give the yellow metal some gas, (see the technical analysis below).
We reiterate that while weak price action is depressing sentiment for gold bugs, the pullback is unlikely to turn into a rout — the secular bull market is intact, as long-term inflation expectations will likely continue to rise post-election, particularly if a fiscal deal can be agreed upon in the US,
analysts at TD Securities argued.
Notwithstanding, high cross-asset correlations and a bloated positioning slate are punishing the late-longs in the yellow metal, which is trading nearly tick-for-tick with the broad dollar index.
Looking to US dollar the technicals, however, there could be some good news for the bulls ahead, if only monetarily.
Gold and DXY technical analysis
In yesterday's analysis, above, the dollar was expected to stall in 5-wave pattern forecast.
So far so good:
This could give rise to a short term recovery in gold if the 5-wave USD analysis is correct.
If the dollar picks up liquidity again and rallies, then the precious metal will have a hard time sustaining its bid.
DXY long-term chart analysis
Gold looking down the abyss
Daily gold chart, resistance ahead
- AUD/USD bears bailing out as price consolidates the down move.
- US dollar giving back some ground, could give rise to healthy upside correction in AUD crosses.
AUD/USD is currently trading at 0.7044 between a narrow start of the day range in Asia of 0.7042 and 0.7048 following an overnight session of corrective behaviour from a low of 0.7015 to 0.772 the high.
August's combination of rising equity prices and a sliding US dollar has been reversed in no uncertain terms, sending the AUD/USD back to late July levels.
However, despite the market chatter about Reserve Bank of Australia cuts next month, AUD/USD is performing the bid in improved risk appetite.
US stocks finished in the green on Thursday and the greenback is starting to find sellers across the board according to the DXY, (see below).
AUD/USD is responding to improved risk sentiment on Wall Street coming off a weak European session.
US equities were in the green as they digested strong US housing data. However, there was a disappointment in the initial jobless claims, and ongoing concerns about a lack of additional fiscal stimulus.
There is now the scope, from a technical basis for recovery, especially if commodities can maintain the bid, for an upside correction.
Oil, copper and the CRB index were marching ahead on dollar weakness. The CRB index was some 0.4% higher overnight.
AUD/USD technical analysis
Bearish long-term outlook
There is still plenty of work to be done by the bulls at this juncture as the 4-hour charts show heavily bearish conditions still.
DXY bearish for now
The hourly conditions show that the dollar is retesting what was support, now turned resistance structure.
- Dow jones unofficially closes up 49.68 points or 0.19%.
- Nasdaq unofficially closes up 40.01 points or 0.38%.
- S&P 500 unofficially closes up 9.29 points or 0.29%.
US stocks managed to hang on to gains on Thursday even as US jobless claims rose unexpectedly. However, a surge in the sale of New Homes offered some positives in an otherwise dubious economic background.
Apple Inc AAPL, Amazon.com Inc AMZN, Nvidia Corp NVDA and Facebook Inc .FB.O, all rose which have all been the pandemics best performers so far.
However, the S&P 500 briefly fell 10% below the intraday record peak it hit Sept. 2 for the second time in recent days.
Dow constituents, considered a barometer of economic confidence, lagged the S&P 500.
Unofficially, the Dow Jones Industrial Average had climbed 51.65 points, or 0.19%, to 26,814.78. The S&P 500 added 9.6 points, or 0.30%, to 3,246.52, while the Nasdaq Composite put on 39.28 points, or 0.37%, to 10,672.27.
on Thursday as data showed 870,000 Americans applied for jobless benefits in the week ended Sept. 19, up from 866,000 in the previous week, suggesting the jobs recovery may be running of steam.
Continuing claims also fell by less than expected.
Meanwhile, US housing data was strong.
New home sales for August smashed expectations, rising 4.8% m/m on top of a near 15% rise the previous month (a 1.2% fall was expected).
This marks the fourth monthly rise, helped by record-low mortgage rates, but also, anecdotally, people reassessing where they’d prefer to live in a pandemic world. This takes the annualised pace of sales to 1m, the highest since 2007. There was a 4.3% decline in the median selling price, even with the strong demand – reflecting the increase in the proportion of ‘cheaper’ properties sold,
analysts at ANZ bank explained.
SP 500 levels