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06 October 2020

Dollar on defensive as U.S. stimulus hopes, Trump discharge boost risk sentiment

The dollar was softer against riskier currencies on Tuesday on rising optimism that U.S. lawmakers could agree on new stimulus to blunt the economic impact of the coronavirus.

Risk appetite also improved after U.S. President Donald Trump left the hospital and returned to the White House following treatment for Covid-19, a development viewed as reducing political uncertainties in the near term.

“I think hopes of U.S. stimulus are the main driving force,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“As for Trump’s discharge, the impact is not clear-cut but it is seen as positive for risk environment to the extent that there are less worries about the White House getting caught in complete chaos and unable to make decisions,” he said.

The euro traded at $1.1792, following a gain of 0.58% on Monday.

The pound changed hands at $1.2990, tackling its resistance around $1.30, despite concerns about a no-deal Brexit.

The dollar advanced on the safe-haven yen to 105.66 yen, staying near its highest levels in three weeks.

The Australian dollar jumped 0.3% to $0.7205, after the Reserve Bank of Australia kept interest rates on hold at 0.25% despite widespread expectations of a rate cut.

AUD/USD pierces 0.7200 even as RBA keeps status-quo

AUD/USD seesaws around 0.7200 after an initial surge to 0.7208 on the Reserve Bank of Australia’s Interest Rate decision during early Tuesday. The Reserve Bank of Australia (RBA) held its cash rate and the targeted yield on 3-year bonds unchanged at 0.25% during the latest announcement.

Also in the line is the speech from the Federal Reserve Chairman Jerome Powell who will be speaking about the US economic outlook at the National Association of Business Economics annual meeting. Above all, US President Trump’s recovery moves will be closely followed for near-term market performance.

Technical analysis

Despite failing to cross the confluence of 21-day and 50-day SMA, around 0.7200-10, AUD/USD buyers should keep the reins unless witnessing a downside break of 10-day SMA level near 0.7120.

Gold looks to the upside ahead of Powell’s speech

Gold has been on the rise, holding above $1,900 amid hopes for a further cash injection from the government. XAU/USD’s path of least resistance is up ahead of Powell’s speech as technical set up points to the additional upside, FXStreet’s Dhwani Mehta reports.

Key quotes

“Attention remains on the US stimulus talks likely to be continued this Tuesday, as the fundamentals continue to play second fiddle. Trump’s coronavirus updates will be also closely followed for fresh incentives. Speech by the US Federal Reserve (Fed) Chair Jerome Powell will be eyed, as he is due to speak about the US economic outlook at the National Association of Business Economics annual meeting.”

“Gold looks to extend Monday’s rally, having carved out a potential bull flag formation on the hourly chart. A bull flag is a bullish continuation pattern, with the validation likely to occur on an hourly closing above the falling trendline resistance at $1913.51. The pattern target is measured at $1940. The hourly Relative Strength Index (RSI) has turned lower but holds well above the midline, at 53.11, allowing for more upside.”

“To the downside, the falling trendline support at $1906.51 is likely to offer an immediate reprieve to the bulls. A break below which the $1900 mark will be put at risk.”

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