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29 September 2020

Dollar declines on hopes for a US fiscal deal, ahead of presidential debate

The dollar is edging lower in a risk-on mood. Talks between Republicans and Democrats continue in Washington, with House Speaker Nancy Pelosi offering a new deal worth $2.2 trillion. The fresh hopes replace the narrative that the focus on nominating a new Supreme Court Justice would divert energy from further relief

Investors – especially pound bulls – are also content with reports of some progress in Brexit trade talks. The EU is reportedly ready to work on a legal agreement.

President Donald Trump and Democrat rival Joe Biden are scheduled to clash in the first presidential debate late in the day. The incumbent is the underdog in the polls but the challenger is considered a worse debater. The narrative emerging from the event may move markets. Investors are concerned about the specter of an inconclusive election.

Oil prices have been stable with WTI trading around the $40 mark.

Gold has been consolidating around $1,880, looking for a new direction.

GBP/USD attempts to recover towards 1.3070 – Commerzbank

GBP/USD is bouncing from the 200-day ma at 1.2717 and was last seen trading at 1.2847, up 0.1% on the day. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that the cable has room to rise to 1.3070, but a failure here would allow for further losses to the 1.2250 area.

Key quotes

“GBP/USD saw a decent recovery yesterday from the 200-day ma at 1.2717, but the rally has yet to overcome any resistance of note.”

“Caution is warranted as intraday Elliott wave counts are positive and we have opted to cover our short positions for now.”

“Initial resistance lies at 1.3008 the mid-September high and we would allow for 1.3070. Ahead of here lies the 20-day ma at 1.2936. Should the market fail 1.3000/70, we would allow for further losses to 1.2445 and then 1.2250/00.”

EUR/USD could still drop below 1.1600 – UOB

24-hour view: “Yesterday, we held view that EUR could ‘probe the 1.1600 support but a sustained decline below this level is unlikely’. However, EUR rebounded strongly from a low of 1.1613. The rebound has room to extend higher but any advance is expected to face stiff resistance at 1.1720 (minor resistance is at 1.1700). Support is at 1.1645 but only a break of 1.1620 would indicate the current mild upward pressure has eased.”

Next 1-3 weeks: “The negative phase in EUR that started more than a week ago is still intact. In our latest update from last Friday (25 Sep, spot at 1.1675), we held the view that the ‘outlook for EUR remains weak but the next support at 1.1600 may not come into the picture so soon’. While EUR subsequently dropped to a low of 1.1611, the decline appears to be running ahead of itself. From here, EUR could dip below 1.1600 but 1.1565 is expected to offer formidable support. All in, only a break of 1.1720 (‘strong resistance’ level previously at 1.1760) would indicate that the negative phase has run its course.”

Gold Price Analysis: XAU/USD looks north, two key levels to watch out – Confluence Detector

Gold (XAU/USD) started out the US Non-Farm Payrolls (NFP) week on a solid footing, rallying nearly $20 on Monday. The metal bounced-off the SMA100 one-day support for the third straight day, courtesy of the broad retreat in the US dollar from two-month peaks.

The risk-on mood returned amid upbeat Chinese Industrial Profits data, lifting the sentiment on the global markets at the expense of the safe-haven greenback. Further, hopes of the US Congress reaching a fiscal stimulus deal also added to the broader market optimism.

Gold: Key resistances and supports

Following the corrective move higher, the Technical Confluences Indicator suggests that Gold faces immediate fierce resistance at $1889, which is the convergence of the Fibonacci 38.2% one-week and Bollinger Band 15-minutes Upper.

Buyers will then look to takeout the next hurdle at $1894, the intersection of the pivot point one-day R1 and Bollinger Band one-hour Upper.

A sharp rally towards the $1905 barrier will get fuelled, which is the pivot point one-day R2.

To the downside, significant support at $1875 could likely limit the pullbacks. At that level, the SMA5 one-day coincides with the Fibonacci 23.6% one-day.

Further down, a bunch of minor support levels will slow the declines before the bullion reaches the critical cushion at $1863, which is the convergence of the previous month low, Fibonacci 61.8% one-day and pivot point one-month S1.

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