• GBP/JPY trades in the green above 136.00 with bullish signals on the 4-hour chart. 
  • A corrective bounce to a key SMA hurdle looks likely. 

GBP/JPY is currently trading at 136.05, representing a 0.20% gain on the day, having hit a low of 135.44 early Monday. 

The 4-hour chart now shows a bullish divergence of the relative strength index, a sign of downtrend exhaustion. Further, the MACD histogram has crossed into bullish territory above 50. The hourly chart RSI has also diverged in favor of the bulls. 

As such, the pair looks set to challenge the descending 5-day simple moving average (SMA), currently at 136.67. A violation there would expose the 50-day SMA lined up at 137.80. 

The overall bias would remain bearish as long as the pair is held below the 10-day SMA, currently at 138.87. On the downside, 133.98 (July 14 low) is major support. 

Daily chart

Trend: Corrective bounce

Technical levels

 

According to the latest monthly Reuters Tankan survey, released on Monday, the mood amongst the Japanese manufacturing firms remained pessimistic for the 14th consecutive month, reflecting slow recovery from the coronavirus pandemic induced economic blow.

Key findings

“Manufacturers’ morale mirrored frail sales in key sectors such as auto and the construction industry.

The Reuters Tankan sentiment index for manufacturers inched up to minus 29 in September from minus 33 in the previous month, still deeply pessimistic even though it marked the least gloomiest level in six months.

The service-sector index stood at minus 18, up from minus 23 in August, but sentiment among wholesalers, transport and utilities weighed on broad business confidence.

Manufacturers’ sentiment was seen recovering further to minus 19 in December, while that of service-sector firms was expected to tick up to minus 17.”

  • USD/JPY struggles to keep 106.00 even as Nikkei 225 flashes mild gains

In its latest client note, Goldman Sachs analysts offer a constructive outlook for the S&P 500 index, citing a strong recovery in global earnings growth and lower cost of equity.

Key quotes

“Potential for “broader procyclical shift” in stocks, other assets to year end.”

“Still prefer “growth vs. value on a strategic horizon, but:

In the near term, elevated uncertainty on US elections and a better global growth outlook might benefit non-US equities more.”

“In the medium term a large weight in structural growth stocks is likely to support the S&P 500.”

“Near term risks include the when and how a coronavirus vaccine will be deployed:

  • Diminishing US fiscal support.
  • US election uncertainty.
  • Rising COVID-19 cases.
  • Oil price volatility.”

“The S&P 500’s falls were not due to any large pick-up in growth optimism but to further declines in real yields.”

  • NZD/USD jumps over 0.3% in Asia to test a crucial SMA hurdle. 
  • NZIER expects a V-shaped recovery in household spending. 
  • The think tank says the Kiwi is attractive.

The NZD/USD pair is challenging key hurdle on Monday with the NZ Institute of Economic Research (NZIER) egging the Kiwi bulls to drive faster appreciation in New Zealand’s currency. 

The pair tested the 10-day simple moving average of 0.6695 a few minutes before press time and is currently trading near 0.6689, representing a 0.37% gain on the day. The SMA has capped the upside multiple times since Sept. 8. 

NZD remains attractive

The NZIER’s report released early Monday said New Zealand’s relative success in containing COVID-19 and the Reserve Bank of New Zealand’s relatively less dovish stance makes the New Zealand dollar attractive. 

The central bank revised the current fiscal year’s growth outlook higher, as the massive fiscal and monetary stimulus is supporting demand. “Household spending is also expected to have a V-shaped growth profile, with a sharp rebound in spending expected from 2021,” the report said. 

NZIER’s upbeat comments on the economy and the exchange rate could be powering gains in the NZD. Also, the risk-on, as suggested by the 1% gain in the S&P 500 futures, could be drawing bids for the NZD and other high beta currencies. 

A break above the 10-day SMA hurdle may invite more substantial chart-driven buying. On the downside, the Sept. 9 low of 0.6601 is the level to defend for the bulls. 

Technical levels

 

China’s Commerce Ministry said in a statement on Monday, it launched an anti-subsidy investigation on certain glycol ethers imports from the US, starting September 14.

Last month, the Ministry launched an anti-dumping investigation on certain glycol ethers imports from the US, effective from August 31, after Jiangsu Yida Chemical Co and its units called for an investigation on July 17 on behalf of the domestic industry.

Market reaction

Dollar weakness dominates as the market mood improves in Asia this Monday, with the above having little to no impact on the sentiment so far.

AUD/USD extends its bounce towards 0.7289 highs while the S&P 500 futures jump over 1% amid vaccine optimism.

Gold (XAU/USD) broke the consolidative mode to the upside, starting out a big week on the front foot. Fresh Iran-US geopolitical concerns outweighed the vaccine hopes and lifted the yellow metal.  

Politico reported that Iran is reportedly plotting to kill a US ambassador, response to the killing of Qassim Soleimani. Meanwhile, AstraZeneca coronavirus vaccine clinical trials will resume in the UK after a week’s pause due to safety concerns.

Gold bulls fight back control ahead of a big week, with the FOMC decision to steal the show. How is gold positioned ahead of the key event risks this week?

Gold: Key resistances and supports

The Technical Confluence tool shows that gold has recaptured the critical barrier at $1945, which is the convergence of the Fibonacci 38.2% one-day, one-week and one-month.

Amid a lack of healthy resistance levels, it appears to be a smooth ride higher for the bulls.

The next soft cap is aligned at $1951.50, the Fibonacci 23.6% one-week. Further north, the pivot point one-day R2 at $1961 could be tested en route the previous week high at $1966.50.

The tough hurdle at $1969 will then come into play. That level is the pivot point one-day R3.

On the flip side, should the bulls surrender the aforesaid critical resistance now support at $1945, sellers could call for a test of the next significant cushion at $1938.50 (SMA50 four-hour).

The Fibonacci 61.8% one-week support of $1930 will be put to test if the bears take over.

$1927 will be the last resort for the bulls, which is the confluence of pivot point one-day R2 and Bollinger Band four-hour Lower.

Here is how it looks on the tool

fxsoriginal

About the Confluence Detector

The TCI (Technical Confluences Indicator) 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.

Learn more about Technical Confluence

The UK-based oil and gas company BP Plc, one of the world’s seven oil and gas “supermajors,” said Monday that oil consumption might never return to levels seen before the coronavirus crisis. 

The relentless oil demand growth era is over, BP said in a report, contradicting OPEC and other major oil producers’ view that oil consumption will see decades of growth.

This month, oil prices have declined by 12% on signs of a slowdown in the global growth recovery and slower-than-expected decline in oil inventories. 

Oil demand was shattered in the second quarter as the coronavirus-induced lockdown restrictions brought the economic activity to a standstill across the globe, filling up both onshore and offshore storage tanks. 

  • USD/JPY eases from intraday top of 106.16 amid mixed clues.
  • Politico’s signal that Iran is plotting to kill US Ambassador joins risk-negative news from New Zealand to weigh on market sentiment.
  • Vaccine hopes, TikTok story and Brexit confuse traders during the light-calendar morning.
  • Japan’s Industrial Production in the spotlight for now, risk factors remain as the key.

USD/JPY retraces gains to 106.13 as traders in Tokyo capitalize on the early-Monday move. The yen major marked losses during the last week but portrays sluggish moves off-late. The reason could be traced from non-uniform risk signals and a lack of major data/events.

Vaccine news confronts virus woes…

Not only AstraZeneca’s restart of the coronavirus (COVID-19) trials but news that Pfizer is also pitching for its vaccine sale before the year-end added to the market optimism during the week’s start.

Even so, New Zealand’s extension of lockdown restrictions, at least till September 21, with stricter conditions in Auckland, challenges the market’s mood. Also on the negative side could be Politico’s piece suggesting Iran’s planning to take revenge for Qassem Soleimani.

It should, additionally, be noted that the fears of a hard Brexit grow as the UK offers discounts to Japanese while talking trade, in terms of accepting stiff rules, ahead of British diplomats’ visit to Brussels.

Earlier during the day, Japanese Chief Secretary and front-runner for the country’s leadership race Yoshihide Suga said that there is no limit to the bonds a government can issue. This strengthens the odds of further easy money policy in Japan.

Talking about the data, Japan’s Reuters Tankan details suggest the Manufacturing gauge recovered from -33 to -29 in September, the best in six-months. On the other hand, the Services index also bounced off -23 to -18 during the reported period.

Against this backdrop, S&P 500 Futures rise 0.90% while Japan’s Nikkei 225 add 0.50% by the press time. Though, the US 10-year treasury yields struggle around 0.66% as we write.

Moving on, Japan’s July month Industrial Production, expected to remain unchanged at -16.1%, can offer an immediate market reaction. However, traders may pay a little more attention to the risk news for further direction.

Technical analysis

A 30-pip area between 21-day and 50-day SMA below 106.30 keeps the pair’s short-term moves confined.

 

While EUR/USD has risen by over 5% so far this year, the exchange rate is still undervalued, according to analysts at Goldman Sachs. 

“The pair’s longer-run fair value is 1.30, and the single currency is well placed to participate in the broad Dollar weakness,” noted Zach Pandl, global co-head of foreign exchange strategy at Goldman Sachs.

Key points

Eurozone domestic markets should benefit from a broad global recovery. 

Goldman Sachs’ 12-month target is 1.25. 

That target could be reached sooner-than-expected on coronavirus vaccine approval and potential Joe Biden victory in the US Presidential elections.