EUR/GBP has failed at initial resistance and is under pressure. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the pair to pungle towards the 0.8239 2019 low.

Bearish bias while below 55-day moving average at 0.8532

“EUR/GBP has tested and failed at key nearby resistance at 0.8471, which represents the April 2021 low and the May 2019. This is negative price action, and while we hold below the 55-DMA at 0.8532 we stay negative for now.”

“Attention is on the 0.8239 2019 low and the 200-month ma lies at 0.8159.” 

“The near-term bounce is viewed as corrective for now. EUR/GBP will need to regain the 55-DMA at 0.8532 in order to alleviate downside pressure and to challenge the 0.8659/73 highs since May.”

 

Here is what you need to know on Tuesday, October 26:

The greenback managed to outperform its European rivals on the back of rising US Treasury bond yields on Monday but stayed weak against risk-sensitive currencies. As investors gear up for this week’s high-impact events, the dollar holds its ground. The market sentiment remains relatively upbeat ahead of New Home Sales and CB Consumer Confidence Index data from the US. Brexit talks are set to continue in London and the European Central Bank (ECB) will release the findings of its Bank Lending Survey.

Risk mood: The S&P 500 hit a new record high of 4,572 on Monday and risk flows continue to dominate financial markets early Tuesday with US stock index futures rising between 0.2% and 0.5%. US President Joe Biden signed an order to lift travel restrictions on China, India and many European countries on Monday. Moreover, Democrats are reportedly closing in on a deal on the spending bill, that will be worth between $1.5 and $2 trillion. 

On a concerning note, coronavirus cases are on the rise again. China warned that the latest COVID-19 outbreak is likely to spread further and Russia reported a record-high number of 37,930 cases on Monday.

After failing to break above 1.7% last week, the benchmark 10-year US Treasury bond yield gained more than 1% during the day on Monday before closing flat around 1.65%, where it continues to move sideways on Tuesday.

EUR/USD lost nearly 40 pips on Monday as the latest data from Germany showed a deterioration in sentiment and Bundesbank revised its 2021 growth forecast lower. Currently, the pair is testing 1.1600.

GBP/USD is struggling to gain traction since David Frost, the British minister responsible for implementing the Brexit deal, said that the EU’s proposal on the Northern Ireland protocol was not going “far enough” to free up trade in the region.

Despite the renewed USD strength, gold climbed above $1,800 on Monday and seems to have gone into a consolidation phase. The sharp upsurge witnessed in XAU/USD and XAU/GBP pairs suggests that investors moving away from European currencies are ramping up the demand for the precious metal.

USD/JPY is clinging to modest gains around 114.00 as the safe-haven JPY fails to attract investors in the current market atmosphere.

Cryptocurrencies: After staging a correction toward $60,000, Bitcoin started to edge higher on reports claiming that Mastercard is looking to offer crypto services to banks and merchants in its network. Ethereum continues to edge higher toward $4,400, where the all-time high is located. 

FX option expiries for October 26 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

– EUR/USD: EUR amounts        

  • 1.1600-10 1.5b
  • 1.1700 272m
  • 1.1720-30 849m

– GBP/USD: GBP amounts        

  • 1.3800 278m

– USD/JPY: USD amounts                     

  • 113.55-60 626m
  • 113.85-114.00 1b
  • 114.20-25 500m
  • 114.50 1.1b

– AUD/USD: AUD amounts

  • 0.7400 772m

– USD/CAD: USD amounts       

  • 1.2300 370m
  • 1.2400 1b
  • 1.2500 258m
  • 1.2550 651m

Gold regained positive traction on Monday and inched back closer to multi-week tops. As FXStreet’s Haresh Menghani notes, acceptance above 100/200-day SMAs favours XAU/USD bulls. 

Pullback towards the $1,795-90 region seen as a buying opportunity

“Traders will take cues from Tuesday’s US economic docket, featuring the releases of the Conference Board’s Consumer Confidence Index, Richmond Manufacturing Index and New Home Sales. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold.”

“Repeated failures near the $1,812-14 intermediate hurdle warrant some caution before positioning for any further gains. Nevertheless, the bias remains tilted in favour of bullish traders and supports prospects for a move towards challenging the $1,832-34 heavy supply zone.”

“Any meaningful pullback towards the technically significant moving averages confluence resistance breakpoint, around the $1,795-90 region, should be seen as a buying opportunity. This, in turn, should help limit the downside near the $1,782-81 horizontal support. Some follow-through selling will negate the positive outlook and drag gold prices back towards the $1,760 support zone.”

 

  • EUR/GBP consolidates on Tuesday in the early European trading hours.
  • Additional gains for the pair if price decisively breaks 0.8440.
  • The Momentum oscillator holds onto the oversold zone with an upward bias.

EUR/GBP trades cautiously on Tuesday in the European trading hours. The pair confided in a narrow trade band with no meaningful traction. At the time of writing, EUR/GBP is trading at 0.8432, down 0.02% for the day.

EUR/GBP daily chart

On the daily chart, the EUR/GBP cross currency pair fell sharply after testing the high of 0.8658 on September 29, this also constituted a double top formation with a high made on July 21. A double top candlestick technical formation is a bearish pattern. Furthermore, the spot slipped below the 21-day Simple Moving Average (SMA) at 0.8567, which strengthened the case for the probable downside momentum. However, the price found shelter near the critical support near 0.8330.

If the price breaks above 0.8440, the immediate upside target would emerge at the 0.8465 horizontal resistance level. The Moving Average Convergence Divergence (MACD) holds onto the oversold zone. Any uptick in the MACD would intensify buying pressure toward the 21-day Simple Moving Average (SMA) at 0.8495.

A daily close above the psychological 0.8500 level would see the 0.8525 horizontal resistance level as the next upside target.
    
However, the Relative Strength Index (RSI) trades at 33, suggesting that the downside risks persist. If the price reverses direction, it could move back to Friday’s low of 0.8421. Next, on the horizon would be the February, 2020 low of 0.8282.

EUR/GBP additional levels

 

CME Group’s flash data for crude oil futures markets noted traders trimmed their open interest positions for the third consecutive session on Monday, now by around 13.6K contracts. On the other hand, volume went up for the third straight session, this time by around 234.7K contracts.

WTI now looks to $86.00

Crude oil prices started the week on the defensive despite hitting fresh cycle highs past the $85.00 mark per barrel. The uptick, however, was on the back of shrinking open interest, indicative that a deeper/convincing pullback appears out of favour for the time being. Against this, the WTI continues to target the round level at the $86.00 mark in the near term.

  • USD/JPY extends the previous session’s gains on Tuesday in the European session.
  • The ascending trendline from the lows of 109.21 acts as a defensive for the bulls.
  • The Momentum oscillator holds onto the overbought zone warrants caution for the pair.

USD/JPY picks up the momentum in the European trading hours. The pair opened lower but recovered swiftly to touch intraday high at 113.97, where it currently hovers.

USD/JPY daily chart

On the daily chart, the USD/JPY pair has been riding higher after testing the low of 109.12 on September 22. The pair rallied toward a four-year high at 114.69 on Wednesday. The pair retreated toward the low of 113.45 in a span of three days, before bouncing back to near 114.00.

If the price breaks above 114.00 then the USD/JPY bulls could advance toward the 114.50 horizontal resistance level. Further, a daily close above the mentioned level could bring March, 2017 highs of 115.50 back into the picture.

Alternatively, a decisive break of the ascending trendline from the lows of 109.12, would seek the 113.50 horizontal support level, followed by the low made on October, 12 at 113.00. Any downtick in the overbought Moving Average Convergence Divergence (MACD) could bring more selling opportunities toward the 112.50 horizontal support level.

USD/JPY additional levels

 

As per the latest global GDP analysis from Citibank, the global economy is likely to grow by 4.2% in 2022 versus 4.4% prior forecasts.

The reason could be linked to the virus-led economic hardships as well as China’s Evergrande saga.

Earlier in October, World Bank President David Malpass came out with his economic analysis expecting global economic growth of 5.7% in 2021 and 4.4% in 2022, as reported by Reuters.

It’s worth noting that global rating giant Moody’s said, “The global real gross domestic product (GDP) is likely to rebound 5.7% in 2021, following the historic 3.6% contraction in 2020.”

As the fears of easing economic growth challenge the chatters over the monetary policy consolidation by the various developed central banks, US dollar may consolidate recent gains, which in turn could help commodities as well as Antipodeans.

In opinion of FX Strategists at UOB Group, GBP/USD should keep navigating between 1.3690 and 1.3840 for the next weeks.

Key Quotes

24-hour view: “Our expectations for ‘the rapid decline in GBP to extend’ did not materialize as it traded in a relatively quiet manner between 1.3742 and 1.3790 before closing largely unchanged at 1.3768 (+0.09%). The underlying tone still appears to be a tad soft and GBP could drift lower from here. However, a clear break of 1.3725 is unlikely. Resistance is at 1.3790 followed by 1.3810.”

Next 1-3 weeks: “There is no change in our view from yesterday (25 Oct, spot at 1.3755). As highlighted, the recent GBP strength has come to an end. The current movement is viewed as part of a consolidation phase and GBP is likely to trade between 1.3690 and 1.3840.”

US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data jumped to the highest levels last seen during August 2006 by the end of Monday’s North American trading.

In doing so, the risk barometer extends recovery moves from late September while flashing the 2.66% mark at the latest.

The same favors US Treasury yields to stay firmer despite risk-on mood. The reason could be linked to Friday’s speech from Federal Reserve (Fed) Chair Jerome Powell. “”Risks are clearly to longer, more persistent bottlenecks, and thus to higher inflation,” said the policymakers per Reuters.

It’s worth noting that the US dollar witnessed a rally in the past when the US 10-year Treasury yields crossed the 1.70% mark.

That said, the US Dollar Index (DXY) keeps the previous day’s rebound from monthly low, up 0.07% intraday around 93.90 at the latest.

Given the firmer expectations, the Fed tapering concerns elevate and hence Thursday’s preliminary US GDP for the third quarter (Q3) becomes all the more important.