Open interest in gold futures markets shrunk for yet another session on Friday, this time by around 23K contracts according to advanced data from CME Group. In the same line, volume went down by around 33.5K contracts.

Gold could re-test 2020 highs

Prices of the ounce troy of gold extended the recovery on Friday amidst diminishing open interest and volume. That said, while a potential test of yearly highs near $1,770 per ounce remains on the cards, the uptrend could be losing momentum.

  • USD/JPY bears repeat the pullback move from 107.90.
  • The greenback bears the burden of US President Donald Trump’s tenderness on China, riots in America.
  • Highs marked since April 16 add to the upside barriers.
  • 107.40, 61.8% Fibonacci retracement act as immediate supports.

USD/JPY drops to 107.61, down 0.18% on a day, during the pre-European session on Monday. The pair recently declines below 200-HMA as the US dollar index (DXY) stays pressured near 11-week low following President Trump’s no sanctions on China while also taking clues from riots in several states of the world’s latest economy.

Read: Trump tenderness, China’s Caixin, boost Asia

Technically, the pair’s declines below the key HMA drag it further down toward 107.40 immediate support.

However, 61.8% Fibonacci retracement level of May 13-19 upside around 107.25 could challenge the bears then after, if not then the sub-107.00 area could return to the charts.

On the contrary, an upside clearance above the recent high around 107.90 isn’t a convincing sign for the pair’s run-up as multiple highs marked since April 16 around 108.10 act as the strong resistance.

In a case where the bulls manage to cross 108.10, which is less likely considering the USD weakness, April month’s high near 109.40 will lure the buyers.

USD/JPY hourly chart

Trend: Bearish

 

According to a document seen by Reuters on Monday, some of the Republican lawmakers plan to announce legislation this week, which aims to keep Americans from investing in foreign defense companies linked to China’s military.

Key takeaways

Representatives Mike Gallagher, Jim Banks and Doug LaMalfa plan to introduce the bill, which would require Treasury Secretary Steve Mnuchin to submit a report to Congress listing foreign defense companies that have “substantial contracts with, ties to, or support from” the Chinese military.”

“Six months after the report is issued, American companies and citizens would be required to divest from those firms and would be banned from making new investments in them.”

This comes after President Donald Trump said on Friday that his administration will study ways to safeguard Americans from the risks of investing in Chinese companies.

Market reaction

The US dollar is nursing losses around 98.00 when compared to its six main rivals, as the sentiment remains undermined by a better market mood and escalating US riots.

  • GBP/USD prints three-day winning streak amid broad US dollar weakness.
  • Calls of further help to British employees add to the upside momentum.
  • Downbeat Brexit headlines confront the UK’s coronavirus (COVID-19) optimism amid the US-China tussle.
  • UK/US PMIs will join qualitative catalysts to please the momentum traders.

GBP/USD eases from the highest since May 11 to 1.2386, still positive 0.35% on a day, while heading into the London open on Monday. Although fears of hard Brexit, as well as criticism of the Tory government’s COVID-19 performance, keep looming the Cable traders, the greenback weakness seems to please the buyers ahead of the UK’s first revision of Manufacturing PMI for May.

The US dollar seems to bear the burden of the market’s risk-on sentiment after US President Donald Trump stepped back sanctions on China during Friday’s conference. While portraying the same, the US 10-year Treasury Yields stay positive around 0.654% whereas stocks in Asia-Pacific print mild gains by the press time.

On the other hand, UK Chancellor Rishi Sunak is likely to offer yet another help to the British workers and pre-pone the budget, to July, as per The Sun. Further, the BBC cites the Tory government’s notifications to ease virus-led lockdown measures after managing to cross 200,000 a day target capacity for virus testing by the end of May. As per the news, “From Monday in England primary schools will start to reopen and people can meet in groups of up to six. And vulnerable people in England and Wales will be able to go outdoors for the first time in months.”

Talking about Brexit, the UK and the European Union (EU) both accuses each other to waste the time while being certain of the deadline. However, The Daily Mail said, “Brexit talks cannot go on forever and will need to conclude before the autumn, Britain has warned the EU.”

While Tuesday’s Brexit negotiations between the EU and the British policymakers will be the key, today’s Manufacturing PMIs from the UK and the US will offer intermediate clues. It should also be noted that the US-China tussle is an additional catalyst worth observing. With that in the backdrop, the UK’s Manufacturing PMI for May is likely to remain close to the preliminary figures of 40.6, while likely being at 40.7, but a below 50.00 reading could keep the Cable bulls cautious.

Technical analysis

An upside clearance of the three-month-old resistance line needs to get validation from a 50-day EMA level of 1.2372 to challenge 100-day EMA around 1.2500. Meanwhile, a daily closing below the resistance-turned-support, at 1.2320 now, will highlight a two-week-old support line, at 1.2230.

 

  • Broad USD sell-off, risk-on mood underpins EUR/USD
  • EU recovery fund led optimism keeps EUR bulls hopeful.
  • Focus shifts to the Eurozone/ US PMIs ahead of the key ECB verdict.

Following the bounce from near 1.1100 in early Asia, EUR/USD has entered a phase of consolidated near 1.1140 region ahead of the European open, as the bulls await a fresh impetus for the next push above the 1.1150 mark.

Broad-based US dollar weakness remains the main underlying factor behind the EUR/USD uptick, as the escalating riots in the American cities continue to down the buck. Minneapolis George Flyods death’s protests escalate ahead of the curfew, with multiple fires set near the White House, undermines the sentiment around the US currency.

Moreover, US President Donald Trump’s softer approach on China over the Hong Kong security issue fueled a risk-on rally across the board and weakened the dollar further. Trump did not withdraw from the US-China phase one trade deal signed in January while removing Hong Kong’s special status.

From a broader perspective, the EUR remains buoyed by the optimism over the European Union’s (EU) coronavirus EUR750 billion recovery fund proposed last month. Also, expectations that the European Central Bank (ECB) will likely boost the bond-buying at its monetary policy meeting this Thursday keep the bulls hopeful.

In the day ahead, the major will continue to draw support from the dollar selling mode while holiday-thinned market conditions could also help EUR/USD regain the 1.1150 barrier. Major European markets are closed in observance of Whit Monday.

The focus remains on the Euro area final Manufacturing PMI reports and the key US ISM manufacturing PMI for fresh trading impetus.

EUR/USD technical levels to watch

The immediate resistance awaits at 1.1146/50 (2-month tops/ psychological level), above which 1.1200 is on sight. On the flip side, the pullbacks will meet demand at 1.1097 (daily low) and 1.1015/12 (10 and 200-DMA).

EUR/USD additional levels

 

The number of confirmed coronavirus cases rose to 181,815 with a total of 8,511 deaths, as reported by the German disease and epidemic control center, Robert Koch Institute (RKI), on Monday.

Cases increased by 333 in Germany on Monday. The death count rose by 11, the tally showed.

EUR/USD firmer above 1.1100

EUR/USD heads back towards the two-month highs of 1.1146 in Asia this Monday, as the US dollar continues to lose ground across the board amid reduced safe-haven buying and escalating US riots.

At the time of writing, EUR/USD trades at 1.1135, up 0.32% on the day.

  • WTI seesaws around 7-week-old resistance line, retreats from highest since March 11.
  • A short-term ascending trend line on the bears’ radars during the pullback.
  • 100-day SMA, 61.8% Fibonacci retracement together offers strong upside barrier.

WTI fades the early-Asian session upside momentum while taking rounds to $35.50 amid the initial trading on Monday.

In doing so, the black gold seesaws around 12-week top while clinging to an upward sloping trend line from April 09 amid overbought RSI conditions.

As a result, sellers are looking for an entry during the energy benchmark’s drop below $35.00 to visit an ascending support line stretched since May 14, 2020, at $32.34 now.

If at all the buyers manage to provide a daily closing beyond the said resistance line above $35.55, a confluence of 100-day SMA and 61.8% Fibonacci retracement of February-April fall near $36.80-37.00 will be in the spotlight.

WTI daily chart

Trend: Pullback expected

 

Speaking at a regular news conference on Monday, Japanese Chief Cabinet Secretary Yoshihide Suga said the situation in Hong Kong is deeply concerning, adding that the stability is important.

His comments come in response to China’s decision to impose a new security law on Hong Kong last month, which has triggered a fresh row between the US and China and kept investors on the edge.

Market reaction

The above comments have little to no impact on the Japanese yen, as USD/JPY continues to range around 107.70. The spot is divided between broad-based US dollar weakness and the risk-on rally in the Asian equities.

 

Moody’s Investors Service is out with its take on the Chinese support measures, announced at its annual plenary session last month, in an effort to ramp up growth hit by the coronavirus pandemic.

Key quotes

“China’s measures to support the economy and employment will have mixed credit implications.

China’s GDP will likely grow by 1% in 2020, followed by a rebound to 7.1% in 2021, although downside risks remain.

Combined on-budget and off-budget fiscal measures to support the economy will total more than 8% of China’s GDP.”

Related article

  • USD/CNH seen higher at 7.25 over the next three months – Goldman Sachs

 

The Citibank analysts, in their latest client note, warned about the impending risks of the coronavirus pandemic that the market has failed to price-in, thus far.

Key quotes

“We definitely feel that the markets are way ahead of reality. We really are telling every client to tap the market if they can because we think the pricing now couldn’t get any better.

Second quarter … we start seeing the pain, and the collateral effects of that, we think this is going to be much tougher than it looks.

Markets are pricing a V [shaped recovery], everyone’s coming back to work, and this is going to be fine.

Don’t think it’s going to be that easy quite frankly.”