USD moves higher in anticipation of Fed minutes

The strength of the USD was particularly evident on Tuesday as the currency basically dominated the scene against all of its major counterparts. The economic data from the US sent mixed signals on Tuesday as the Retails Sales came in much wider negative territory than expected while the Industrial Output figure indicated more expansion than expected. Solid evidence of the strength of the USD was Cable’s price action, as despite the strong UK employment report released on Tuesday, the currency pair performed its largest daily drop against the USD since the past month.

Moreover, a more optimistic outlook on the US economy’s performance was delivered by the Federal Reserve Bank of Atlanta that now expects US GDP to reach 6.2% in Q3 as opposed to 6.0% it had initially forecasted. In our opinion the news tends to support the case for a stronger USD as we are already in the midst of Q3 a fact that tends to minimize errors in judgement for the economy’s GDP rate.

On a separate note, during Fed Chair Jerome Powell’s speech on Tuesday he noted that people and business have learned to adapt to the pandemic yet millions of people remain unemployed. Powell also cleared that economic recovery is far from complete.

However, Gold prices did not display much reaction towards the greenbacks power. Gold lost marginally for the day but remained at higher levels it climbed to in the previous days. Support for gold may have been provided by the benchmark 10-year Treasury yields that dipped to a near two-week low, making non-interest bearing gold more attractive in these circumstances. Traders will now turn their attention to tonight’s FOMC meeting minutes that can potentially create substantial volatility.

Technically, Gold is currently trading just below the (R1) 1796.45 resistance. This level was attempted on Tuesday but was unable to be breached. Yet if the upward momentum continues then the (R2) 1814.60 may come into play. Higher than that we have also noted the (R3) 1830.00 level which represents the highest price reached so far in July and August. Yet if the precious metal makes a turn downwards then the most probable stop first could be the (S1) 1775.60 level. This level had been tested in the past week and on Monday making it relevant to recent price action. Lower we tend to focus on the (S2) 1763.90 and even lower the (S3) 1751.95 support formed on the 11^a. and 12^a. of August. The RSI indicator has returned lower after reaching the 70 line yet seems to remain nearby that level. At the moment Gold remains in an upward momentum formed since the 10^a. of August.

RBNZ remains on hold

RBNZ kept its Official Cash Rate steady at 0.25 per cent for now as it noted in its official statement. The move opposed market expectations for a hike to 0.50 per cent. According to the official statement by RBNZ, improvement in global economic and trade activity has continued to support demand and prices for New Zealand’s export commodities. Furthermore, recent data for the New Zealand economy suggest demand is robust and the economic recovery has broadened. Moreover, the bank seemed confident to be able to attain its targets with less monetary stimulus that currently exists.

Initially NZD/USD dropped by approximately 70 pips after the cash rate’s release yet the Kiwi managed to rebound in the next sessions recovering most ground lost. Yesterday, New Zealand announced its first Covid-19 case since February.

Technically NZD/USD currently trades between our (R1) 0.6960 resistance and our (S1) 0.6900 support. Even though the (S1) 0.6900 support had been breached during the cash rate announcement, the price action quickly rebounded higher. Our most important resistance at the moment could be the (R3) 0.7050 which seems to form a top for the currency pair. The (R2) 0.6995 has been used as both a resistance and support in the past thus traders may also view it as a considerable stop point. The (S1) 0.6900 is a support line that has not been clearly broken to the downside since 2020 and represents a great challenge for the bears. At the moment the RSI indicator seems to be moving above the 30 level and may be abandoning an oversold position.

US stock markets lose ground

On Tuesday all major US stock markets lost ground and finished the session in red territory. Despite the selloff, the only sector that gained for the day was pharmaceuticals. Companies like Moderna, Pfizer, Merck and J&J finished the session in gains. Specifically, Moderna closed the session higher by +7.49% and topped the winners for the day closing at $401.86. Moderna yesterday received approval by the UK regulator to use its vaccine on children aged 12-17 years old. Moderna is the second vaccine producer to be approved, as Pfizer was already authorized since June.

Outro economic highlights today and the following Asian session:

Today during the European session we get the UK and Eurozone Inflation data for July. Later in the early US session we get Canada’s Inflation data for July, the US Building Permits and Housing Starts for July, and the weekly EIA Crude Oil inventories figure. Late into the US session the FOMC meeting minutes will be coming out.

XAU/USD H4 Chart 

Support: 1775.60 (S1), 1763.90 (S2), 1751.95 (S3)

Resistance: 1796.45 (R1), 1814.60 (R2), 1830.00 (R3)

NZD/USD H4 Chart 

Support: 0.6900 (S1), 0.6840 (S2), 0.6770 (S3)

Resistance: 0.7050 (R1), 0.6995 (R2), 0.6960 (R3)

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