In the FX, with dollar steadying, the major pairs that have been sent to overbought territories have started retracing a part of their latest gains.
The EURUSD tested the 1.17 support on Tuesday and a deeper downside correction could drag the pair towards 1.1640, the weekly support before the German GDP data, expected to confirm an almost 10% decline in the second quarter on Thursday.
Gains in sterling remain resilient above the 1.29 mark, the 200-week moving average, as CBI retail sales hit the highest since April 2019. Traders focus on post confinement recovery as they take advantage of a weak US dollar. The pair is set to challenge the 1.30 mark, where the bulls will be fighting the bears who will bring the risks of a no-deal Brexit on the table.
In Australia, the inflation fell for the first time since 1997 as the pandemic took a toll on economic activity and demand. Fall in transport prices and sharp decline in housing pulled the quarterly CPI to -1.9%, a touch better than -2.0% penciled in by analysts but enough to keep the Reserve Bank of Australia’s (RBA) supportive policy in place. The AUDUSD consolidates gains near the highest levels since April 2019. Trend and momentum indicators remain supportive of a further rise in Aussie, although the technical indicators point at overbought market conditions and the possibility of a minor downside correction before a further advance. Support is seen at 0.70.
Gold futures bounced lower from $2000 and spot price steadies near the $1950 per oz. Although gold is a powerful hedge against inflation, and low US yields keep the opportunity cost of holding gold at fairly low levels, it is uncertain whether a move above the $2000 per oz could be sustainable in the medium term. Given the accumulation of speculative long positions in gold, there is a rising risk of a sizeable unwind and a sharp downside correction in the foreseeable future.
Else, WTI crude has a steady grip on the $41 per barrel. The API report revealed a surprise draw in US oil inventories last week of 6.8 million barrels versus the expectation of a timid inventory build of 357’000 barrels. The more official EIA data is due today. Any decline in oil inventories should provide support to oil prices. But the prospects of slower recovery in global oil demand and a probably premature unwinding of the OPEC production cuts could tilt the balance to the downside in the coming weeks and weigh on the $40 support.
