Demand for gold was underpinned as the market was cautious ahead of the inflation issue

26 October 2021, 02:51

Market Focus

US markets started this week with outperformance as major tech companies’ earnings are revealed. The Dow Jones Industrial Average closed at record highs while the Nasdaq rose 0.9% on Monday. The S&P 500 also traded at record highs, boosted by a 12% surge in Tesla’s shares as it hit $1 trillion market capitalisation for the first time.

Electric carmaker Tesla hit a $1 trillion market cap on Monday after Hertz decided to buy 100,000 vehicles. After the news of the deal, it brought up the price of Tesla to $1,045, a new record high.

Meanwhile, China has gathered the political momentum to get the ball rolling on property. Last weekend, the Chinese state Council was authorised to conduct a test in unspecified regions for five years. The purpose of the test is to attempt to limit speculation in China’s property market. Since real estate and related sectors account for at least 25% of GDP, tapped taxes will bring significant revenue to the Chinese government.

Main Pairs Movement

Gold price advanced above $1,800 on Monday despite a risk-on market sentiment. Demand for gold was underpinned as the market was cautious ahead of the inflation issue. Gold price will keep its eye on several economic releases later this week.

EUR/USD traded in a tight range as the markets took a high alert ahead of the ECB meeting this week. At the end of the day, EURUSD was trading at 1.16065, 0.33% lower.

USD/JPY remained strong near 113.70 despite the slightly weaker US 10-year Treasury Yield, trading lower at 1.63%, which undermined the demand for the US dollar. USD/JPY traded slightly higher as Janet Yellen commented on inflation and Fed’s tapering schedule.

Technical Analysis

USDJPY (Daily Chart)

The USD/JPY pair posted some demand at the start of the week and seems to have stalled its recent corrective pullback from multi-year tops for now. The pair held on to its modest intraday gains, around the 113.65-75 region, throughout the mid-European session, and once jumped to the daily high at 113.92 during Wall Street’s opening. It soon fell back to the tight range that it previously settled at.

With a light economic calendar, the revived risk-on mood weighed on the safe-haven Japanese yen and may be seen as the major factor that underpinned the rally of the USD/JPY pair. Bulls need to wait until the Thursday US GDP reports for further clues to support the US dollar demand, and assist the pair to defend the lower end of a short-term ascending channel.

On the technical front, the daily MACD histogram is still on the bullish side, plus the RSI indicator has just dropped below the overbought territory, leaving room for the pair on the upside. The first resistance for the pair may appear at 113.75, followed by the yearly peak at 114.70.

Resistance: 113.75, 114.70

Support: 112.90, 111.13, 109.28

EURAUD (Daily Chart)

The EUR/AUD cross plummeted on the first day of the week, losing most of its gains from last Thursday and Friday’s rally, and now trading at 1.5495, where the season lows sit. The pair began its downward ride in the early European session, recovered some loss during the American opening, but then continued its negative trajectory afterwards.

The cross’s weakness may derive from the AUD’s appreciation amid the broader positive market mood. Investors have now shifted their focus toward the Australian inflation figures due on Wednesday, and the looming ECB meeting on Thursday.

On the technical aspect, the MACD histogram remains in the bearish territory, suggesting the selling stream of the cross may proceed. However, the RSI indicator shows 30.22 at the moment, just one step ahead of the oversold region, indicating a short-term correction may occur before the cross takes a nosedive. On the downside, May’s low of 1.5420 would be a strong level of support against the bears, followed by 1.5250, the yearly low.

Resistance: 1.5616, 1.5776, 1.5910

Support: 1.5420, 1.5250  

USDCAD (Daily Chart)

The Loonie continued its gains on Friday amid broader Greenback strength. The pair made its first attempt to break through the 1.2400 threshold, but failed as the risk-on market mood limited the strength of the safe-haven USD. However, as the Fed’s taper schedule looms, a breach of that level may just be a matter of time.

The strong US dollar has continued to be the major driver for the rise of the Loonie pair. Powell’s hawkish comment is still fueling demand for the Greenback despite the elevating prices of the commodities. Looking ahead, the Bank of Canada’s rate meetings and the US GDP report are on the table. Investors seem reluctant to place significant bets ahead of the crucial releases.

On the technical front, the daily MACD histogram is almost going to form a golden cross at the moment. The price actions are still hovering around the 61.8% Fibonacci. As above mentioned, some catalysts may be required to break through this awkward situation.

Resistance: 1.2478, 1.2727, 1.2949

Support: 1.2229, 1.2007