The U.S. dollar held onto gains against most currencies on Wednesday as renewed questions about a coronavirus vaccine and lack of an agreement on additional U.S. fiscal stimulus prompted a shift to safer assets.
The yuan was little changed versus the dollar after the central bank’s daily fixing of the yuan’s mid-point was largely in line with estimates, suggesting authorities have paused their attempts to rein in the currency.
The euro and British pound are likely to extend declines, analysts said, as a return of restrictions on economic activity in Europe and Britain to battle a second wave of coronavirus infections unnerves investors.
Currency moves, however, are likely to be subdued as the U.S. presidential election looms on Nov. 3, but analysts said sentiment is leaning against riskier bets, which should support the dollar in the coming days.
“Many factors are pointing to more upside for the dollar,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
“U.S. stimulus may not come until after the election. The People’s Bank of China is halting the yuan’s rise. There’s no reason to buy the euro, and there are a lot of euro longs that need to be unwound.”
The dollar last stood at $1.1743 per euro, holding onto a 0.6% gain from the previous session.
The pound traded at $1.2926, nursing a 1% loss from Tuesday.
Sterling also took a hit due to worries about little progress in trade talks between Britain and the European Union and the chance the Bank of England will adopt negative interest rates.
Risk appetite has weakened after Johnson & Johnson said on Tuesday it is pausing a clinical trial of a coronavirus vaccine and Eli Lilly and Co also said it paused a coronavirus antibody treatment.
The Australian dollar was little changed in early Asian trade but is likely to add to its 1% decline on Tuesday due to concern about a row with Beijing over coal imports, traders said.
Across the Tasman Sea, the New Zealand dollar held steady against its U.S. counterpart.
Reserve Bank of New Zealand Assistant Governor Christian Hawkesby said on Wednesday that some economic data have surprised to the upside.
But he also said the central bank’s discussion of negative interest rates is “not a game of bluff”.
EUR/USD gained strong downside momentum and is testing the key support level at 1.1750. RSI is in the moderate territory so there is plenty of room to gain downside momentum in case the right catalysts emerge.
If EUR/USD manages to settle below the support at 1.1750, it will continue its downside move and decline towards the next support level at 1.1695. There are no material levels between 1.1695 and 1.1750 so this move may be fast.
If EUR/USD is able to settle below the support at 1.1695, it will move towards the support level which is located near September lows at 1.1630.
On the upside, the 20 EMA at 1.1765 will likely serve as the first resistance level for EUR/USD. In case EUR/USD manages to settle above this level, it will gain upside momentum and head towards the recent highs at 1.1830. The resistance at 1.1830 has proved its strength so EUR/USD will likely need strong upside catalysts to move above this level.
GBP/USD has failed at its corrective target at 1.3070 and is extending Tuesday’s sell-off. The cable trades just above the 1.29 mark and Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects to see further losses to 1.2445 and eventually targets 1.2250/00.
“GBP/USD has reached its corrective target and failed as expected. We will therefore assume another leg lower is in the offing and we should see further losses to 1.2445 and then 1.2250/00.”
“Only above the 1.3083 level would somewhat neutralize our outlook. It guards the 1.3201 March high and the recent high at 1.3483 and the 1.3472 downtrend.”
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