USD Traders Awaiting Home Sales Data

Mar 22 21, 10:59 GMT

On Friday the US Federal Reserve announced it was reluctant to extend a pandemic era rule that allowed banks to keep lower capital requirements. The rule permitted banks to exclude treasuries or deposits also known as supplementary leverage ratio. (SLR) was passed back in April 2020 and expires on the end of the March 2021. This law was brought into action as an attempt to support economic activity during the difficult past year. However, with the considerable improvement seen so far in 2021, the FED may need to strengthen capital requirements for banks in order to limit them from taking on excessive risk, especially as the economy is still recovering. The news could bring support to the USD but may upset Wall Street and especially the financial sector. On Monday’s early US session the markets attention turns to the release of the US Existing Home Sales. Home Sales in the US have been on the rise and have almost doubled since May 2020. Traders will be on the lookout for any surprise upon release. At the moment the forecast is for the reading to drop from 6.69M to 6.49M.

XAU/USD moved lower in the early European session on Monday. The precious metal has been moving in a sideways motion between our (R1) 1755 resistance level and the (S1) 1720 support barrier in the past 10 days. If the daily trend continues to be downwards then below the (S1) we have noted the (S2) 1700 level that was briefly reached on March 12th. Even lower the (S3) 1680 barrier is also imminent as it is the lowest point reached so far in 2021 for Gold. If an uptrend arises and Gold surpasses the (R1) the road could be set for the (R2) 1775 to become a target. Even higher the (R3) 1795 hurdle could be a target if the bulls are motivated to keep their positions.

Outlook on Eurozone weakens as virus third wave appears

Some of the biggest economies of the Eurozone including Germany, France and Italy are still seeing increased numbers of new covid-19 cases. The block is also facing internal issues after the vaccination processes continues to stall with the exclusion of AstraZeneca’s shot in focus. Analysts forecast a delay of the Eurozone’s economy recovery as some countries have now announced new and tighter measures to control the spread. According to the Financial Times, private sector economists including those at Goldman Sachs, Barclays, ING and Berenberg have cut their forecasts for Eurozone growth as opposed to a more positive outlook for the US and much of the global economy. As a result some economists do not expect the Eurozone’s economy to recover before 2022. One of the important sectors expected to be hit once again is tourism.

On a separate note the TRY weakened significantly during Monday’s opening as the Turkish President Recep Tayyip Erdoğan dismissed Naci Agbal the chairman of the Turkish central bank during the previous days. The person that is currently to take over as the new central banker, Sahap Kavcioglu has been characterized by analysts as unorthodox and rather dovish. The strong impact of the weakening of the TRY was felt by both the US and EUR during the markets opening on Monday. Caution is advised as the Turkish lira could come under continues volatility as we pass into the London session and later in the New York session.

EUR/USD has been moving lower for the past 2 months and has reached lower in March also. At the moment the currency pair is trading nearby our (S1) 1.1875 support level and has shown some bearish tendencies today with a negative gap. If a downslide continues then the (S2) 1.1835 line could become a target. Lower we have also noted (S3) 1.1800 in case the bears want to test new 2021 low levels. In the opposite direction fs the EUR is to strengthen then the (R1) 1.1925 resistance barrier could come into play first. Higher the (R2) 1.1960 level is also among our noted lines and even higher the (R3) 1.1990 could be a great challenge for the bulls. Overall the currency pair has been moving between our (R3) 1.1990 and our (S2) 1.1835 level for most of March making the two points barometers for the instruments further direction. Fundamentally speaking, as long as the outlook remains negative most traders will be on the sell side in our opinion.

Other economic highlights today and early Tuesday:

In a rather light calendar today, we note in the US session the US New Home Sales for February. On the monetary front we note that ECB Board member Schnabel and US San Francisco Fed President Daly are scheduled to speak.

As for the rest of the week

On Tuesday we get the UK employment data for January, US New Home Sales for February, US Trade Balance for February. On Wednesday we get the Preliminary PMI data from Australia , Japan, France, Germany, Eurozone, UK, US for March, UK Inflation data for February, US Durable Goods for February, CNB’s Interest rate decision for March, Eurozone’s Preliminary Consumer Confidence for March

On Thursday we get the Germany’s GFK Consumer Confidence for April, SNB’s Interest Rate decision, US Final GDP Annualised for Q4 and w/e Initial Jobless claims. Finally on Friday we get Japan’s Tokyo Inflation data for March, UK Retail Sales for February, Germany’s IFO Business Climate for March, US Consumption for February, US University of Michigan Sentiment Final for March

XAU/USD H4 Chart