Sell EUR/USD – MT is Bearish
Technical Overview: Bears took control as the market sold off breaking the bullish channel and the secondary support level at 1.1712. If the price continues to trade below that level, it will signal the start of a long-term bearish market type. With the secondary support level turned to resistance, this will invite sellers with a good risk-reward ratio aiming for the key resistance level at 1.14.
Fundamental Overview: Rising Covid-19 cases and a possibility of a nationwide lockdown in more parts of Europe has contributed to the depreciation of the Euro. As fears of a double-dip recession and deflation surface, these could push the European Central Bank (ECB) to take action. The ECB was very dovish in their statements. ECB’s President Christine Legarde commented they “could announce a long-term change, cutting rates, or most likely, more bond-buying” which will weigh on the Euro. There have also been talks of a further stimulus to ensure and aid the recovery of the European economy.
The markets were not primarily focused on the presidential election last week as risk aversion appears to be the key driver in the recent strong rally in the dollar. There are also no new monetary policy announcements expected at next week’s FOMC meeting, which might lead to increased demand in the dollar. This week’s focus will be on key data coming out from the US, with the FOMC, Nonfarm payrolls, and the presidential election creating a lot of volatility in the markets.
Wait USD/JPY – MT is Bear Normal
Technical Overview: The market continues to trade below the descending trendline signifying the bears are in control. The recent bearish run was however capped by the Key Support level at 104.20. As the price is currently trading above the key support level, it is best to wait for the pair to break below 104.20 to continue lower. Any break of the descending trendline may allow the price to retest the key resistance level at 106.800.
Fundamental Overview: The Bank of Japan (BOJ) is set to hold monetary policy steady but threw hints of a possible easing in December. Japanese Prime Minister Yoshihide Suga mentioned that he would push for “budgetary steps” to continue to support the economy as the uncertainty remains high for Japan’s economic outlook. Japan has also lowered the infection risk advisory for some countries such as China and Australia to level 2 with hopes to ease border restrictions, supporting business travels.
Despite a strong dollar, growing concerns about the economic impact of a second round of lockdowns in certain parts of Europe and the UK, and the cautious market mood anticipating a contested election in the US, are limiting the gains on the pair. It is best to wait for the election results and see how the market reacts to have a strong conviction in the direction of the safe-haven currency pair.
Wait GBP/USD – MT is Bull Normal
Technical Overview: Despite the pound losing all the gains made the previous week, the Bull Normal market type is still intact as the market continues to trade above the ascending trendline. Any price rejection made on the ascending trendline will invite buyers to push the pair towards the key resistance level at 1.34. Should the ascending trendline fail to provide support, we can expect the market to continue lower towards the key support level at 1.26.
Fundamental Overview: UK’s Prime Minister Boris Johnson has announced a nationwide lockdown to mitigate the rising Covid-19 cases. This will weigh on the pound as it hinders the recovery of the UK’s economy and the progress of Brexit talks. There has also been little progress between the UK and the European Union as quoted by UK Prime Minister Boris Johnson’s spokesman, “There is much work to be done to bridge the significant gaps remaining with the European Union in the most difficult areas”. With a nationwide lockdown and little progress with Brexit talks, the pound is set to continue to weaken against the dollar despite the uncertainty of the presidential election in the US.
Wait AUD/USD – MT is Sideways
Technical Overview: Price failed to hold above the ascending trendline and is now trading on a key support level. If the price continues to hold and reject the key support level at 0.70268, this will provide buyers a good risk-reward ratio targeting the key resistance level of 0.74. Should the market continue lower and trade below the key support level, this may indicate a long-term bearish market type inviting sellers with the first target set at 0.68.
Fundamental Overview: despite strong data coming out from Australia, a possible rate cut from the Reserve Bank of Australia (RBA) has strongly weighed on the AUD. With the RBA willing to accommodate lower interest rates to support the recovery of the economy, this may be a catalyst for the AUD to go lower. In the week ahead, attention will be on the RBA interest rate decision and the key data coming out from the US. Should we see the AUD interest rate going lower than 0.1%, this will lead to a strong sell-off for the AUD.
Steve Lucas is our head market analyst. He has been trading since the ’80s and sending out market analysis since 2007. He is trusted by major hedge funds and investment banks around the world to get the direction right. When you live and breath the markets like Steve does, you develop a “sixth sense” about the market. In Steve’s Corner, we get his view on what the highest probability trades will be.
This week, Steve’s favorite call is EURUSD. Please see our signal report for more details.