Wait EUR/USD – MT is Sideways Volatile.
Technical overview: The market is currently trading between the range of 1.19 and 1.1712. The overall trend remains bullish. Will be patient to wait for the price to break above 1.19 before looking to buy. Any break below the secondary support level of 1.1712 may signify a trend reversal.
Fundamental analysis: Attention last week was on the GDP data coming out from Europe and the European Central Bank’s (ECB) speech and interest rate decision. The GDP numbers beat estimates, signifying a continuation of Europe’s recovery from the pandemic and supporting the ECB’s decision to leave interest rates unchanged.
Despite the ECB mentioning that the measures they have achieved their desired results, the ECB highlighted that they should not be complacent amid the second wave of COVID cases and will “keep all our options open, and…l be ready to do more if appropriate.” This suggests that the ECB will be more accommodative in its monetary policy. From my point of view, any further downturn of events may lead the ECB to take further action, in particular considering the rising EURO dampening the inflation outlook.
The USD did not rise despite good consumer price index data out of the US, reflecting the overall weakness of the dollar.
Coming into the week ahead, my attention will be on the US retail sales data, FOMC, and the Fed Interest Rate Decision. With the weak economic situation in the US due to a slow recovery from the pandemic, there is a chance that the FED will insist on a rate cut and take a dovish tone in the press conference.
Wait USD/JPY – MT is Sideways Quiet.
Technical Overview: Price has remained within the key resistance level of 106.80 and the key support level of 105.00. Volatility decreased further over the last week. The formation of a quiet sideways market type often leads to an extended move after the breakout. Moving into the week ahead, I am watching for any break of the key levels to have more conviction on the direction of the market.
Fundamental Overview: Japan has shown signs of recovery with the number of COVID cases decreasing. GDP data beat estimates but remained lower than the previous reading. Despite the weak data, the Yen was still supported due to the broad weakness of the dollar and the reduction of COVID cases.
My attention coming into the week ahead will be the election of a newly appointed leader to succeed Prime Minister Shinzo Abe. Japanese Chief Cabinet Secretary Yoshihide Suga emerges as the frontrunner to lead the Liberal Democratic Party. USD/JPY was unfazed by the news. Any calls for an Election may lead to volatility on the pair.
The US is considering a ban on cotton imports from China’s Xinjiang province in protest against the use of forced labour on Uighurs in Xinjiang. On top of the cotton ban, the US is considering blacklisting China’s tech firm, Semiconductor Manufacturing International Corporation (SMIC). This could escalate the Sino-American trade tensions and will favour a stronger Yen.
Wait GBP/USD – MT is Bull Normal.
Technical Overview: The market strongly rejected the key resistance level at 1.34027. There has been a follow through sell-off with the market targeting the key support level at 1.26038. The price is now approaching the key support level. Note, the overall bullish trend is still intact. I will wait to see if the price finds support at the key level to have more conviction on the direction of the market. A break below 1.26038 may signify a longer-term bearish reversal
Fundamental Overview:The commencement of Brexit talks has coincided with the sell-off on the pound. The week started with PM Boris Johnson announcing plans to override parts of the withdrawal agreement with the Internal Markets Bill. This caused tension between the EU and UK with diplomats calling for an emergency meeting. The action by PM Boris Johnson has seen the EU threaten to take legal actions against the UK if the bill is not amended. This has triggered a warning from the US House Speaker Pelosi, that there will be “absolutely no chance” of a US-UK trade deal passing Congress should the UK override the Brexit deal.
With market volatility heightened due to Brexit talks, my attention next week will be on the UK inflation Report hearing, the Brexit vote, and the Bank of England interest rate decision. Any escalation in the tension between the UK and EU will weigh on the pound.
Buy AUD/USD. MT is Bull Normal.
Technical Overview: An ascending trendline has provided support for the pair with the formation of higher highs and higher lows. There is a secondary resistance level at 0.72976. Coming into the week ahead, I will wait for the market to break above this level to enter a long position targeting the key resistance level at 0.74.
Fundamental Overview:The AUD was one of the top performers against the USD last week. It was a quiet week for Australia, with the pair being driven mainly by the broad weakness of the dollar. The weakness in commodities like iron ore has weighed on the AUD, but the currency is still being supported due to strong data coming out from China.
Keeping in mind the recent trade tension between the US and China, any escalation may weigh on the AUD. Coming into the week ahead, attention will be on employment data out of Australia. If the data is better than expected it may push the AUD higher. Any readings lower than expected, will likely not have much of an impact..
Steve Lucas is our head market analyst. He has been trading since the 80’s 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 calls are S&P500 and GBPUSD. Please see our signal report for more details.