Buy EUR/USD – MT is Bull Normal
Technical Overview: A bullish engulfing candle has been formed above the secondary resistance level signifying that the bulls are in control. However, the pair is currently in a consolidation phase between 1.20722 and 1.21746 last week. I will wait for the price to break above 1.21746 before continuing to buy the pair with a target of 1.24.
Fundamental Overview: The recent strong bull run was fuelled by the broad weakness in the dollar. With talks of a rapid economic recovery due to the Covid Vaccination, investor’s risk appetite has increased reducing the safe haven flow in the USD.
The EUR was supported last week by strong data, with industrial production, Sentix investor confidence, and ZEW survey beating estimates. However, Euro Central Bank (ECB) President Christine Lagarde mentioned that the government is closely monitoring the recent appreciation of the single currency and this comment suggests an accommodative ECB, ready to act by cutting rates.
The US has seen an increase in jobless claims reflecting the effects of the pandemic and the economic slowdown. Confidence in the USD has decreased on the back of continued tension between the US and China which may weigh significantly on the greenback in the long run.
Coming into the week ahead, my focus will be on the Fed, signs of the ECB signaling a rate cut, and the EURO Markit data. With the Fed expected to keep rates unchanged, any dovish comments by the Fed will send the dollar lower.
Wait USD/JPY – MT is Bear Normal
Technical Overview: Despite an overall Bear trend and the pair closing below the key support level of 104.2, the price is currently being supported by the ascending trendline. I will wait for the price to break below the ascending trendline to continue selling the dollar. Any break above the descending trendline could signify an early reversal of the current bear market type.
Fundamental Overview: Cases of Covid in Japan are on the rise as the government continues to support the economy with a $706 billion stimulus package and $3.7 billion travel campaign. Despite the increase of Covid cases, Economy Minister Nishimura mentioned that Japanese consumer spending is recovering which signifies the sustainability of the economy.
There was little movement in the safe haven currency last week as the pair lacked any fundamental catalyst.. The lack of agreement regarding Brexit and fiscal stimulus in the US weighed on market sentiment.
With the safe-haven JPY expected to closely follow upcoming political news events in the US and the Brexit negotiations, my attention will be on the Federal Reserves and the progress of Brexit to have a better conviction on the overall direction of the pair. Any negative headlines may easily attract investors to JPY driving the pair lower.
Wait Buy GBP/USD – MT is Bull Normal
Technical Overview: The pair remains in a bull normal market type despite the sell-off after the formation of a double top. The pair continues to trade above the ascending trendline. I will wait for bullish price action by the ascending trendline to once more target the key resistance level at 1.34. Any break below the ascending trendline may send the pair lower towards the key support level at 1.26.
Fundamental Overview: Despite UK GDP meeting estimates at 0.4% in October and UK manufacturing production rising to 1.7%, the pound remained under selling pressure through the week due to a possibility of a hard Brexit.
There has been no substantial progress in Brexit talks between the EU and the UK. EU’s Von Der Leyen told leaders that she has “low expectations” for a Brexit deal and UK Prime Minister Boris Johnson continues to emphasize that he is confident that the UK will prosper even without an EU trade deal.
However, German Foreign Minister Heiko Mass hints that “talks could continue beyond Sunday” keeping the bulls hopeful. Moreover, The European Union and the United Kingdom have agreed on a “trusted trade scheme” that would allow 98% of goods flowing between Great Britain and Northern Ireland to be exempt from tariffs. Amid Brexit negotiations and the pandemic, the UK banking system remains resilient.
Brexit talks will continue to dominate the market in the week ahead. Any break of discussions between the EU and the UK will send the pound lower.
Buy AUD/USD – MT is Bull Normal
Technical Overview: Price has continued to rally after the break of the bullish flag previously identified and is currently trading above the key resistance level of 0.74. With the formation of the strong daily bullish candle, I will look for a level of support above 0.74 before continuing to buy the market with a good risk-reward ratio.
Fundamental Overview: The strong bull rally was supported by the increase in commodity prices. Oil prices and Iron ore prices have soared due to concerns over supply shortages in the first quarter of 2021. Future contracts on the Dalian Commodity Exchange closed at seven-year highs.
However, we should continue to be cautious as the tension between the US and China still looms and any escalation of trade tensions may start to weigh on the AUD. China’s foreign minister is “Willing to start a dialogue with the US at all levels”. The Chinese also add on mentioning that “China, US should re-establish healthy and stable ties”. For the bull run to continue in the long term, the trade talks between China and the US would be a key event to provide further upside momentum for the commodity currency.
My focus in the coming week would be the prices of iron ore and oil and the unemployment rate in Australia. Any sudden drop in price in the commodities sector may weigh on the AUD.