Wait EUR/USD – MT is Sideways Volatile
Technical Overview: The market has attempted to break the secondary support level twice and has formed a double bottom pushing the price higher to retest the secondary resistance level at 1.19. As the pair is still trading within the secondary resistance level and the secondary support level at 1.17, I will patiently wait for a breakout from these 2 levels to have more conviction on the overall direction of the market.
Fundamental Overview: Covid 19 remains under the limelight. Cases of Covid-19 continue to increase in Europe and the US. Traders are currently following closely the number of cases and any major news development in regards to the virus.
With the virus continuing to slow down the economic recovery, Germany ZEW Economic sentiment continued to drop further to 39.0 versus 41.7 as expected, while the Eurozone ZEW economic sentiment for November slumped to 32.8 versus 63.7 as per expected. Even though there have been no major statements made by European Central Bank (ECB) President Christine Lagarde, ECB’s Schnabel mentioned that “We are going to look at all instruments. There are reasons why we did not cut rates in the past. Have to review those reasons again now”. The statements made were dovish and was suggestive of a rate cut if it is required.
Although there has been a possible vaccination announced by Pfizer, the German government’s economic advisory council predicts the country’s GDP to contrat by 5.1% in 2020 due to the coronavirus pandemic which will weigh on the Euro.
The dollar was supported at the start of the week due to the stock sell-off that increased demand on safe haven flows.
Moving into the week ahead, attention will be on the number of Covid-19 cases, Fed speech, US retail sales data, the G20 meeting, and Europe consumer price index.
Wait USD/JPY – MT is Bear Normal
Technical Overview: After the market broke below the key support level at 104.2, we have seen a strong rejection to the upside but gains were capped by the descending trendline. The bullish engulfing candle off the low lacks momentum, as price reverses and makes its way towards the key support level of 104.2 once again. With price trading closely towards a strong level of support, I will wait for a breakout to continue selling the pair. Should price break the descending trendline, the market may attempt a retest of the key resistance level at 106.8.
Fundamental overview: With Japan handling the pandemic better than the US and Europe, the Yen has become the safe haven of choice. This could signify a long-term bear trend for the currency pair.
Despite the increase of cases in Japan, Prime Minister Suga stated that “We are not in the situation to declare the state of emergency”. Japan has also introduced a special deposit facility to ensure regional financial system stability which will aid in the overall recovery of the economy. This may encourage more investors to invest in the Yen long term compared to the USD. In contrast, with elected president Joe Biden having the pandemic as the top priority, there is speculation of stricter lockdowns and more monetary policy stimulus which will weigh on the greenback.
Wait GBP/USD – MT is Bull Normal
Technical Overview: Price remains supported by the ascending trendline signifying the continuation of the overall Bull market. However, I will cautiously buy the market and target the key resistance level at 1.34 as any rejection at that level may invite the sellers with a good risk-reward ratio aiming for a retest of the key support level at 1.26
Fundamental overview: There has been great progress in Brexit talks according to the UK Environment Secretary George Eustice. The European Union’s chief Brexit negotiator Michael Barnier is also doubling their efforts to reach an agreement on the future EU-UK partnership. Adding on, The British finance Minister Sunak is more optimistic about a Brexit deal. This has contributed to the continuation of the bull market overall structure in the pound.
Though there have been talks of negative interest rates, with the news release of a possible vaccination from Pfizer, The Bank Of England has retracted their statements and does not see the need for negative rates.
Attention next week will be on the FED speech, US and UK retail sales, and the progress of Brexit talks. If we continue to see progress in Brexit talks supported by strong retail data from the UK, we can expect a bull rally from the pound.
Wait AUD/USD – MT is Bull Normal
Technical Overview: Price has successfully broken out of the descending trendline and is currently trading well above it. A quick strategy would be to buy the pair targeting the key resistance level at 0.74. Any rejection from the key resistance level will invite sellers into the market in an attempt to target the key support level at 0.7026.
Fundamental Overview: Australian Deputy Trade Secretary has highlighted that disrupted trade with China is to be restored. This boosted AUD/USD, with hopes for better Aussie/Sino trade relations. Being a commodity currency, the AUD will benefit from the two-months high Iron Ore futures recorded in China.
Australian Prime Minister Scoot Morrison mentioned that “confidence in the economy is returning, as the nation is re-opening from its coronavirus imposed second lockdown. ” While countries in Europe and the US are introducing tighter restrictions to mitigate the pandemic, Australia is set to re-open its economy. This will create a demand for the AUD supported by improved trade relations between Australia and China.
My focus will be on China’s retail sales, The RBA speech, and meeting minutes coming into the week ahead. Any new escalation of trade tensions between Australia and China next week will weigh on the AUD.