Buy EUR/USD – MT is Bull Normal

Daily chart.

Technical Overview: Price broke out above the area of consolidation signifying the continuation of the bull market type. Will wait for a level of support to form on a lower time frame above 1.2174 before continuing to buy the pair targeting 1.24 with a good risk-reward ratio.

Fundamental Overview: A mix of optimism about US fiscal stimulus, the upcoming vaccine approval in Europe, and hopes of a Brexit deal are pushing the single currency higher and weighing on the greenback. We have seen strong data coming out from Europe beating estimates while US data continues to underperform. 

The highlight of last week was the Federal Reserve (FED) announcing that rates will be kept unchanged at 0.25%. Though this is typically seen as “Hawkish”, the FEDs has also highlighted “the low inflation and likely need for policy to remain accommodative well after the economy gets a boost from vaccines”, which may continue to weigh on the currency in the long run. 

The EUR is also getting a boost from the global vaccine optimism despite the possibilities of a hard lockdown in Germany. 

With the European Central Bank continuing to monitor the currency closely, my focus will be on any clues of a government intervention and key data coming out from the US next week.

Wait USD/JPY – MT is Bear Normal

Daily chart.

Technical Overview: The ascending trendline failed to provide any form of support and we see the bears taking control, pushing the price lower. A secondary level of resistance at 103.60 has been formed, capping the gains made last Friday. It is best to wait for rejection of the secondary resistance level to provide a good risk-reward ratio to continue selling the market. 

Fundamental Overview: The strength in the Japanese Yen was strongly supported by the broad USD weakness and the improved sentiment amongst the Japanese manufacturing and services firms. 

The Bank of Japan (BOJ) kept rates unchanged at -0.1% and raised the GDP outlook for FY2021. The government is optimistic about the overall economic outlook as vaccination plans start to roll out. The BOJ is also set to extend the COVID-19 relief program to Sept 2021 in hope of supporting the recovery. 

As the pandemic situation strongly dictates the decision of the officials at the moment, my attention next week will be on the vaccination plan by Japan and the key data from both the US and Japan. 

Wait Buy GBP/USD – MT is Bull Normal

Daily chart.

Technical Overview: Price has successfully broken above the key resistance level of 1.34. I will wait for a level of support to be formed on a lower timeframe to continue buying the currency pair with a good risk-reward ratio aiming for the target of 1.38. However, if the price fails to hold above 1.34, we could see a potential strong sell-off aiming for the ascending trendline. 

Fundamental Overview: Despite data coming from the UK missing estimates, the pound was fuelled by positive headlines with regards to the substantial progress of Brexit talks. Both the EU and the UK hope to meet eye to eye before Christmas. British Prime Minister Boris Johnson emphasizes that, “they want to keep talking with the European Union if there is a chance of a trade deal”, while EU negotiator Michel Barnier mentioned that, “the possibility of a trade agreement with the UK remains”.  

Bank of England (BOE) has set the rates unchanged, but talks of negative rates as one of the strategies to assist with the economic recovery has also been highlighted by BOE policymaker, Gertian Vlieghe. Addressing the issue, Vlieghe further mentioned that “any rate cut must be more than 10 basis points to work and added that a mixture of quantitative easing and rate cut would be best if the market remains stable”. 

Over the weekend, UK PM Johnson announced for London to go into tier 4 level of restrictions. With London continuing to be impacted by the pandemic and dovish sentiments from the BOE, positive headlines from Brexit may cap gains in the long run. In the coming week ahead, it is best to wait and look at the market reaction and seek more affirmation of the trade deal between the EU and the UK.

Buy AUD/USD – MT is Bull Normal

Daily chart.

Technical Overview: The pair found support at 0.7522, creating a secondary support level and pushing the pair higher. With a Dragonfly Doji formed on the last day of trading, this signifies that the bulls are still in control. Should price return to the secondary support level, this will allow buyers to once again accumulate the pair aiming for 0.77 with a good risk-reward ratio.

Fundamental Overview: Australia’s strong employment and unemployment data, combined with increasing iron ore prices and the broad weakness in the USD allowed the AUD to rally last week. It also emphasizes the strong rebound in Australia’s economy and the continued recovery from the pandemic.

However, we have seen trade tensions between Australia, the US, and China escalating over the week. There have been reports cited from Chinese state media that, “Confirms China is imposing restrictions on Australian coal” and power stations have been told not to buy Australian coal. 

In the US, Morgan Stanley Capital International (MSCI) is removing at least 10 China firms from some of their indexes. US President Donald Trump is expected to add dozens of Chinese companies to the commerce department’s Entity where companies will have to seek a special license from the Commerce Department before a US supplier could send it key goods.

With trade tensions escalating, this may lead to a deep retracement for the currency pair or start weighing on the AUD in the long run. Coming into the week ahead, my attention will be on the development of trade talks between Australia and the World Trade Organization (WTO) and also the US-Sino relationship.