Wait EUR/USD – MT is Sideways Volatile

Daily chart.

Technical Overview: We have seen the pair consolidating within a tighter range near the secondary resistance level at 1.19. A break above 1.19 would signify a continuation of the recent bull run after the formation of a double bottom. Any strong rejection from the secondary resistance level might send the pair lower to retest the secondary support level at 1.17127. 

Fundamental Overview: The overall weakness in the dollar was due to the risk-on mood following the possible Coronavirus Vaccine from Pfizer and poor US retail sales. The ongoing discussion of a possible US stimulus is adding pressure on the greenback. 

Even with the weakness in the dollar, the single currency failed to take advantage, and gains were kept limited. The increasing number of COVID-19 cases continues to put the Euro economy in a vulnerable state. Merkel’s Chief of Staff, Helge Braun, highlighted that the government could push for tighter virus restrictions coming into the week ahead, as the rise in the infections remains unabated. 

The European Central Bank (ECB) has also continued to be accommodative towards having more stimulus to support the recovery of the economy. The inter-EU political tension was also seen increasing with regards to the budget and a possible delay on the recovery fund. With further possible stimulus and growing political uncertainty, this will weigh on the EURO. 

With both currencies signifying fundamental weakness, the pair may continue to be range bound. Attention will be on key data being released this week with focus on the FOMC meeting, US GDP data, and any further developments of the EU political tension.

Wait USD/JPY – MT is Bear Normal

Daily chart.

Technical Overview: Price has successfully broken below the key support level at 104.2. Coming into the week ahead, I will look for a retest for 104.2 to become a level of resistance, providing a good risk-reward ratio to continue selling this pair. Should the pair retrace and start trading above the key support level once again, I will wait for further bearish confirmation before selling this pair. 

Fundamental Overview: The YEN took advantage of the overall weakness in the dollar and is seen trading below 104.2. The Japanese Economy Minister Yasutoshi Nishimura mentioned that they “will compile a comprehensive stimulus package that includes all available means to support the economy”. Bank of Japan (BOJ) board member Takako Masai highlighted that the economy is starting to pick up despite remaining in a severe state. With the Finance Ministry and BOJ continuing to cooperate well towards financial stability, the YEN could easily invite more investors. 

Though, with the number of Covid-19 cases strongly influencing most of the decisions leading to a “Red Alert” in Tokyo, my focus will remain on this and the Consumer Price Index data. Any strong data from Japan will push the pair lower.

Cautious Buy GBP/USD – MT is Bull Normal

Daily chart.

Technical Overview: Price remains above the ascending trendline signifying an overall bull market type. However, this week’s call to buy would be a cautious one as there is a potential of a formation of a double top. Additionally, there has been very little momentum to the upside on the lower time frames. I would wait for a deeper retracement or the ascending trendline to provide support before continuing to buy the pair. 

Fundamental Overview: Strong data coming out from the UK and the overall weakness in the dollar contributed to the gains in the pound last week. The UK annualized CPI and retail sales beat estimates. The pair continues edging higher in hopes of a Brexit deal as we have seen substantial progress in the negotiations between the EU and the UK last week and a trade deal between Canada and the UK.

Despite UK Prime Minister Boris Johnson being confident that the UK will prosper without an EU trade deal, The EU commission has continued to negotiate intensively with an aim to find a deal. My attention next week will remain on Brexit negotiations, Covid-19 cases in the UK, and also the FOMC meeting. Should there be good progression on Brexit talks and the possibility of the US implementing the fiscal stimulus, the pound will be set to rally towards 1.34. 

Buy AUD/USD – MT is Bull Normal

Daily chart.

Technical Overview: Price continues to trade within a tighter range after breaking out of the ascending trendline and forming a bullish flag pattern. I will wait for the price to break above the bullish flag to have a continuation of the bullish overall market targeting 0.74.

Fundamental Overview: The Reserve Bank of Australia (RBA) mentioned that the central bank is ready to provide more policy stimulus if needed but “Negative rates still extraordinary unlikely in Australia”. There has been very little movement in the currency pair as both the AUD and the USD remain weak and vulnerable to the Covid situation. 

The AUD however edged higher as strong retail sales data. As a commodity currency, markets will be focused on any trade tensions between Australia and China and the US-China relationship. Any improvement would be beneficial for the AUD.  My focus this week will be Australia’s trade balance data and the FOMC meeting. With the Feds known to be more dovish, this will weigh on the dollar in the long run and we should see AUD push higher despite a possible rate cut by the RBA.