Wait EUR/USD – MT is Sideways Volatile
Technical Overview: The secondary support level at 1.1712 has provided the support expected pushing the EUR higher. Despite the overall sideways volatile market type, the pair is trading within a bullish channel. With price remaining range bound within 1.19 and 1.1712, it is best to wait for a breakout from these levels to have more conviction on the overall market.
Fundamental Overview: A possible US stimulus deal and a better than expected Europe Manufacturing PMI has supported the Euro to push higher against the Dollar. The Euro manufacturing PMI was recorded at 54.4 versus 53.1 as expected. Though this might signify a form of recovery in the Euro Economy, European Central Bank (ECB) President Christine Lagarde has also mentioned that the Covid-19 situation will worsen due to winter. This may limit the gains for the EUR.
Less chance of a US stimulus deal and the ongoing US presidential debate has weakened the demand for the Dollar. With the market strongly driven by the possible stimulus, presidential debate, and the spread of coronavirus, particularly across Europe, the pair is likely to remain range bound. In this coming week, my focus will be on the ECB interest rate decision, the number of COVID-19 cases, and any news with regards to the US presidential election.
Wait USD/JPY – MT is Sideways Normal
Technical Overview: A descending triangle has been identified showing selling pressure. This is further confirmed by a bearish engulfing candle. Should price continue to trade below the key support level of 105.0, it will invite sellers into the market providing a good risk-reward ratio targeting a low of 103.0.
Fundamental Overview: Bank Of Japan (BOJ) continues to be accommodative in its monetary policy in the effort to improve the economy. The extension of further stimulus measures will primarily depend on the coronavirus situation. Despite Japan and China’s differences over Hong Kong’s autonomy, the two nations are in the final talks for the resumption of travel according to Japan’s foreign Minister Toshimitsu Motegi. Japan is also opposed to any actions that may escalate tensions in the South China Sea.
With minimal political uncertainty in Japan compared to the US at the current moment, this may create a demand for the YEN as a safe haven currency of choice compared to the greenback. The market will be primarily focusing on the BOJ press conference, the BOJ interest rate decision, and the US GDP this week.
Wait GBP/USD – MT is Bull Normal
Technical Overview: The overall Bull market remains intact as the price is trading above the ascending trendline. There has been a strong breakout of the secondary resistance level at 1.30045 signifying the bulls taking control. As price is retracing, we will wait for support to provide a good risk-reward ratio for buyers targeting the key resistance level at 1.3402. Should the price continue lower, and trade below 1.3004, there will be a strong probability of an attempt to test the ascending trendline or for a retest of the key support level at 1.26038.
Fundamental Overview: Despite the possibility of a hard Brexit, the pound managed to stay resilient and did not sell off as expected. As the week went on, the European Commission showed willingness to intensify talks with the UK and a clear desire for a Brexit deal. The highlight of the week that contributed to the appreciation of the cable was the signed agreement between the UK and Japan, and the overall weakness in the dollar. Adding on, Ireland’s Coveney also mentioned that a Brexit deal can be done.
We will however be very cautious to continue buying the pound as UK Tories starts planning to stop Scottish independence. This may lead to political disharmony in the UK and suggest limited upside potential for the pound. Tighter restriction throughout the UK amidst an increasing number of COVID-19 cases will also weigh on the pound. No key data are expected for the week ahead from the UK with focus mainly on the number of Covid-19 cases and any escalation of Brexit talks.
Wait AUD/USD – MT is Bull Normal
Technical Overview: The pair is currently trading within a triangle pattern. Typically, what follows a breakout of the triangle pattern would be an impulsive move of the market. The losses last week were capped as price reached the key support level at 0.7026 forming a double bottom. Should the ascending trendline continue to provide support and price breaks the descending trendline of the triangle, the currency pair will have an attempt at breaking the key resistance level at 0.7400.
Fundamental Overview: The Reserve Bank of Australia (RBA) set yet another dovish tone towards its monetary policy. RBA’s Governor Lowe hinted at a possibility of a rate cut to a record low of 0.1% to support job growth and alleviate currency pressure. The board has also agreed to maintain “highly accommodative policy settings as long as required”.
The commodity-linked currency may continue to be under selling pressure as China has banned the import of Australian coal. The current short bull run was strongly supported by the broad weakness of the dollar and the improvement in Australia’s retail sales data. The bulls will require continued strong data to maintain their current bullish view. In the week ahead, my attention will be on the Australia Consumer price index and the US GDP. Despite an overall bull trend, with the ban of imports of Australia Coal by China and the continued dovish tone set by the RBA, it is best to stay away from the pair and wait for more conviction in the direction.
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 Bunds and GBPUSD. Please see our signal report for more details.