08-Dec-2020

1) EUR/USD: Bulls at the Mercy of USD Price Dynamics; Focus Remains on ECB
2) AUD/USD Continues To Consolidate Around 0.74 Despite Brexit Concerns
3) British Pound On Edge Ahead Of Johnson’s Trip To Brussels

1) EUR/USD: Bulls at the Mercy of USD Price Dynamics; Focus Remains on ECB

The EUR/USD pair had some good two-way price moves on the first day of a new trading week and finally settled in the red for the second consecutive session. The US dollar staged a solid intraday rebound from a two-and-half-year low amid renewed concerns about heightened tensions between the world’s two largest economies. Reports indicated that the US was preparing to impose sanctions on at least a dozen Chinese officials over their alleged role in a crackdown on Hong Kong’s pro-democracy movement. The development took its toll on the global risk sentiment and drove some haven flows towards the greenback. This, in turn, was seen as a key factor that exerted some pressure on the major through the first half of the trading action.

The pair dropped to 1.2080-75 region and seemed rather unaffected by upbeat German Industrial Production, which surprised to the upside and rose 3.2% MoM in October. Adding to this, the Eurozone Sentix Investor Confidence Index unexpectedly bounced to -2.7 for the current month, albeit did little to impress bulls. Meanwhile, the greenback struggled to preserve its strong recovery gains amid expectations that the US lawmakers will agree to an emergency coronavirus stimulus plan. The emergence of some USD selling assisted the pair to attract some dip-buying and rally around 90 pips from three-day lows. However, increasing bets for additional easing by the ECB capped the upside for the major, rather than prompted some selling at higher levels.

Nevertheless, the pair ended the day with modest losses, though lacked any strong follow-through selling and held steady above the 1.2100 mark through the Asian session on Tuesday. Market participants now look forward to the releases of the Eurozone Zew Survey and the final version of Q3 GDP for a fresh impetus. There isn’t any major market-moving economic data due for release from the US and hence, the broader market risk sentiment will play a key role in influencing the USD price dynamics. Meanwhile, anxiety over the continuous surge in new coronavirus infections could underpin the greenback’s safe-haven demand and keep a lid on any meaningful upside for the major ahead of the highly anticipated ECB policy decision on Thursday.

From a technical perspective, the pair’s inability to capitalize on the positive move and find acceptance above mid-1.2100s could be signs of possible bullish exhaustion. That said, it will still be prudent to wait for some strong follow-through selling before confirming that the pair has already topped out in the near-term. Hence, any subsequent fall below the overnight swing lows is more likely to find some support near the 1.2040 region. This is followed by the key 1.2000 psychological mark, which if broken will negate prospects for any further appreciating move and prompt some technical selling.

On the flip side, the 1.2165-75 region now seems to have emerged as immediate strong resistance. A sustained move beyond has the potential to push the pair above the 1.2200 mark en-route the 1.2235-40 intermediate resistance. Some follow-through buying should pave the way for a move towards the 1.2300 mark before the pair eventually aims to test March 2018 monthly closing highs resistance near the 1.2315 region.

2) AUD/USD Continues To Consolidate Around 0.74 Despite Brexit Concerns

The Australian Dollar has largely consolidated overnight, opening this morning at 0.7422 despite the volatility in global markets. With very little on the economic calendar to digest, the Aussie continues to trade on risk sentiment which took a decidedly sour tone early in the European trading session as Brexit again took center stage. Negotiations between the EU and the UK are coming right down to the wire with the market forced now to consider the possibility of no-deal. Barnier reportedly has said he cannot guarantee a deal and it will be up to the UK to make the next move. Risk aversion briefly dominated the European trading session and led to the Aussie falling to 0.7370. Nevertheless, the Aussie reversed course after headlines in the UK suggest the UK government will drop controversial sections of their Internal Markets Bill if a trade deal was agreed. Buoyed by the news, markets are generally unchanged from yesterday although Brexit headlines will continue to influence market sentiment today in the absence of a heavy-hitting economic calendar.

The Great British Pound enters our Key Movers section after a no-deal Brexit became a real possibility. The market has generally priced in that a deal will be reached, even if it was at the 11th hour. This optimism was seriously questioned overnight as EU Chief Negotiator Barnier told European Ambassadors that negotiations were stalled on the longstanding issues of fishing rights, ‘level playing field’ conditions, and dispute resolution. Barnier has also reportedly said that he cannot guarantee a deal and it is up to the UK to come to the table. UK Prime Minister Johnston and European Commission President Von der Leyen will reportedly meet face to face for an 11th-hour crunch meeting on Wednesday or Thursday to solve the impasse. The Sterling fell as much as 1.6% at one point but has since recovered to post a 0.6% fall. The Euro also fell initially by 0.4% but has since recovered to post a 0.1% gain.

3) British Pound On Edge Ahead Of Johnson’s Trip To Brussels

The British pound pared some of the losses made yesterday as Boris Johnson prepared to travel to Brussels for make-or-break talks with Ursula von der Leyen. The talks will happen as the two sides failed to reach agreements on key areas like fishing rights and fair trading practices. Media reports yesterday suggested that Johnson was prepared to walk away from the talks. Also, in a statement to EU leaders, Michel Barnier warned that he could not guarantee that a deal would happen. In another statement, Simon Coveney, the Irish prime minister said that the mood was starting to shift to contingency planning in the EU.

The Japanese yen was little changed after better economic numbers from Japan. In a report released earlier today, the country’s statistics office said that the country’s economy bounced back by 5.3% in the third quarter. That was better reading than the first estimate of 5%. On an annualized basis, the Japanese economy expanded by 22.9% in the quarter after sinking by 28.1% in the second quarter. This performance was mostly because of a 5.1% increase in private consumption and a 2.7% increase in external demand. Capital expenditure declined by 2.4% as firms continued to preserve their capital.

The euro is little changed ahead of the final reading of the third-quarter GDP data. Economists polled by Reuters believe that the Eurozone economy bounced back by 12.6% in the third quarter as countries continued to reopen. Like in Japan, this performance will mostly be because of a strong increase in private consumption and external demand. The euro will also react to the latest German economic sentiment data by ZEW.

The GBP/USD pair is trading at 1.3348, which is higher than yesterday’s low of 1.3220. On the four-hour chart, the price has moved back to the ascending yellow trendline. It is also slightly below the 25-day and 15-day exponential moving averages. At the same time, the average true range, which is a good measure of volatility, has risen to the highest level this month. Therefore, because of Brexit issues, the pair will possibly be a bit volatile in the short term.