10-Dec-2020

1) Dollar Rebounds On Safe-Haven Buying Due To Decline In U.S. Stocks
2) GBP/USD: Brexit Noise Might Continue To Infuse Volatility
3) EUR/USD: Awaits Bullish Flag Breakout As Focus Shifts To ECB Meeting

1) Dollar Rebounds On Safe-Haven Buying Due To Decline In U.S. Stocks

The greenback pared intra-day losses made in Asia and European morning and rebounded broadly in New York on active safe-haven buying of USD as U.S. stocks surrendered their gains and ended the day lower, triggering short covering in the greenback.

In other news, Democratic U.S. Senator Joe Manchin said he expected Democrats and Republicans to work out most of the key details of a new coronavirus relief package on Wednesday.

Versus the Japanese yen, the dollar swung broadly sideways in directionless Wednesday’s session as the focus was on other major currencies. The pair recovered to 104.25 at European open and then retreated to 104.06. Price later rose to 104.40 in New York on renewed USD’s strength as well as a rise in U.S. Treasury yields before paring intra-day gain.

The single currency went through a volatile session. Although the euro found renewed buying at 1.2102 in Australia and rose steadily to session highs of 1.2147 ahead of European open, price erased intra-day gains and later tumbled to 1.2060 in tandem with cable in New York due to USD’s rebound and broad-based euro selling especially versus yen and CHF. Price traded near 1.2081 at the close.

The British pound remained on the front foot in Asia and gained to 1.3396. Despite a brief retreat to 1.3358 (Reuters) at the European open, cable then rallied to session highs at 1.3477 at New York open on renewed Brexit optimism on news that a compromise on fisheries could be reached. Later, the price fell sharply to 1.3356 in New York on USD’s broad-based strength and long liquidation as the market awaits the outcome of UK-EU leaders Brexit meeting.

Reuters reported Britain sees scope for a compromise on fishing in Brexit trade negotiations, one of Prime Minister Boris Johnson’s most senior Brexit-supporting ministers said on Wednesday.

2) GBP/USD: Brexit Noise Might Continue To Infuse Volatility

The GBP/USD pair gained some strong positive traction on Wednesday, albeit struggled to capitalize on the move and finally settled around 75-80 pips off weekly tops. The optimism over additional US fiscal stimulus measures and the COVID-19 vaccine kept the US dollar bulls on the defensive, which, in turn, extended some initial support to the pair. The British pound got an additional boost after the UK Cabinet minister, Michael Gove said that there can be scope for compromise on fishing rights. Adding to this, German Chancellor Angela Merkel hinted that the EU will be willing to compromise on the level-playing field.

The positive headlines come on the back of news on Tuesday that the British government has dropped controversial clauses in its UK Internal Market Bill. This, in turn, raised prospects for a Brexit deal and forced investors to unwind their bearish GBP bets ahead of a key summit between UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen. However, comments from an EU diplomat, saying that that the expected outcome of the von der Leyen/Johnson meeting is to agree that more talks are needed and to signal that a deal is still possible, poured cold water on hopes for an immediate breakthrough.

Apart from this, stalled US stimulus talks raised doubts on whether the Republicans and Democrats can reach a consensus over the proposed relief package. In fact, the US lawmakers approved a stopgap government funding bill on Wednesday but were unable to sort out disagreements over aid to state and local governments. This led to a turnaround in the US equity markets and triggered a sell-off in tech stocks, which drove some haven flows back towards the greenback and prompted fresh selling around the major during the second half of the trading action on Wednesday.

Meanwhile, the meeting between Johnson and von der Leyen ended with no concrete progress. A senior UK source told the media that very large gaps remain between the two sides and it is still unclear if these can be bridged. Nevertheless, the top officials agreed to delay a firm decision about the future of Brexit talks until Sunday and added to uncertainty. This was evident from the emergence of some fresh selling around the British pound on Thursday, which dragged the GBP/USD pair to the 1.3300 neighborhood during the Asian session.

The downside remained limited, at least for the time being, as investors preferred to wait for fresh Brexit developments before positioning for the near-term trajectory. In the meantime, Thursday’s UK macro releases will be looked upon for some trading impetus. The US economic docket highlights the release of the latest consumer inflation figures and Initial Weekly Jobless Claims. Apart from this, the US stimulus headlines will influence the USD price dynamics and further assist traders to grab some meaningful opportunities.

From a technical perspective, nothing seems to have changed much for the pair and the two-way price moves warrant some caution before positioning for a firm near-term direction. The 1.3300-1.3290 region might continue to act as immediate support, which if broken might turn the pair vulnerable to accelerate the fall back towards weekly swing lows, around the 1.3225 area. Some follow-through selling below the 1.3200 mark will be seen as a fresh trigger for bearish traders and pave the way for an extension of the corrective slide.

On the flip side, any attempted positive move might continue to confront stiff resistance near the top boundary of a two-month-old ascending trend-channel. The mentioned barrier is currently pegged near the key 1.3500 psychological mark, which if cleared decisively will negate any near-term negative bias. Bulls might then aim to reclaim the 1.3600 mark for the first time since May 2018.

3) EUR/USD: Awaits Bullish Flag Breakout As Focus Shifts To ECB Meeting

The EUR/USD pair witnessed some intraday volatility on Wednesday and finally settled with modest losses for the fourth consecutive session. Optimism over additional US fiscal stimulus measures and the COVID-19 vaccine remained supportive of the upbeat market mood. This, in turn, kept the US dollar bulls on the defensive and provided a modest lift to the pair through the first half of the trading action. The intraday positive move, however, faltered near mid-1.2100s amid a turnaround in the US equity markets, led by a sell-off in tech stocks.

Stalled US stimulus talks raised doubts on whether the Republicans and Democrats can reach a consensus over the proposed relief package. In fact, the US lawmakers approved a stopgap government funding bill on Wednesday but were unable to sort out disagreements over aid to state and local governments. This, along with a deadlock in the post-Brexit trade talks, weighed on investors’ sentiment and drove some haven flows back towards the greenback. The pair retreated around 90 pips from daily swing tops and dropped to one-week lows, closer to mid-1.2000s.

Despite the sharp pullback, the pair lacked any strong follow-through selling, instead regained some traction during the Asian session on Thursday. The pair has now moved back to the 1.2100 mark as investors look forward to the highly anticipated European Central Bank (ECB) meeting for a fresh directional impetus. The ECB is widely expected to expand its Pandemic Emergency Purchase Program (PEPP) to support the COVID-19 stricken EU economy. The announcement, along with the ECB President Christine Lagarde’s comments at the post-meeting press conference, is more likely to infuse some volatility around the euro crosses.

Traders on Thursday will also take cues from the US economic docket – highlighting the releases of the latest consumer inflation figures and Initial Weekly Jobless Claims. Apart from this, the US stimulus headlines will influence the USD price dynamics and further contribute to producing some meaningful trading opportunities.

From a technical perspective, the pair, so far, has managed to defend support marked by the lower boundary of a short-term descending trend-channel. The mentioned channel constitutes the formation of a bullish continuation flag pattern on hourly charts and supports prospects for additional gains. That said, bulls might still wait for a sustained breakthrough the channel resistance, which now coincides with the overnight swing highs, around the 1.2145-50 region, before placing fresh bets. A sustained strength beyond now seems to push the pair back towards the 1.2200 mark en-route the 1.2235-40 resistance zone. Some follow-through buying should pave the way for a move to reclaim the 1.2300 mark before the pair eventually darts to test March 2018 monthly closing highs resistance, around the 1.2315 region.

On the flip side, the mentioned trend-channel support, currently near the 1.2055-50 region, might continue to defend the immediate downside, which if broken decisively will negate the constructive set-up. The pair might then turn vulnerable to break below the key 1.2000 psychological mark and prolong its corrective slide. The downward trajectory has the potential to drag the pair further towards its next major support near the 1.1925 horizontal zone.