14-Dec-2020

1) USD Subdued On US Stimulus And Brexit Deal Outcome
2) EUR/USD: Bullish Potential Intact Ahead Of This Week’s Key Data, FOMC Decision
3) GBP/USD: Investors Cheer an Extension To Brexit Talks, Upside Seems Limited
4) XAU/USD: Gold’s 4H chart signals caution amid stimulus hopes, ahead of Fed
5) AUD/USD Remains With a Bullish Read

 

 

1) USD Subdued On US Stimulus And Brexit Deal Outcome

The euro currency’s rebound after the ECB meeting saw prices rising only to highs near 1.2150.

Following this, price action retreated, edging closer back to the rising trend line. We expect the trend line support to once again come into the picture.

As long as this support holds, the EURUSD might be looking to aim higher.

In the event that the common currency loses the trend line support, then we expect price action to fall toward the 1.2050 level, marking the December 9 lows.

To the upside, the EURUSD will have to break out above the previous highs of 1.2178 to continue the uptrend.

The British pound sterling slipped below the support level of 1.3300 on Friday. This comes as Brexit talks come to a head.

For the moment, the lower support near 1.3122 remains the key price point. As long as this support level holds, there is scope for the GBPUSD to push higher.

However, prices will need to break out strongly above the 1.3300 level to continue the uptrend. This will then open the GBPUSD to the upper resistance level of 1.3483.

To the downside, a close below 1.3122 could open the way for the cable to retest the 1.3000 round number support once again.

WTI Crude oil prices rose sharply on Thursday to rise close to the 48.00 level. However, prices pulled back into Friday’s close.

This comes as the 45.00 level is firmly establishing as support. Thus, a pullback could see this support level being tested once again.

The Stochastics oscillator on the 4-hour chart remains mixed. There is enough room for prices to breakout higher.

Above the 48.00 level, oil prices will be contending with a retest of the 50.00 level.

To the downside, below the 45.00 support area, a correction could bring the commodity down to test the 44.00 handles next.

The precious metal continues to trade flat for the second consecutive session. As a result, price action is trading within a tight band of the 1850 and the 1825 levels in the near term.

The Stochastics oscillator remains biased to the downside. This could mean that if gold prices lose the 1817.80 level of support, then we expect the downside to continue.

 

2) EUR/USD: Bullish Potential Intact Ahead Of This Week’s Key Data, FOMC Decision

The EUR/USD pair failed to preserve its intraday gains on Friday, instead met with some supply at higher levels and finally settled in the red. The impasse over the next round of the US fiscal stimulus dented investors’ confidence and was evident from a weaker trading sentiment around the equity markets. This, in turn, benefitted the safe-haven US dollar and turned out to be a key factor that exerted some pressure on the major. That said, the optimism over the rollout of vaccines for the highly contagious coronavirus disease kept a lid on any runaway rally for the greenback.

It is worth reporting that an advisory panel to the US Food and Drug Administration (FDA) on Thursday recommended approval of Pfizer’s COVID-19 vaccine for emergency use in the United States. Apart from this, growing worries about the potential economic fallout from the continuous surge in new coronavirus cases and the imposition of new restrictions in the several US states further held the USD bulls from placing aggressive bets. On the economic data front, the final version of the German inflation figures and the US Producer Price Index did little to provide any meaningful impetus to the major.

Nevertheless, the pair finally settled near the lower end of its daily trading range but managed to defend the 1.2100 mark and opened with a modest bullish gap on the first day of a new trading week. The pair was last seen hovering around the 1.2130-35 region, albeit lacked any strong follow-through buying. Investors now seemed to have moved on the sidelines ahead of this week’s important releases of the Eurozone flash PMI prints and the US monthly Retail Sales. This, along with the highly anticipated FOMC monetary policy meeting, should help determine the pair’s next leg of a directional move.

In the meantime, Monday’s release of Industrial Production figures from the Eurozone will be looked upon for some trading impetus. Apart from this, the US fiscal stimulus headlines and the broader market risk sentiment will influence the USD price dynamics and produce some trading opportunities.

From a technical perspective, the pair’s inability to capitalize on the post-ECB breakout through a short-term descending channel warrants some caution before positioning for any further gains. However, the emergence of some dip-buying on Monday favors bullish traders and supports prospects for the resumption of the recent appreciating move. Hence, a subsequent move beyond YTD tops, around the 1.2175-80 region, en-route the 1.2200 mark, remains a distinct possibility. Some follow-through buying has the potential to lift the pair further beyond the 1.2235-40 intermediate resistance and assist bulls to aim to reclaim the 1.2300 mark.

On the flip side, any meaningful slide below the 1.2100 mark might still be seen as a buying opportunity. This, in turn, should help limit the downside near the lower boundary of the mentioned channel, currently near the 1.2050-45 region. A sustained break through the latter will negate the near-term positive outlook and turn the pair vulnerable to slide further, towards challenging the key 1.2000 psychological mark.

 

3) GBP/USD: Investors Cheer an Extension To Brexit Talks, Upside Seems Limited

The GBP/USD pair witnessed some heavy selling on the last trading day of the week and plunged to near one-month lows amid increasing chances of a no-deal Brexit. The European Commission president Ursula von der Leyen reportedly told EU leaders that she has low expectations that the EU can reach a Brexit deal with the UK. This comes a day after the UK Prime Minister Boris Johnson warned that there was a strong possibility that the UK and the EU would fail to strike a deal. The British pound was further pressured by increasing bets for a further interest rate cut by the Bank of England (BoE). In fact, money markets are pricing in a 65% probability of 10 bps reduction in rates by March 2021 as against 16% at the start of the month.

On the other hand, the US dollar drove some haven flows amid a slight deterioration in the global risk sentiment, led by the impasse over the next round of the US fiscal stimulus measures. That said, the optimism over the rollout of vaccines for the highly contagious coronavirus disease kept a lid on any strong gains for the buck. It is worth reporting that an advisory panel to the US Food and Drug Administration on Thursday recommended approval of Pfizer’s COVID-19 vaccine for emergency use in the United States. Apart from this, worries about the potential economic fallout from the continuous surge in coronavirus infections and the imposition of new restrictions in the several US states further held the USD bulls from placing aggressive bets.

The pair managed to find decent support near the 1.3135 region and recovered around 100 pips after German Foreign Minister Heiko Mass hinted that Brexit talks will not fail if they need a few more days. Negotiators finally agreed to extend the post-Brexit trade talks beyond Sunday’s deadline, which led to a bullish weekly gap opening for the major, though lacked any strong follow-through buying. The fact that the UK and the EU have repeatedly failed to narrow their differences on key sticking points, investors are still not clear if a no-deal scenario can be avoided. This, in turn, might continue to cap the upside amid absent relevant market-moving economic releases and leaves the pair at the mercy of developments surrounding the Brexit saga.

From a technical perspective, the pair managed to rebound from important confluence support – comprising of 50-day SMA and the lower boundary of a short-term ascending channel. However, the lack of any strong follow-through buying beyond last week’s broader trading range warrants some caution for bullish traders. Hence, any subsequent move up is more likely to confront a stiff resistance near the 1.3400-1.3410 region. A sustained move beyond now seems to pave the way for additional gains and pushed the pair back towards the key 1.3500 psychological mark. This is closely followed by the trend-channel hurdle, around the 1.3530 region, which if cleared decisively will negate any near-term bearish bias.

On the flip side, any meaningful pullback below the 1.3300 mark might attract some dip-buying near the 1.3230-25 region, below which the pair might slide back below the 1.3200 mark. The downfall could further get extended back towards the 50-DMA/ascending channel confluence support, currently near the 1.3160-50 region. Failure to defend the mentioned support levels will be seen as a fresh trigger for bearish traders and pave the way for an extension of the recent corrective slide.

 

4) XAU/USD: Gold’s 4H chart signals caution amid stimulus hopes, ahead of Fed

Gold (XAU/USD) settled last week with modest losses below $1940, as the bears dominated amid fading hopes for a US coronavirus relief aid. Further, investors remained optimistic about the US Food and Drug Administration’s (FDA) authorization to Pfizer’s covid vaccine. Although the looming concerns over the virus growth on both sides of the Atlantic and no-deal Brexit fears cushioned the downside in the safe-haven gold.

The risk sentiment has improved starting out a fresh week, weighing on the yellow metal, as markets await the vaccine rollout in the US after the FDA authorization early Saturday. Further, renewed Brexit optimism after the talks extended past a Sunday deadline added to the upbeat market mood.

The vaccine optimism counters the likelihood of a US fiscal stimulus deal to be reached this week, rendering gold-negative. According to sources, a $908 billion bipartisan coronavirus relief package will be introduced in the US Congress as early as Monday. Also, gold traders remain jittery heading into the much-awaited and the final FOMC monetary policy decision of this year.

Looking at the four-hour chart, the outlook for gold remains downbeat in the coming sessions. The spot has carved out a descending triangle formation on the given timeframe, with the upside attempts capped by the confluence of the falling trendline resistance and bearish 21-simple moving average (SMA) at $1841, as of writing.

The sentiment has turned somewhat bearish, as the 21-SMA has pierced through the 50-SMA from above, confirming a bear crossover. Adding credence to the downside, the Relative Strength Index (RSI) point south (currently at 44.58) below the midline.

Immediate support awaits at the horizontal 100-SMA at $1830, below which the triangle support at $1823.50 could be tested.

Alternatively, a sustained break above the aforesaid critical resistance could confirm the descending triangle breakout and negate the recent downside bias. The XAU bulls could then challenge the 200-SMA at $1861.

 

5) AUD/USD Remains With a Bullish Read

The AUD/USD is jumping to new all-time highs alongside the stock markets. Budding optimism over the discovery of a viable vaccine to combat the pandemic spurring global growth and a rebound in business activity post-pandemic is helping fuel demand for global growth-linked assets and currencies, like the Australian, Canadian, and New Zealand Dollars. Each of the commodity currency central banks – the Bank of Canada, Reserve Bank of Australia, and Reserve Bank of New Zealand – are expected to “kick the can down the road”, figuratively speaking, and not tinker with existing interest rates. Retail trader positioning suggests that the commodity currencies are on mostly bullish footing (bullish AUD, NZD; neutral CAD).

Usually, the week before Christmas is pivotal for financial markets, in what will be the last ‘full’ trading week of the year. With Christmas Day the following Friday and New Year’s Day the Friday after that resulting in otherwise shortened trading weeks also involving “low volume trading” , the economic calendar is about to thin out significantly. But before that happens, there are several central bank meetings due scheduled for the week ahead.