18-Dec-2020

1) GBP/USD Trades On Lower Ground Amid The Brexit Impasse
2) EUR/USD: Corrective Fall Could Be A Buying Opportunity Amid US Stimulus Hopes
3) Dollar Falls To Fresh Multi-Year Lows On Continued Risk Appetite

1) GBP/USD Trades On Lower Ground Amid The Brexit Impasse

GBP/USD is trading around 1.3550, down from the highs seen on Thursday as Brexit talks have hit snags according to UK officials. Intense deliberations continue in Brussels. UK retail sales beat estimates and US stimulus talks are eyed.

The US dollar is witnessing a broad-based oversold bounce and pushing GBP/USD lower.

At press time, the currency pair is trading just below its 50-hour Simple Moving Average (SMA) at 1.3536. The hourly chart Relative Strength Index shows a double top breakdown (bearish pattern). As such, the pair looks set to challenge an eight-day-long ascending trendline’s support located near 1.3510 at press time. A violation there would expose 1.3451.

The GBP/USD pair maintained its offered tone near mid-1.3500s and moved little following the release of UK monthly Retail Sales figures.

According to the data released by the UK Office for National Statistics (ONS), the headline sales contracted by 3.8% MoM in November as against a 4.2% fall anticipated. The core retail sales, stripping the auto motor fuel sales, dropped -2.6% MoM as compared to a 3.3% decline expected. The readings marked a notable drop from the previous month’s growth of 1.2% and 1.3%, respectively, albeit did little to prompt any fresh selling around the GBP/USD pair.

That said, the British pound remained under some selling pressure after the UK Prime Minister Boris Johnson poured cold water on the prospect of a last-minute Brexit deal. Johnson said that it was likely a deal wouldn’t be reached unless the European Union shifts its position substantially over key sticking issues, including fishing quotas. This, coupled with a modest US dollar short-covering bounce contributed to the weaker tone surrounding the GBP/USD pair.

A modest pullback in the equity markets seemed to be the only factor that extended some support to the safe-haven greenback amid near-term oversold conditions. However, hopes for additional US fiscal stimulus measures and the latest optimism over the rollout of COVID-19 vaccines might cap the attempted USD recovery. This makes it prudent to wait for some follow-through selling before confirming that the GBP/USD pair has topped out in the near-term.

Nevertheless, the incoming Brexit-related headlines will play a dominant role in influencing the sentiment surrounding the sterling and continue to infuse some volatility around the GBP cross.

2) EUR/USD: Corrective Fall Could Be A Buying Opportunity Amid US Stimulus Hopes

The EUR/USD pair advanced for the fourth consecutive session on Thursday and shot to fresh 32-month, levels beyond mid-1.2500s. The shared currency remained well supported by the previous day’s upbeat Eurozone Manufacturing PMs for December, which added to the optimism that the bloc’s economy is beginning to stabilize and that the recovery is gaining traction. On the other hand, the US dollar prolonged its recent bearish trend amid the prevalent upbeat market mood and provided an additional boost to the major. The global risk sentiment remained well supported by the recent positive news about COVID-19 vaccine rollouts, hopes for a Brexit deal, and progress on the latest US stimulus talks.

It is worth recalling that Republicans and Democrats in the US Congress – though haven’t yet agreed – sounded more positive on Wednesday and were reportedly closing in on approving a $908 billion COVID-19 relief package. The greenback was further pressured by the fact that the Fed showed a willingness to do more if needed and said that it will continue to support the economy through massive monetary stimulus. The Fed also promised to keep interest rates near zero for years to come. The USD selloff intensified further following the disappointing release of US Initial Weekly Jobless Claims, which unexpectedly rose to 885K last week as against a fall to 800K anticipated from 862K previous.

Separately, the Philly Fed Manufacturing Index also fell missed market expectations by a big margin and dropped to 11.1 for December from 26.3 previous. The incoming economic data further fueled market worries about the potential economic fallout from the ever-increasing coronavirus cases and the imposition of new restrictions. On a positive note, the US housing market data – Building Permits and Housing Starts – came in better than market estimates, albeit did little to provide any respite to the USD bulls. The pair finally settled near the top end of its daily trading range. However, overstretched conditions in the short-term prompted some profit-taking during the Asian session on Friday.

The pullback lacked any obvious fundamental catalyst and could be solely attributed to a modest USD short-covering bounce amid a softer tone around the global equity markets. Investors now look forward to the release of the German IFO Expectations Index for some trading impetus. There isn’t any major market-moving economic data due for release from the US. Hence, the broader market risk sentiment and US stimulus headlines should play a dominant role in influencing the USD price dynamics. This, in turn, should assist traders to grab some short-term opportunities on the last day of the week.

From a technical perspective, any meaningful pullback is more likely to find some support near the 1.2200 round-figure mark. This is followed by the 1.2180-75 resistance breakpoint (previous YTD tops). Failure to defend the mentioned support levels might prompt some technical selling. However, any subsequent fall might still be seen as a buying opportunity near the 1.2130 region, which marks 200-hour SMA and should now act as a strong near-term base for the major.

On the flip side, the overnight swing high, around the 1.2270-75 region, now seems to act as immediate resistance. Some follow-through buying now seems to push the pair further beyond the 1.2300 round-figure mark, towards testing the next major hurdle near the 1.2340-50 congestion zone.

3) Dollar Falls To Fresh Multi-Year Lows On Continued Risk Appetite

The greenback resumed its recent losing streak and fell to fresh multi-year lows against its peers on Thursday on optimism that lawmakers in the U.S. are nearing an agreement on the Covid-19 relief package together with a rise in U.S. stocks.

Reuters reported U.S. Senate Majority Leader Mitch McConnell said Thursday he hoped lawmakers would reach an agreement on a coronavirus relief bill Thursday, saying the agreement appeared close at hand. But McConnell told reporters who asked whether lawmakers would need to pass another stopgap funding bill to keep the government running while negotiations continue: “We may.”

On the data front, Reuters reported the number of Americans filing first-time claims for jobless benefits unexpectedly rose last week as a relentless wave of new COVID-19 infections hobbled business operations, offering more evidence that the economy’s recovery from the pandemic recession was faltering. Initial claims for state unemployment benefits increased 23,000 to a seasonally adjusted 885,000 for the week ended Dec. 12. The second straight weekly increase lifted claims to their highest level since September. Economists polled by Reuters had forecast 800,000 applications in the latest week.

Versus the Japanese yen, the dollar extends its recent losing streak. Price met renewed selling at 103.55 at Asian open and fell steadily. The pair then penetrated November’s low at 103.18 and fell to a 9-month low of 102.88 in New York morning on USD’s broad-based weakness before staging a rebound to 103.17 on short-covering.

The single currency found renewed buying at 1.2191 at Asian open and gained to 1.2243 in European morning on USD’s continued weakness and then rallied to a fresh 2-1/2 year high of 1.2273 in New York morning. Price last traded at 1.2266 near the close.

The British pound extended its recent winning streak on optimism that the European Union and the United Kingdom will reach a Brexit deal soon. Cable rose steadily from 1.3496 at Asian open to +a fresh 2-1/2 year at 1.3623 ahead of New York open before retreating in New York morning on profit-taking. Price later climbed to 1.3625 b4 falling back to 1.3548 in late New York.

Reuters then reported EU Brexit negotiator Michel Barnier said on Thursday that “good progress” was being made in UK talks and that “last stumbling blocks” stood in the way of sealing a new trade pact.   And in other news, the 27 national envoys to European Union hub Brussels will get an update on the latest in the trade talks with Britain at 0830 GMT on Friday, diplomatic sources in the bloc said.     They added that the EU was now seeing the weekend as a target date for sealing the elusive new deal with Britain, though London said earlier on Thursday that chances for an agreement were less than 50%.