23-Dec-2020

1) AUD/USD Lower Again As USD Stronger Across The Board
2) GBP/USD: Bulls Remain At The Mercy Of Incoming Brexit Headlines
3) EUR/USD: Weekly Swing Lows, Around 1.2130-25 Holds The Key For Bulls

1) AUD/USD Lower Again As USD Stronger Across The Board

The Australian Dollar opens lower again this morning oscillating around the 0.7050 handles. With liquidity thinner than normal ahead of the Christmas holiday, the risk-off mood continued to drag the Aussie lower on Monday as concerns continue to grow over the new COVID-19 strain detected in the UK. There was also further broad-based USD strength as Brexit negotiations continued to falter, seeing large flows out of GBP and into the safe-haven USD.

We are set for a very quiet day on the data front. The sole release of interest for Australian Dollar trades is the release of preliminary Australian trade data for the month of November by the Australian Bureau of statistics.

Having touched intraday lows of 0.7517 overnight, this now acts as our first level of support; however, a break below this handle could open the door for a retreat back to previous lows of 0.7460. On the topside, we still see resistance on moves approaching 0.76, whilst further resistance is also seen at 0.7640.

Brexit headlines were once again front of center for financial markets overnight as hopes that UK and EU lawmakers could reach a deal were dashed. Michael Barnier, the EU’s chief Brexit negotiator, confirmed that the fisheries issue continues to be the main stumbling block in trade talks with the UK. The news sees GBP/USD stuck around the 1.3350 level whilst EUR/USD has slipped below 1.2200 to trade around 1.2150.

As we predicted in yesterday’s commentary, the $900b US COVID-19 relief package was passed by the US Congress late on Monday. It now just needs to be signed off by United States President Donald Trump before the cheques are set to go out.

2) GBP/USD: Bulls Remain At The Mercy Of Incoming Brexit Headlines

A combination of factors failed to assist the GBP/USD pair to capitalize on the previous day’s solid bounce of over 300 pips from sub-1.3200 levels, instead prompted some fresh selling on Tuesday. The British pound was pressured by the incoming Brexit-related headlines that the EU has rejected the latest UK proposal on fisheries. Adding to this, the EU’s chief negotiator said that there are still deep rifts over fishing rights. This comes on the back of British Prime Minister Boris Johnson’s warning on Monday that there are still problems in securing a post-Brexit trade deal.

Apart from this, the discovery of a new fast-spreading coronavirus variant and the imposition of strict lockdowns/travel restrictions in the UK continued weighing on investors’ sentiment. This, in turn, benefitted the safe-haven US dollar and exerted some additional downward pressure on the major. The USD was further supported by the final US GDP print, which showed that the economy expanded by 33.4% annualized pace during the third quarter as against 33.1% estimated. The USD bulls largely shrugged off disappointing the Conference Board’s US Consumer Confidence Index, which plunged to a four-month low of 88.6 for December amid worries about the ever-increasing COVID-19 cases.

The buying interest around the USD picked up pace after the US President Donald Trump threatened not to sign a long-awaited $892-billion coronavirus relief bill. In a video posted on Twitter, Trump said the bill was a disgrace and added that he wanted to increase ridiculously low $600 checks for individuals to $2000. The development aggravated the intraday selling around the major amid relatively thin liquidity conditions ahead of the Christmas Holidays. The downfall, however, stalled near the 1.3300 mark and the pair managed to regain positive traction during the Asian session on Wednesday amid renewed optimism over the possibility of a last-minute post-Brexit trade deal.

An ITV reporter tweeted – citing a UK source – that an agreement on the UK-EU trade deal is possible on Wednesday. This, along with some fresh selling around the greenback, pushed the pair back above the 1.3400 round-figure mark. In the absence of any major market-moving economic releases from the UK, developments surrounding the Brexit saga will play a dominant role in influencing the sentiment surrounding the sterling. Later during the early North American session, key US macro data – Durable Goods Orders and Initial Weekly Jobless Claims – will also be looked upon for some meaningful trading opportunities.

From a technical perspective, the two-way price moves since the beginning of this week point to indecision and warrants some caution for aggressive traders. This makes it prudent to wait for a sustained move in either direction before positioning for a firm near-term trajectory. In the meantime, the 1.3460-65 region now seems to act as an immediate resistance, above which the pair is likely to attempt a move to reclaim the key 1.3500 psychological mark. Some follow-through buying beyond the 1.3525 region will shift the near-term bias back in favor of bullish traders and push the pair towards the 1.3600 mark. The momentum could further get extended to last week’s swing highs, around the 1.3625 region, above which the pair seems all set to prolong its recent strong upward trajectory.

On the flip side, bearish traders might now wait for sustained weakness below the 1.3300 mark before placing fresh bets. The pair might then turn vulnerable to accelerate the fall back towards challenging the lower boundary of a three-month-old ascending trend-channel. The mentioned support is currently pegged near the 1.3200 round-figure mark, which if broken decisively will set the stage for an extension of the recent sharp pullback from over two-and-half-year lows, set last Thursday.

3) EUR/USD: Weekly Swing Lows, Around 1.2130-25 Holds The Key For Bulls

The EUR/USD pair witnessed an intraday turnaround on Tuesday following an early uptick to levels just above mid-1.2200s amid a strong pickup in the US dollar demand. Sentiment remained fragile amid the discovery of a new fast-spreading coronavirus variant and the imposition of strict lockdowns/travel restrictions in the UK. This, along with persistent Brexit uncertainties, forced investors to take refuge in traditional safe-haven assets, including the greenback.

The USD was further supported by the final US GDP print, which showed that the economy expanded by 33.4% annualized pace during the third quarter as against 33.1% estimated. Separately, the Conference Board’s US Consumer Confidence Index plunged to a four-month low level of 88.6 for the current month amid growing worries about the ever-increasing COVID-19 cases. Earlier on Tuesday, Germany published the GFK Consumer Climate Index dropped slightly to -7.3 for January from -6.8 in December. The reading was better than -9.5 anticipated, albeit did little to impress bulls.

The buying interest around the USD picked up paced after the US President Donald Trump threatened not to sign a long-awaited $892-billion coronavirus relief bill. In a video posted on Twitter, Trump said the bill was a disgrace and added that he wanted to increase ridiculously low $600 checks for individuals to $2000. This, in turn, aggravated the selling pressure around the major and dragged it to mid-1.2100s in relatively thin liquidity conditions ahead of the Christmas Holidays.

Despite the supporting factors, the USD has been struggling to capitalize on this week’s recovery move from over two-and-half-year lows, instead edged during the Asian session on Wednesday. This, in turn, assisted the pair to regain positive traction and move back closer to the 1.2200 mark. In the absence of any major market-moving economic releases from the Eurozone, the pair remains at the mercy of the USD price dynamics.

Meanwhile, the US economic docket highlights the release of Durable Goods Orders and Initial Weekly Jobless Claims. Apart from this, the broader market risk sentiment might further influence the greenback and provide some trading impetus.

From a technical perspective, the pair, so far, has managed to defend a seven-week-old ascending trend-line. This is closely followed by the 1.2130-25 horizontal support, which if broken decisively will be seen as the first sign of bullish exhaustion. Some follow-through selling below the 1.2100 mark will add credence to the bearish break and turn the pair vulnerable to accelerate the fall further towards challenging the key 1.2000 psychological mark.

On the flip side, the 1.2200 round-figure mark now seems to act as immediate resistance, above which the pair is likely to climb back to the 1.2255-60 supply zone. Bulls might then wait for a sustained strength beyond YTD tops, around the 1.2275-80 region, before positioning for any further gains. The subsequent move up has the potential to push the pair to the 1.2300 mark en-route the next hurdle near the 1.2335-40 region.