09-Dec-2020

1) Dollar Ends Mixed After Recent Fall, Sterling’s Whipsawed Moves Continue On Brexit News
2) Canadian Dollar Wavers Ahead Of The BOC Interest Rate Decision
3) GBP/USD: Sterling Remains Weighed By Brexit Uncertainty
4) EUR/USD: Holds In A Familiar Trading Range, Bulls Await Thursday’s ECB Decision

1) Dollar Ends Mixed After Recent Fall, Sterling’s Whipsawed Moves Continue On Brexit News

The greenback traded broadly sideways on Tuesday and ended largely flat as investors booked profit in directionless trading after the USD’s recent losing streak. Sterling swings wildly on Brexit headlines and briefly jumped at New York’s open on news that the UK will withdraw clauses in its government bill.

Versus the Japanese yen, the greenback swung broadly sideways in directionless Tuesday’s session as the focus was on other major currencies. The pair rebounded from 103.96 at Asian open to 104.14 at European open and then to 104.20 in New York morning before trading sideways.

Although the single currency gained from 1.2105 at Asian open to 1.2122, the price briefly dipped to 1.2096 in early European trading before rising to 1.2133 but only to weaken in tandem with a cable to 1.2108. Later, the pair rebounded again to 1.2133 in New York morning and then moved broadly sideways. Price last traded at 1.2101 near the close.

Reuters reported Eurostat said gross domestic product in the 19-country bloc increased by 12.5% in the July-September period from the second quarter, the largest rise since the agency began collecting data in 1995. This was a slight downward revision from the 12.6% estimate from November. Year-on-year, this amounted to a contraction of 4.3%, slightly above the previous estimate of a 4.4% drop. Employment in the eurozone increased by 1.0% in the third quarter after a 3.0% decline in the second, Eurostat said in the same release, slightly revising upwards its previous estimate for July-Sept.

The British pound went through a highly volatile session on Brexit headlines. Cable met renewed selling at 1.3387 in Australia and fell to 1.3324 in European morning before recovering to 1.3366 but then dropped to +session lows at 1.3289 (Reuters)+ at New York open as Brexit hopes faded. However, the pair then erased intra-day losses and jumped to 1.3393 after the United Kingdom agreed to withdraw clauses in the Internal Market Bill. The price quickly erased gains and weakened again to 1.3296 as an impasse on Brexit negotiations remained. Cable later ratcheted higher in late New York on news U.K. Pm Johnson will travel to Brussels Wednesday to meet with European Commission President von der Leyen.

Reuters reported British Prime Minister Boris Johnson said on Tuesday there might come a moment when London would have to acknowledge that it was time to go for a no-deal Brexit and abandon talks. Also, Britain said on Tuesday it would pull clauses in a draft law that breach the Brexit Withdrawal Agreement after it clinched a deal with the European Union over implementing the treaty. Michael Gove, one of Prime Minister Boris Johnson’s most senior ministers, announced an “agreement in principle on all issues, in particular with regard to the Protocol on Ireland and Northern Ireland.”

The Britain government will now withdraw clauses 44, 45, and 47 of the UK Internal Market Bill, and not introduce any similar provisions in the Taxation Bill, those clauses would have broken international law. The deal – which is separate to trade talks – will ensure that the Withdrawal Agreement is fully operational as of Jan. 1, European Commission Vice-President Maros Sefcovic said. Later, Reuters confirmed Britain and the European Union are facing the prospect of a no-trade deal Brexit if an impasse is not broken in the next day or two, particularly in the area of the level playing field, Irish Prime Minster Micheal Martin said on Tuesday.

2) Canadian Dollar Wavers Ahead Of The BOC Interest Rate Decision

The price of crude oil is wavering today after the American Petroleum Institute (API) released last week’s inventories data. The report said that US inventories rose by 1.4 million barrels after rising by 4.16 million in the previous week. Economists polled by Reuters were expecting the data to show that the inventories fell by more than 1.5 million barrels. Later today, we will receive the official inventory data from the Energy Information Administration (EIA). The data comes a week after OPEC decided to boost production by more than 500k barrels a day starting from January.

The Canadian dollar fell slightly against the USD ahead of the important interest rate decision by the Bank of Canada. Economists believe that the central bank will leave its policy tools unchanged as the country’s economy continues its recovery process. This will include leaving the main interest rate unchanged at 0.25%. They also believe that the bank will continue tapering its asset purchases to possibly below c$4 billion per week. The rate decision will come at a time when the Canadian economy is recovering, supported by relatively higher oil prices.

The USD/CAD pair is trading at 1.2809, which is slightly above this week’s low of 1.2769. On the four-hour chart, the price is significantly below the short and medium-term moving averages. The RSI has also moved from the oversold level of 28 to the current 40. The Average True Range (ATR) is also at the lower side, which could be calm before the storm ahead of the BOC decision.

3) GBP/USD: Sterling Remains Weighed By Brexit Uncertainty

Cable remains at the back foot and probes again below 1.33 handle in US trading on Tuesday, despite initial positive signal from Monday’s downside rejection at 1.3224 and subsequent bounce near 1.3400 zones.

Brexit uncertainty weighs on sterling, with today’s comments from UK PM Boris Johnson who said that Britain could abandon trade talks – just three weeks before the end of the post-Brexit transition period – adds to the negative tone.

Daily techs point to rising downside risk as momentum continues to head south and approaching the borderline of negative territory and daily cloud twists next week and could attract bears.

Rising 20DMA (1.3308) and double-bottom of 27 Nov / 2 Dec (1.3285/87), marks initial pivots, close below which would risk extension towards next trigger at 1.3208 (Fibo 38.2% of 1.2675/1.3538 rally).

Failure to clearly break 1.3308/1.3285 supports would keep bears on hold for extended consolidation, but near-term bias is expected to remain negative while the action stays below the 1.3400 barriers.

4) EUR/USD: Holds In A Familiar Trading Range, Bulls Await Thursday’s ECB Decision

The EUR/USD pair struggled to capitalize on its intraday positive move and finally settled in the red for the third consecutive session on Tuesday. The early uptick lacked any obvious fundamental catalyst and was sponsored by some cross-driven strength stemming from a modest uptick in the EUR/GBP, led by the emergence of fresh selling in the sterling. However, growing market worries about a sharp rise in new coronavirus extended some support to the safe-haven US dollar and kept a lid on any strong gains for the major.

On the economic data front, the Eurozone Q3 GDP growth was revised down slightly to 12.5% QoQ. The disappointment, to a larger extent, was offset by the better-than-expected German ZEW Economic Sentiment Index, which improved to 55.0 for December. For the Eurozone, the gauge rose to 54.4 from 32.8 and surpassed even the most optimistic estimates, most likely due to the announcement of vaccine approvals for the highly contagious COVID-19. The data, however, failed to impress bullish traders or provide any meaningful impetus to the major.

Increasing bets that the ECB could ease further by expanding the Pandemic Emergency Purchase Program (PEPP) prompted some selling at higher levels. Despite the pullback, the pair continued showing some resilience below the 1.2100 mark remained well within a four-day-old trading range. Meanwhile, positive news on COVID-19 vaccines and the ongoing debate over move US fiscal stimulus measures remained supportive of the prevalent risk-on mood. This, in turn, undermined the safe-haven USD and assisted the pair to regain traction on Wednesday.

The pair was last seen hovering near the overnight swing highs, around the 1.2130 region, though the upside is likely to remain limited ahead of the highly anticipated ECB monetary policy meeting on Thursday. In the meantime, the broader market risk sentiment will continue to influence the greenback and produce some trading opportunities amid a relatively lighter Eurozone economic docket, highlighting the release of German Trade Balance figures.

From a technical perspective, the recent pullback from the highest since April 2018 has been along a downward sloping channel. Given the recent strong rally from the 1.1600 neighborhood, the mentioned channel constitutes the formation of a bullish continuation flag pattern on a 1-hourly chart. However, RSI on the daily chart is still holding in the overbought territory and warrants some caution for bullish traders. Hence, it will be prudent to wait for a sustained break through the channel resistance, currently near the 1.2155-65 region, before positioning for any further appreciating move.

A sustained breakthrough the trend-channel will be seen as a fresh trigger for bullish traders and lift the pair beyond the 1.2200 mark, towards the 1.2235-40 resistance zone. 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.

On the flip side, any meaningful slide below the 1.2100 mark is more likely to attract some dip-buying near the trend-channel support, around the 1.2060 region. This mentioned level coincides with 200-hour SMA, which if broken decisively will negate the bullish set-up and suggest that the pair might have topped out in the near-term. The pair might then turn vulnerable to break below the key 1.2000 psychological mark and prolong its corrective slide.