Technical Analytics Report


GBP/USD faces further upside above 1.3710

NEWS |

Cable is seen advancing further on a breakout of the 1.3710 level in the next weeks.

Key Quotes

24-hour view: “GBP closed on a firm note at 1.3636 yesterday (+0.35%) before extending its gains this morning. Upward momentum is beginning to improve and there is room for GBP to edge above the strong resistance at 1.3670. In view of the nascent build-up in momentum, the next resistance at 1.3700 is unlikely to come into the picture. Support is at 1.3615 followed by 1.3585.”

Next 1-3 weeks: “We noted on Monday (18 Jan, spot at 1.3585) that ‘risk is beginning to shift to the downside but any weakness is viewed as part of a 1.3500/1.3670 range’ GBP subsequently dropped to 1.3522 before staging a relatively robust rebound. While GBP could move above 1.3670, it has to close above 1.3710 before a sustained advance can be expected. At this stage, the prospect for such a move is not high but it would remain intact as long as GBP does not move below 1.3550 within these few days. Looking ahead, the next resistance above 1.3710 is at 1.3760.”

EUR/USD now looks to 1.2080

NEWS |

 EUR/USD grinding lower to 1.2010 if 1.2080 is cleared in the near-term.

Key Quotes

24-hour view: “EUR rose to 1.2144 yesterday before easing off to close on a firm note at 1.2128. Upward momentum has improved a tad and the bias is tilted to the upside. That said, any advance in EUR is expected to face stiff resistance at 1.2170. The next resistance at 1.2200 is unlikely to come under threat. On the downside, a break of 1.2105 would indicate the current mild upward pressure has eased. The next support below 1.2105 is at 1.2080.”

Next 1-3 weeks: “We highlighted on Monday (18 Jan, spot at 1.2070) that EUR is likely to weaken further and ‘the next level to focus on is at 1.2010’. EUR subsequently dropped to 1.2052 before staging a strong rebound yesterday (high of 1.2144). Shorter-term momentum has improved a tad and a break of 1.2170 (no change in ‘strong resistance’ level) would indicate that EUR is not ready to move to 1.2010 just yet. In order to rejuvenate the flagging downward momentum, EUR has to move and stay below 1.2080 within these 1 to 2 days or the odds for a move lower to 1.2010 would diminish quickly.”

USD/JPY flirts with session lows, around 103.75-70 region

 NEWS |

USD/JPY came under some renewed selling pressure and eroded a major part of the overnight gains.

A softer tone surrounding the USD was seen as a key factor exerting downward pressure on the pair.

An uptick in the US bond yields, the underlying bullish sentiment helped limit losses for the major.

The USD/JPY pair edged lower through the Asian session and was last seen hovering near the lower end of its daily trading range, around the 103.75-70 region.

The pair witnessed some fresh selling on Wednesday and extended the previous session’s intraday pullback from levels beyond the 104.00 round-figure mark. The downtick was sponsored by a softer tone surrounding the US dollar, though seems limited amid the underlying bullish sentiment in the global financial markets.

The greenback remained depressed as investors turned cautious ahead of President-elect Joe Biden’s inaugural ceremony on Wednesday. That said, hopes for more aggressive US fiscal spending under Biden’s presidency continued lending support to the US Treasury bond yields, which should help limit any meaningful USD downside.

Dollar listens to a teacher. Forecast as of 20.01.2021

Yellen’s speech in the US Congress met investors’ expectations. Stock bulls hope for an additional fiscal stimulus, and dollar bears believe the Treasury will not interfere. Where will the EURUSD go? Let us discuss the Forex outlook and make up a EURUSD trading plan.

Monthly US dollar fundamental forecast

When the verdict is not as strict as expected, you feel relief. Markets expected Janet Yellen to voice her adherence to a strong dollar policy. However, Yellen says the US doesn’t seek a weaker dollar to gain a competitive advantage. The EURUSD bears are discouraged as the Treasury secretary nominee says the Treasury should oppose attempts by other countries to manipulate currency values artificially. Will the ECB resort to verbal interventions after that?

Markets must have missed the rural teacher. This is how investors once called Janet Yellen for her ability to sort things out. Yellen satisfied the market with her speech in Congress. US stocks bulls hope for an additional fiscal stimulus of $1.9 trillion; US dollar bears believe that the Treasury won’t oppose the dollar weakening, suggesting the value of the US dollar should be determined by markets. At the same time, Yellen expressed her opposition to the euro weakening.

If the European Central Bank wants to press the EURUSD down, it should outplay the Fed. Yes, Christine Lagarde and her fellow central bankers were aggressive during the recession, but they were hardly more aggressive than the Fed. The Governing Council can’t affect foreign exchange rates now. The QE expansion won’t accelerate inflation and will face serious opposition from the hawks. The transition to a yield targeting policy will strengthen the euro by reducing the volume of asset purchases. By the way, according to the Bloomberg source familiar with the matter, the ECB is already doing something similar, narrowing the yield spreads between the euro-area government bonds. Christine Lagarde will not dare to speak about it aloud. There are the Japanese and Australian experiences with the subsequent growth of the yen and “Aussie” rates.

As long as most investors expect the dollar to weaken, the ECB’s failure to cut European bond yields suggests the euro should be growing in value. There is another problem. The EURUSD bulls bet on entirely different conditions.

Remember, the bullish euro projections for 2021 were based on the expected victory over the pandemic, exit from the lockdowns, and a rapid rebound of the euro-area economy. However, the vaccination progresses extremely slowly in Europe. About 4% of people received the vaccination in the US, while about 1% of people were inoculated in Germany.Monthly EURUSD trading plan

The lockdown in the euro area could last longer than expected. If so, the euro-area GDP recovery won’t be that fast, and the EURUSD won’t reach level 1.25 soon. Of course, the rally might continue amid the euphoria about the pair consolidation above 1.208, followed by a successful test of the resistance at 1.215. However, I believe the euro-dollar should enter a short-term consolidation range of 1.208-1.238. If the bulls fail to break out the resistance at 1.215, the consolidation range will move lower.

EURUSD current rate in the Forex market:

EURUSD = 1.21539

Sell: 1.21539

Buy: 1.21539

Two trades to watch: GBP/USD, WTI

GBP/USD rises ahead of CPI data, Biden inauguration Oil supported by US stimulus hopes ahead of API data

GBP/USD rises ahead of CPI data

GBP/USD is pushing higher thanks in part to US Dollar weakness after Janet Yellen forcefully supported big stimulus for the US economy.

There are two key events today. In the US it is the inauguration of Joe Biden. This is not expected to be a market moving event but will mark the start of a new era where the Democrats control both branches of government

UK CPI data for December is expected to show +0.5% YoY increase, up from 0.3%. Core CPI is expected print at 1.6%. A strong reading could put more distance between the BoE and negative interest rates.

GBP/USD technical analysis

GBP/USD is extending gains for a second straight session after rebounding off 1.3515 earlier in the week.

The pair trades within an ascending channel dating back to late September. It also trades above its 20 & 50 sma of the 4 hour chart indicating an established bullish trend.

The RSI is supportive of more upside at 61.7, above 50 but below the 70 overbought level.

Bulls could target a move back towards 1.3711 the multi-year high, before 1.38 the upper band of the ascending channel.

Immediate support can be seen at 1.36, the confluence of the 20 & 50 sma, prior to 1.3525 Monday’s low.

Oil price roses on US stimulus optimism

WTI extends gains rising to $53.40 in early European trade boosted by the prospect of the US federal government acting big to support the US economy.

API inventory data due later

WTI technical analysis

WTI continues its recovery from below $52 reached at the start of the week, pushing back above its 20 & 50 sma on the 4 hour chart and trading above the ascending trendline.

The RSI shows strong conditions, above 50 but lower than the overbought level of 70. This, in addition to trading above the key supports suggests that there could be more upside to be had.

That said the $53.90 level the monthly high, closely followed by $54.00 round number could challenge WTI bulls.

A break through $54.00 could see $54.70 come into play the pre-pandemic high from February 2020.

On the downside $52.50, the confluence of the 20 & 50 sma could offer immediate support followed by $51.80 this week’s low and $50.50 before the psychological level $50.

Pound develops immunity. Forecast as of 20.01.2021

Britain is one of the countries most affected by COVID-19, so its desire to vaccinate the population and develop herd immunity as soon as possible is understandable. How will this affect GBPUSD and EURGBP? Let us discuss this topic and make up a trading plan

Monthly pound fundamental forecast

At the moment, investors should pay maximum attention to the vaccination process. Lifting of lockdowns, the speed of economic recovery, and central banks’ readiness to move towards normalization of monetary policy depend on the success of the vaccination campaign. In this respect, the success of the pound looks more than logical. The UK has got down to business, which cannot but inspire GBPUSD bulls and EURGBP bears.

You can’t say that Britain is ahead of the rest of the world. Vaccination rates in Israel, Saudi Arabia, and Bahrain are impressive, but the country is second to none in Europe. In late December, 5.9% of the UK population was vaccinated. For comparison, in Denmark – the best continental country in Europe in terms of vaccination rates, this figure was 2.8%. London is not stingy with spending money (the UK government has spent £280 billion to combat the pandemic, including £11.7 billion to the purchase, manufacture, and deployment of Covid-19 vaccines) and intends to increase the number of vaccinations to 15 million by mid-February. By the beginning of May, about 60% of the population will be inoculated, which is quite enough to develop herd immunity.

Immunity is developed not only by the UK’s residents but also by the economy. In November, it sank 2.6% M-o-M, while Bloomberg experts forecast -4.6%. A second lockdown was introduced in the UK in early November, but a double-dip recession in the fourth quarter was most likely avoided due to the manufacturing sector. For the worst-case scenario to come true, in December, the GDP should drop by 1%, which is unlikely in the context of a partial opening of the economy.

As a result, GDP forecasts for 2020-2021 are improving, which reduces the likelihood of introducing negative interest rates by the Bank of England and contributes to strengthening the pound against major world currencies. What’s more, BoE chief economist Andy Haldane believes that vaccination successes will boost the UK economy in the second quarter. As a result, according to the expert, more than 1 million people who lost their jobs due to the pandemic and recession will be able to return to the labor market.

EURGBP and GBPUSD trading plan

In my opinion, if the European Union doesn’t accelerate the vaccination process, the EURGBP downward movement in the direction of 0.875-0.88 risks continuing. The EU, with a population of 450 million, is facing criticism because the authorities ordered only 300 million doses of Pfizer/BioNTech vaccine. This will be enough to vaccinate 150 million people by the autumn. According to critics, it was necessary to buy ten times more vaccines, spending €20-30 billion – an insignificant amount compared to the cost of European lockdown.

As for the GBPUSD, the strategy of buying the pair on pullbacks with targets in the zone of 1.40-1.42 is still an excellent option. I see no reason to refuse it. Continue to use corrections to open the pound long positions.

GBPUSD current rate in the Forex market:

GBPUSD = 1.36983

Sell: 1.36983

Buy: 1.36983 

Mood: 69.6%

1-day change: 0.62

 

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