Forex FOREX PRO WEEKLY, December 28 - 01, 2021

Sive Morten

Special Consultant to the FPA
Messages
15,280
Fundamentals

As this week, as the next one probably will have limited amount of driving factors due to the holidays. This week actually, we've got only three - first is UK new CV virus lockdown, Brexit deal and unsigned 900 Bln. stimulus pack.

As Reuters reports, millions of Americans saw their jobless benefits expire on Saturday after U.S. President Donald Trump refused to sign into law a $2.3 trillion pandemic aid and spending package, protesting that it did not do enough to help everyday people. Trump stunned Republicans and Democrats alike when he said this week he was unhappy with the massive bill, which provides $892 billion in badly needed coronavirus relief, including extending special unemployment benefits expiring on Dec. 26, and $1.4 trillion for normal government spending.

Without Trump’s signature, about 14 million people could lose those extra benefits, according to Labor Department data. A partial government shutdown will begin on Tuesday unless Congress can agree a stop-gap government funding bill before then.

At the same time, we have to be reasonable and understand why D. Trump has not signed this bill. He has complained that the bill gives too much money to special interests, cultural projects and foreign aid, while its one-time $600 stimulus checks to millions of struggling Americans were too small. He has demanded that be raised to $2,000.

Why would politicians not want to give people $2,000, rather than only $600?...Give our people the money!” the billionaire president tweeted on Christmas Day, much of which he spent golfing at his Mar-a-Lago resort in Palm Beach, Florida.

Many economists agree the bill’s aid is too low but say the immediate support is still welcome and necessary. A source familiar with the situation said Trump’s objection to the bill caught many White House officials by surprise. While the outgoing president’s strategy for the bill remains unclear, he has not vetoed it and could still sign it in coming days. On Saturday, he was scheduled to remain in Mar-a-Lago, where the bill has been sent and awaits his decision.

“The financial markets have not reacted notably to this threat from President Trump to block the package – our sense is there remains an expectation that Trump will sign it in the end,” MUFG analysts said in a research note.

They added that the market’s indifference could shift to risk aversion and a rebound for the dollar if Republicans in the Senate blocked Trump’s larger stimulus demand.

"Medium-term trends still favour (being) short dollars, short U.S. Treasuries and long commodities. The recent dollar index break below 90 supports our view that dollar weakness can persist next year," said Bank of America analyst Paul Ciana. But, he added, big recent gains in currencies such as the Aussie dollar, the Swiss franc and Chinese yuan mean a pullback might be due. "These are warning signs the dollar selloff may take a breather or bounce in the next two to four weeks."

BREXIT

Boris Johnson’s “oven-ready” Brexit is almost cooked in time for Christmas. A year after the British prime minister won a landslide by promising to complete the country’s departure from the European Union – and just seven days before the end of the transition period – the two sides finalized a trade deal. Though the compromise avoids painful tariffs and a dangerous rupture in relations, it’s a much harder form of Brexit than Johnson and others envisaged during the referendum of 2016. The costs are about to become clear.

Leaving the EU’s single market and its customs union – an unprecedented act for a developed economy – will introduce new frictions to trade. Exporters will face new forms and customs checks. UK-based banks will no longer be able to offer their services across the EU. Trade in stocks and derivatives will depend on the whim of regulatory equivalence granted by Brussels. British citizens will face new restrictions on their ability to work and study in the bloc. The Bank of England has said that, even with a trade deal, Britain’s gross domestic product is likely to suffer a 1% hit from Brexit in the first quarter of 2021. And Britain’s budget forecasters have said the economy will be 4% smaller over 15 years than it would have been if Britain had stayed in the bloc.

Four and a half years after the referendum, the benefits to Britain of leaving the EU remain fuzzy. Leaving without a trade deal would have been far worse. But this outcome is only marginally better.

JPMorgan said the
EU had secured a deal that allowed it to retain nearly all its advantages from trade with the UK but with the ability to use regulations to “cherry pick” among sectors where the UK had advantages - such as services.

“The unity and strength of Europe paid off,” French President Emmanuel Macron said. “The agreement with the United Kingdom is essential to protect our citizens, our fishermen, our producers. We will make sure that this is the case.”

Deal will preserve Britain’s zero-tariff and zero-quota access to the bloc’s single market of 450 million consumers, but will not prevent economic pain and disruption for the United Kingdom or for EU member states. The trade pact will not cover services, which make up 80% of the British economy, including a banking industry that positions London as the only financial capital to rival New York.

The deal will also support the peace in Northern Ireland - a priority for U.S. President-elect Joe Biden, who had warned Johnson that he must uphold the 1998 Good Friday Agreement.

The deal governing post-Brexit trade needs the approval of both the European Parliament and the EU’s 27 member states. Ambassadors from EU countries will meet on Dec. 25 to start reviewing the deal. The European Parliament said on Thursday it would analyse the deal in detail before deciding whether to approve the agreement in the new year.

The British parliament, as divided as the country over Brexit, will debate and vote on the deal on Dec. 30, just one day before the transition period lapses.

While the deal was a relief to every market player, the bare-bones nature of the pact leaves Britain far more detached from the EU, analysts say, suggesting the discount that has dogged UK assets since 2016 will not vanish soon.

“Now the deal is done, over time, we are going to start to see economic impact of leaving the EU. And I think that’s clearly negative for the UK economy,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. I would think the pound will slip after all things positive about a deal have already been priced in,” he added.

Overall sentiment on the deal was mixed due disappointment on US Stimulus pack. Also hindering the UK economy in the near-term, the prevalence of COVID-19 cases in England jumped, with one in every 85 people infected in the latest week as a new infectious strain of virus rages in the south east of the country.

Other topics

The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week, though remaining elevated as more businesses face restrictions and consumers hunker down amid an explosion of new COVID-19 cases. Initial claims for state unemployment benefits fell 89,000 to a seasonally adjusted 803,000 for the week ended Dec. 19, the Labor Department said. Economists polled by Reuters had forecast 885,000 applications in the latest week.

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Other data on Wednesday showed consumer spending dropping in November for the first time since the recovery from the coronavirus recession started in May. Spending was depressed by a plunge in income.

Even housing, the economy’s star performer is getting tired, with sales of new single-family homes tumbling to a five-month low in November. The reports followed on the heels of data on Tuesday showing consumer confidence slumping to a four-month low in December. The department also reported that new home sales plunged 11.0% to a seasonally adjusted annual rate of 841,000 units last month, the lowest level since June.

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They bolstered analysts’ predictions of a sharp slowdown in growth in the fourth quarter after fiscal stimulus led to a historic surge in gross domestic product in the third quarter.

The economy lost momentum in November,” said Chris Low, chief economist at FHN Financial in New York.

“The labor market is still much worse than it was before the pandemic, and the pace of improvement has slowed since the summer,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.


A second report from the Commerce Department showed consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.4% in November after gaining 0.3% in October. Consumers cut back on purchases of goods like new motor vehicles, clothing and footwear, offsetting increases in spending on food and beverages from supermarkets and liquor stores. They also slashed spending at restaurants and bars, as well as on accommodation and household electricity and gas.

Personal income decreased 1.1% in November, pulled down by the expiration of a government loan program for businesses hit by COVID-19. There were also declines in coronavirus-related government payments to farmers and ranchers, as well as unemployment subsidies. It was the fifth drop in income in seven months. As a result, Americans dipped into savings. The saving rate fell to a still-high 12.9% from 13.6% in October.
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Growth estimates for the fourth quarter are mostly below a 5% rate. Economists expect modest growth or even a contraction in the first quarter of 2021.

Risks are skewed to the downside for growth in the fourth quarter and first quarter of next year,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.


That's being said, guys, the short-term risk of dollar pullback are mostly tactical and consists of dollar oversold and temporal risk aversion in a case of D. Trump initiative to increase stimulus pack could be blocked in Senate. As Bank of America's analysts suggests - this risk should be played out in December-January. In longer-term the Dollar downside trend stands intact as US economy shows signs of weakness, situation with the virus stands difficult, political risks also still holds.

Technicals

Monthly

This week we do not have significant performance on the market. As we've said last time, December month shows good performance with minor reaction on COP target and acceleration on CD leg. As 1.25 resistance has been tested already in the beginning of 2018, EUR has relatively free area till the previous top around 1.25-1.2550 level. Overbought area stands around 1.27 and doesn't prevent upward action at all. MACD trend stands bullish, so on monthly chart we do not see any technical barriers for further EUR appreciation. The next target above 1.25 stands around 1.2850-1.30, that is OP and extension of BC retracement swing:
eur_m_28_12_20.png


Weekly

Last week we've set next target here that is XOP around 1.2450. It looks realistic as it stands in "performance envelope" compares to overbought range. So, gradually market could try to hit it within a week. As major reaction on OP target is over, by market mechanics, price stands in extension mode as it is going to XOP. It means that any deep retracement here is irrational and only Fib levels of 1.16-1.22 swing are acceptable as pullback targets.

Still, we have some sources of fundamental risks as we've mentioned before, although there is some uncertainty around them. Technically, chances on pullback have appeared as well, as we've got "bearish harami" pattern here. It could be due thin market and maybe will be cancelled next week, but in general it is bearish and suggests downside reaction of different strength - sometimes major reversal, sometimes technical pullback, which is more probable in our case. Current week is inside one, indicates indecision, so, market should follow in the direction of breakout out from this pattern. It doesn't hazard to our major tendency to XOP, but it just means that before upside continuation, EUR could show the pullback. For example, it could be re-testing of previous top around OP.
eur_w_28_12_20.png


Daily

Daily trend turns bearish and the chart doesn't bring something really new, as last two sessions were inside ones as well. In general it tells the same as on weekly. Here we have the grabber that is still valid. If it works - weekly pattern will be broken up and EUR continues to next target, while grabber's failure means downside breakout and deeper retracement.
Wed and Thu candles shows longer upper tails, making hint on some sell-off. On Monday we should see either this is the real pressure or just result of thin market before the holidays.
eur_d_28_12_20.png


Intraday

As on 4H chart as on 1H chart EUR keeps intraday bearish signs that makes us stay aside for awhile from taking long position, except if you want to trade daily grabber directly. 4H chart has the divergence that potentially could lead to appearing of H&S pattern here. On weekly chart, by the way, divergence also could be formed, if trend turns bearish.
Thus, despite whether we will get the H&S or not, but 1.20-1.2025 area should be taken in consideration as potential target of retracement.
eur_4h_28_12_20.png


On 1H chart the bearish sign is price inability to reach the upper border of the pennant, showing early downside reversal. Overall upside price action is also hardly could be called as bullish. Once again - maybe this is result of the thin market, we will see. But anyway, EUR has to cancel all these bearish hints before we consider long entry here. But we still have our second, "reserved" way to act, in a case of acceleration back to the top - we still could use Stop "Buy" order in a case of breakout attempt.
eur_1h_28_12_20.png
 

RahmanSL

Major
Messages
2,852
Hi my friend Sive....Wishing you & Asst Moderator a Safe & Healthy Christmas and a New Year 2021.
Looks like you & I ( and Asst Moderator-who-should-be-Chief-Moderator-by-now) have been observing SOP for the Covid-19 pandemic because we are still here:D

As usual, great analysis my friend which is quite difficult to do in these holidays season due to thin market and worldwide economic uncertainties due to the pandemic.

Keep up with the good work and stay safe & healthy.

All the very best.
 

Sive Morten

Special Consultant to the FPA
Messages
15,280
Hi my friend Sive....Wishing you & Asst Moderator a Safe & Healthy Christmas and a New Year 2021.
Looks like you & I ( and Asst Moderator-who-should-be-Chief-Moderator-by-now) have been observing SOP for the Covid-19 pandemic because we are still here:D

As usual, great analysis my friend which is quite difficult to do in these holidays season due to thin market and worldwide economic uncertainties due to the pandemic.

Keep up with the good work and stay safe & healthy.

All the very best.
Thanks a lot, mate. Take care yourself, we wish you to have great holidays and hopefully we meet here through the 2021.
 

Sive Morten

Special Consultant to the FPA
Messages
15,280
Morning guys,

So, EUR stands inside the range of previous week by far. Still, with recent action we see buyers activity as EUR is trying to keep positive mood. Indeed, yesterday we've got the plunge in the morning but it almost totally covered by current moment. And, in general, by taking a look at daily chart - in recent few sessions market returns back to the tops of the days when sell off has happened. This indicates buyers' activity and makes us think that EUR could challenge the top before the NY's D. It means that grabber is started.
eur_d_29_12_20.png


On 4H chart the crucial moment is the top of "C" point. Upside breakout erases AB-CD pattern and daily sell-off, which should become the turning point. In this case There are two nearest targets are 1.2311 and 1.2360, as price could form butterfly pattern:
eur_4h_29_12_20.png


On 1H chart price also tries to out of the pennant as breakout has happened already:
eur_1h_29_12_20.png


That's being said overall situation stands in favor of immediate upside continuation instead of deeper retracement.
 

Sive Morten

Special Consultant to the FPA
Messages
15,280
Morning everybody,

While markets are coming to the holidays and loosing activity, we mostly take a look at intraday setups. Today is nothing to add on EUR as we've discussed setup yesterday and price is going with it. Thus, let's take a look at GBP.

GBP behaves different compares to EUR, I suggest this is due Brexit agreement shock which is yet to be analyzed and it seem that investors postpone this to the next year. In general, technical picture suggests that there should be effort to 1.37 before any other action follows. Just because all sell-offs were bought recently and GBP keeps choppy consolidation with upside direction, although fluctuations stand wide there. The only thing that we need to keep an eye on right now is potential bearish grabber that stands in the center of our short-term scenario

gbp_d_30_12_20.png


On 4H chart our OP target has been hit accurately and now market stands in reaction. It might be downside AB-CD pattern, especially if we get daily grabber.
gbp_4h_30_12_20.png


On 1H chart market stands at vital area where it should either start dropping or setup will be cancelled. Upward pullback is done with clear shape of "222" Sell pattern and price stands at Agreement resistance. Upside breakout of 1.3575 is irrational for bearish background.
gbp_1h_30_12_20.png


Thus, we have simple choice - either to take it with stop above 1.3575 somewhere and control appearing of daily grabber or do nothing.
 

Sive Morten

Special Consultant to the FPA
Messages
15,280
Morning guys,

Our EUR setup stands under way and first 4H target of 1.2311 has been hit recently, while GBP setup has not been formed as market is rallied up.

As I promise, today we take a look at AUD where I would like to show you very interesting chart. It is weekly time frame. Here we see great potential by few reasons. Fundamentally, AUD stands in better position due close location and tight relations with China as it shows better recovery performance and growing import demand, commodities in particular. Second, is a weakness of USD. Combination of these factors looks promising to AUD in medium-term and technical picture reflects this.

Technically, market also shows strength. Those of you who remember our AUD analysis should recall that last time we've discussed potential pullback and B&B trade on monthly chart as price was coming to strong K-resistance area. But, under impact of factors that we've mentioned, this K-area was broken easily with minor reaction to it.

Now price is coming to major all-time 3/8 Fib level. Some technical respect supposedly should follow but we suggest that it will be retracement rather than reversal. The nearest target stands around 0.8130 - Agreement resistance of COP target and another important 5/8 Fib level. Chances on deep pullback here are more significant because this is also natural long-term support/resistance area and AUD stands in first upside swing that potentially could become the reversal one around this level.

In a case of deep retracement - we could get large reverse H&S pattern, that suggests 0.68-0.7 area as good accumulation zone for AUD.

Thus, we have at least three potential setups here. First is upside continuation to 0.8133 then potential drop to 0.70 and then major rally to 0.95.
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