EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(December 16 - December 20, 2019)
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US Dollar Fundamental Outlook – Weak Data & Risk Appetite Took USD Lower
The last week was a busy one for the Forex market, although the source for the action was mostly outside of the USD.
The Fed meeting, CPI inflation, and retail sales were the US events on the calendar for the past week. There were not many positives in those reports, so that surely was a factor in the Dollars’ decline last week. The weekly Unemployment Claims were also a big negative surprise, although this report is not closely followed by traders at the moment.
Nevertheless, the main USD action didn’t come from those events, but rather it was more directly a result of Trump’s announcement on US-China trade and the UK election. Both events got a risk positive outcome in the end (more on those in GBP & JPY outlooks below). Risky assets and currencies broadly rallied as a result, and the Dollar was broadly down last week, only strengthening versus the safe-haven Japanese Yen.
In the new week ahead, the main focus on the calendar will be on GDP data and the PCE inflation measure scheduled for Friday. Housing data and the Philly Fed manufacturing index will be published earlier this week also. Barring any big surprises in these reports, the USD may rebound this week as some of last week’s moves are corrected due to being overbought/oversold. Another argument in favor is that the US Dollar Index has reached an important technical
support area.
Lastly, one thing worth keeping in mind is that we are now a week before Christmas week, and market price action may start to get quieter already. Although that was certainly not the case last year (we had turbulent risk-off moves for Christmas), this year, that is unlikely to repeat, and we are more likely to get the usual quiet Christmas in the Fx market.
Euro Fundamental Outlook – EUR Rallies In Sympathy With GBP But Reality Check Likely This Week
The Euro did not remain unaffected by last week’s political events and benefited from the “good news” on Brexit. The new ECB President, Christine Lagarde, used her first speaking opportunity at the central bank’s press conference to introduce her style of communication. She also laid the groundwork for a strategic review at the ECB over the course of 2020 (which can produce significant policy changes next year).
Focusing on the now, traders know that the Eurozone economy is still weak and is not showing encouraging signs of improvement. That was confirmed this morning (Monday) with a new round of flash (preliminary) PMI reports, which showed that the German, the French, and the Eurozone manufacturing sectors contracted further over the past month, staying near the lows for the cycle. Other than these reports, the German Ifo business climate index and the
CPI inflation (final release) on Wednesday will be in focus.
Given the bad PMI numbers today, it’s hard to see how the common currency can continue the optimistic rally from the last week. Instead, it looks more probable that the Euro will likely give back some of those gains.
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EURUSD Technical Outlook:
EURUSD also participated in last week’s wild rides in the Fx market, but it did not break any critical technical levels/zones. With that said, it seems the EURUSD technicals are turning bearish again after the rejection from the 1.12 resistance last week, which we noted as the key resistance for the pair.
The key short-term support trendline stands slightly above 1.11 and is not broken yet. Thus, a turn to the bearish side is not confirmed until that happens.
For now, EURUSD is trading inside the rising channel, which would likely hive the early clues for EURUSD’s near-term direction. Below 1.11, there is support at 1.1050 and 1.1000.
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