EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(November 23 - November 27, 2020)
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US Dollar Fundamental Outlook: GDP & Fed Minutes Out This Week but Ranges Will Hardly Break
The dollar remained stuck in ranges for the past two weeks following the post-election jitters from earlier this month. Although who wins the US election in the end remains an important issue for markets, other themes have taken over to dominate direction, such as the pandemic and the development of vaccines.
While the vaccines are good news (and btw a third one was announced today from Oxford and AstraZeneca), everyone realized it would take well into next year before the full effects of the vaccines kick in, and enough people are immunized for the world to go back to normal. Risk appetite has stayed on the back foot as a result, but that may change if the number of new infections starts to decline as we enter winter in the northern hemisphere.
As a safe haven, the dollar wouldn’t benefit in a risk-on environment that is likely to emerge once surging new infections are under control. In the meantime, however, the US currency may continue to range-trade for several more weeks before a breakout.
On the calendar this week, the preliminary GDP and Fed minutes on Wednesday are in focus, but currencies are unlikely to be moved much on these reports. Thursday is Thanksgiving in the US, followed by Black Friday, so the holidays will probably act as reinforcement for the already established ranges in the Fx market.
Euro Fundamental Outlook: PMIs Not Bad; EUR Traders to Start Thinking About ECB Soon
The EUR calendar for the week ahead is not very exciting either, with the most important reports already behind us this morning. The focus today is on the services and manufacturing PMIs, which showed only small deviations from the consensus forecasts. The fears were that the PMIs would be much worse due to the harsh autumn lockdowns that were enforced across the European continent, but these numbers are nothing like it, and the
EUR currency is already rallying on the news.
How far can this euro rally go is a different question, though. A contraction in the fourth quarter is still likely, and the ECB pledged to deliver more easing at their December 10 meeting. This event should at least keep the euro rally in check for the time being as traders turn their attention to it and prepare for a possibly more dovish ECB than anticipated.
Other factors such as Brexit and geopolitics will also play a role in EUR’s direction, and if those turn supportive in the next weeks, then the euro can extend the gains on such positive news.
EURUSD Technical Outlook:
EURUSD is again climbing to 1.19 this week, but the resistance has not broken. As we discussed last, this resistance won’t break easily, and with the momentum waning, a bearish reversal is not hard to imagine here.
On the other hand, if a bullish breakout does happen, then EURUSD would likely be starting a new bullish leg of the uptrend from earlier this year. The 1.20 level would come under threat then and likely be broken if EURUSD manages to push through this 1.19 resistance area.
To the downside, support remains pinned first at 1.1750 and then at the 1.16 area.
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