Hey! This is Philip with our new weekly outlook of the Forex market.

 

 

 

The big news on the open this week is that Congress has reached an agreement on the 900 billion USD stimulus bill. The COVID aid package is expected to be approved in the following days and signed by President Trump. The US dollar is trading higher on a mixture of factors but without a prevailing narrative. The extreme short positioning continues to pose a risk for a USD rebound should sentiment reverse.

The Fed meeting last week went down pretty much as expected. Chair Powell was as dovish as he could and ensured he communicated this clearly to the markets. The dollar tumbled lower in response. The week ahead features the final US GDP release tomorrow before we enter a quieter period into the Christmas and New Year holidays. Abrupt price moves can’t be excluded in this period due to thin liquidity and unexpected news related to sensate topics that markets care about (Brexit, the pandemic).

While the 900 billion USD coronavirus relief bill is good news for risk appetite, the mood is sour at the start of the week because of Brexit and unanticipated negative developments with the pandemic. Namely, no progress on Brexit has been made over the weekend, and in the meantime, it was reported that a new strain of the COVID-19 virus has begun to spread rapidly from South East England. Scientists are worried that the vaccines may not be effective against this new strain, and the governments are imposing new strict lockdowns to contain its spread. Obviously, this is negative for risk sentiment, just as we thought that we might be close to putting an end to the pandemic soon.

The USD rise this morning partly reflects the negative risk sentiment on these developments. The other part may be that the 900 bln USD relief bill is already priced into the Fx market, as it was talked about for quite a while before. Now it’s crucial to see if this USD bounce sticks or it reverts lower. If it sticks, the risks for a larger correction will rise.

 

 

EU and UK officials didn’t agree on anything on Brexit as another weekend rolled by, while the December 31 deadline narrowed to 10 days now. In the end, kicking the can down the road once again seems like the most palatable option that the two sides will opt for, as they have done in most cases so far in the Brexit process. Still, with only 10 days to go, it may be a wild Christmas for the pound.

On the pandemic front, the UK imposed new harsher lockdowns after British scientists warned the newly discovered strain of coronavirus is spreading more rapidly than expected and more rapidly than the widespread strain of the virus. Many countries have already banned all flights and arrivals from the UK. None of this is good news for the struggling UK economy, and perhaps this plays a part in GBP’s fall today. More clarity should emerge in the following days on both Brexit and the new strain of the virus, but with all the uncertainty, it pays to be careful going into the Christmas holidays this week and the New Year next week.

 

 

The ascending channel on GBPUSD that we’ve discussed many times here in our weekly pieces is showing incredible consistency. The resistance held again last week around the 1.35 – 1.36 area, and after plunging on the open today, the support of the channel has also held near the 1.32 level.

Nonetheless, a breakout fueled by Brexit is inevitable here. The question remains whether it will be to the downside or the upside. If it’s an upside breakout, then the GBPUSD target toward the resistance line of the larger channel in the 1.38 – 1.40 area will be on.

If it’s a downside breakout, then cable bulls would be in trouble with a minimum target of 1.30, but also very reachable 1.27 and 1.25 areas.

 

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Best Regards,
Philip
Senior Forex Manager
FX Trading Revolution
w: www.fxtradingrevolution.com 

e: philip@fxtradingrevolution.com