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EURUSD, GBPUSD, USDJPY
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Weekly Forex Analysis
(January 04 - January 08, 2021)
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Hey! This is Philip with our new weekly outlook of the Forex market.
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US Dollar Fundamental Outlook: USD Reverts to Downtrend; Attention Centered on Georgia Runoff Elections
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The Santa USD rally is over, and the currency is hitting fresh cycle lows on the first trading day of the new year. The bearish dynamics remain firmly in place for the dollar, namely a broad disk-on environment supported by vaccine and stimulus optimism.
The key event that traders will watch this week is the Georgia runoff election for the remaining two Senate seats. It is a crucial vote because the Democrats can potentially gain control of the Senate if they win the two seats. Such an outcome should keep the USD bear trend firmly in place. On the other hand, a Republican win may spur a dollar rebound on a negative risk-off reaction. This draws on the assumption that Joe Biden will have a harder time to
deliver bigger fiscal stimulus with a Republican-controlled Senate.
The other closely-watched event this week will be the Non-Farm payrolls report on Friday. This has been a historically very important event in the Fx market but has taken a back seat since the corona crisis started. Barring large surprises in the actual data from the forecasts, we can expect minimal impact on the USD from the event.
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Euro Fundamental Outlook: A Quiet First Week for the Common Currency
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The euro currency is kicking off 2021 on a strong footing. It is up today versus all its peers among the 8 major currencies. The rate of spreading of COVID-19 is down in the Euro area significantly from the November peaks. In this sense, the Eurozone is once again leading the race against the United States in fighting the pandemic, which sets the stage for the European economy to outperform in 2021.
Furthermore, vaccinations should help to support risk appetite further, which should help the euro to appreciate versus the US dollar and other safe-haven currencies in the following months. The EUR calendar for this week is relatively light and only features the PMI services and manufacturing reports (less impactful final release). Therefore, the broader trend dynamics should continue to be the main driver of EUR price action this week.
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EURUSD Technical Outlook:
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EURUSD closed in the red on December 31, but tested the 2.5 year highs again today. While the uptrend remains intact, there are some warning signs that a correction may be coming soon.
For instance, the pair didn’t break sustainably above the previous high from December 17. Also, the tall red candle on December 31 was a strong bearish engulfing candle pattern from a technical point of view. Moreover, the RSI is showing bearish divergence between the last two highs, issuing a warning sign.
The rising trendline that hasn’t been broken yet is the last pillar that supports EURUSD higher (see chart). A bearish break of this trendline would likely trigger a deeper correction, with 1.20 being the probable target to the downside. On the other hand, if EURUSD can sustainably break above the most recent highs, then it will clear another hurdle on the way toward 1.25.
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