EUR/USD, GBP/USD, USD/JPY
Weekly Forex Analysis
(November 22 - November 29, 2021)
Hey! This is Philip with our new weekly outlook for EUR/USD, GBP/USD, and USD/JPY.
The text below contains only a short preview.
EURUSD Technical Analysis
EURUSD plunged further in an extension of the downtrend and reached levels last seen in early July of 2020. A straight road down since the late October reversal at the 1.1650 - 1.17 resistance area, the bearish trend accelerated, and the pair closed the past week below the 1.13
level. This puts the 1.12 target of the head and shoulders pattern well within reach, with little to stop EURUSD from getting there in the near future. This is also the next support lower from current levels.
In our previous weekly, we said the 1.13 area is the first important support zone. Indeed, EURUSD stopped and even bounced here last Wednesday only to be pressed down again. While currently
below 1.13, this support zone has not been totally broken yet, and there is still a possibility for a bounce to take the pair above it. Nonetheless, the bearish trend is strong and any rallies will hardly be durable in this situation.
To the upside, 1.14 is the first resistance in sight. However, it is not a significant technical area, so the nearest important resistance remains at the 1.15 zone ahead of the next one at 1.16.
US Dollar Fundamental Outlook: A Busy Wednesday in a Light Thanksgiving Week - Watch GDP and PCE Inflation
The greenback extended its rise last week, with the DXY index strengthening another 1% in addition to the 0.87% rally from the week before. The string of positive data and hawkish comments from FOMC members fueled the already underway USD uptrend.
With the booming retail sales report, a falling unemployment rate, and inflation way above the Fed’s 2% target, FOMC policymakers have all the reasons to lean hawkish. As Chair Powell said during the last Fed press conference, the pace of tapering can be
adjusted if needed, and the markets are now starting to price in a faster taper process. Moreover, Fed Fund futures show two rate hikes priced in for the second half of next year. With such bullish market dynamics, the USD rally is on solid footing and has a lot of room to extend.
The busiest day this week is Wednesday, when we’ll get the latest GDP and PCE inflation reports as well as the FOMC meeting minutes later in the day. The calendar is strangely packed on Wednesday, while other days are very light due to the Thanksgiving holiday Thursday followed by Black Friday. This means that the last two days of the week could be very quiet with little action in Fx. Reports like the unemployment claims, which are usually always released on Thursdays, will also be released on Wednesday.
Potential risks for USD bulls are possible misses in the data, which could be a reason for consolidation, especially given the strong USD appreciation recently. Still, any consolidation should be temporary and is unlikely to take a big bite out of the dollar uptrend.
Elsewhere, President Biden’s expected announcement for the next Fed Chairman remains another front to watch. Biden should make the call any day now (not a set date given, but he said last week he would do so around the Thanksgiving holiday). While Jerome
Powell is still seen as the most likely candidate to get the reappointment (his 2nd term), if he does not, the Fx market could react by selling the dollar. Notably, Lael Brainard is the other favorite candidate, and she is seen as a more dovish central banker. So, if she gets the term, the dollar could suffer initially on the announcement, albeit this too should be short-lived as who leads the Fed is unlikely to make a huge difference.
Euro Fundamental Outlook: Slide Extends as More (Vaccinated) Countries Impose Harsh Lockdowns
More bad news out of mainland Europe hit the currency last week. The winter Covid wave continues to rage even in highly vaccinated countries. It is now the official cause for authorities to again lock down large parts of the EU with restrictions applying both to the
vaccinated and unvaccinated alike.
Notably, not only EURUSD was moving lower, but EURCHF also broke below 1.05 on the negative newsflow (EURCHF hasn’t been this low since 2015). Even if you look very hard until your eyes hurt, you won’t find anything positive about the euro at the moment.
The services and manufacturing PMIs (preliminary releases) out of the Eurozone will show how much businesses are feeling the impact of this Covid wave. The reports will be out tomorrow (Tuesday), with expectations already way lower than in recent
months. If the actual figures miss even those low expectations, the EUR will be virtually “free” to continue its slide downhill.
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