EUR/USD, GBP/USD, USD/JPY
Weekly Forex Analysis
(November 29 - December 06, 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 fell further last week and reached the 1.12 target of the head and shoulders pattern before rebounding on Friday’s risk-off reaction. Nonetheless, the technicals show us that a correction was already overdue, and with the reaching of the 1.12 H&S target, one is even a healthy development
to consolidate the market.
As we can see on the daily chart below, the RSI indicator was already in oversold territory and remained flat as the price fell to the low under 1.12 (bullish divergence). Furthermore, EURUSD fell below the lower line of the downward channel, also an indication that it may have overshot to the downside. Also, a hammer-like candle has
formed on the weekly timeframe. All in all, these factors suggest a correction may have started with last week’s low, and the price can consolidate for a while.
The low around 1.12 remains the first support zone in the current context. If the price pushes down again and moves below 1.12, the downtrend could extend, but given the oversold conditions, it doesn’t seem worth chasing it down, not before some consolidation has taken place.
To the upside, the first resistance comes at the minor high around 1.1375, and then the next resistance is the big 1.15 – 1.1550 zone.
US Dollar Fundamental Outlook: Omicron Variant Shakes Up Fx Market; Nonfarm Payrolls Is the Key Calendar Event
It was supposed to be a quiet Thanksgiving holiday, but instead, we got a volatile sell-off in risky assets. The reason was the news of a newly identified Covid variant that is supposedly much more infectious and possibly able to bypass vaccine immunity due to its multiple mutations in the spike
protein. It is now officially called “Omicron” (renamed from “Nu” over the weekend), and the WHO classified it a “variant of concern.”
The reaction to the news was a classic risk-off dump with stocks and energy markets falling while the safe-havens outperformed in Forex. The established Fx dynamics that held up until the risk-off wave have been shaken up a little now. The dollar was at slightly overbought levels due to its
recent rally (especially on a short-term basis), and this certainly played a role in keeping the dollar a relative underperformer versus the other safe-havens. At this stage, it looks like Omicron may have initiated a USD correction.
The focus for the dollar this week will also be on the new Covid situation, although a risk-averse environment can hardly cause serious damage since the greenback is also a safe-haven. On the calendar, traders’ attention will turn to the ISM manufacturing and services PMIs (Wed & Fri), Fed Chair
Powell testimony before Congress (Tue & Wed), and most importantly, the Nonfarm Payrolls report (Fri).
The strong economy suggests solid Nonfarm payrolls should be in store (500k consensus forecast). If that’s the case, the dollar could resume its uptrend and likely reach new highs (EURUSD likely new lows), although this will also depend on the course of the new Omicron variant. On
the other hand, If NFP is a miss, then the USD correction can extend and will, in this case, likely last at least into the next big Fx event – the December 15 Fed meeting.
Euro Fundamental Outlook: Risk-Off Reaction Provides Some Relief For EUR
The euro also performed well on the Omicron risk-off episode, probably not solely because of its safe-haven qualities but also due to the oversold conditions and already extended short positioning before the news hit the wires. Some correction was already overdue after the recent sell-off, and the
EUR has got that relief now.
The bearish dynamics remain intact, however. Lockdowns across Europe are still very much the norm, and the economy will take a big hit. All while inflation is slower than in other countries. Hence, no reason for the ECB to be turning as hawkish as
others, which should keep EUR relatively weaker than peers.
This week’s focus is on flash CPI inflation data on Tuesday. Consensus expectations stand at 4.4% y/y for the headline CPI and 2.3% for the core CPI. Hotter actual numbers may give another reason for the EUR to extend its recovery, though that too is unlikely to be anything more than a
retracement within a trend. So, while the consolidation may extend for a while longer depending on various factors (such as calendar events and Omicron), it should be shallow and ultimately likely to provide better levels to re-enter short.
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