By Furqan Fakar
Sell EUR/USD – MT is Bear Normal
Technical Overview: Price is currently consolidating. We can expect a strong move typically after a consolidation phase. With the formation of a minor double top, the bears are currently in control. However, we will wait for the price to trade below the monthly low at 1.1830 before continuing to sell the market.
Fundamental Overview: Despite Dovish comments by Federal Reserve (Fed) Chair Powell, lower than expected US data and strong Zew survey data out of the Euro, the pairs gains were capped.
European Central Bank (ECB) Philip Lane mentioned that “We could still lower the deposit rate if needed” while ECB’s Isabel Schnabel stated that the EU recovery stimulus may be insufficient. The comments made by the ECB representatives will weigh on the EURO in the long run.
As Covid cases continue to be on the rise in several European countries, new restrictive measures have been announced as the EU attempts to mitigate the vaccine shortage. With the US currently handling the pandemic better than the Eurozone and with rising US Bond yields, we can see the pair trading lower in the coming week ahead, despite our expectation for dovish FED comments.
Wait USD/JPY – MT is Sideways Normal
Technical Overview: Price remained range-bound above the monthly descending trendline. As the market is currently indecisive, we will wait for a breakout above 109.2 to continue buying the pair towards our target of 111.0.
Fundamental Overview: As expected, the Bank of Japan (BOJ) decided to leave the interest rates unchanged. The weakness in the YEN was capped due to lower Covid cases increasing the optimism. Economy Minister Yasuhisa Nishimura has announced that the government will lift the Tokyo area state of emergency.
BOJ Kuroda however remains dovish and states that it is “Too early to debate an exit from stimulus policy”. They will be monitoring the exchange rates closely as depreciation in the YEN would have a negative implication on their economy in the long run.
Wait GBP/USD – MT is Sideways Normal
Technical Overview: The pair remains range-bound after failing to break above the resistance level at 1.4. If the price breaks below 1.38, it could be an early sign of a trend reversal and I will look for a selling opportunity aiming for 1.34.
Fundamental Overview: There has been an escalation of trade tension between the EU and the UK. The EU took legal actions against the UK with regards to the changes to the Northern Irish trading arrangement. Though the matter has not blown out of proportion, failure to mitigate this issue at the soon will weigh on the pound.
There has also been a shortage of vaccination in the UK. A halt of vaccination or a slowdown will also contribute to the recent cable sell-off. My attention next week will be on an escalation of trade tensions between the EU and UK.
Wait AUD/USD – MT is Sideways Normal
Technical Overview: The market is currently trading sideways. With no great conviction on the pair, it is best to wait.
Fundamental Overview: The strong employment rate in Australia capped losses despite USD strength. However, the tensions between the US and China, will likely weigh on the AUD in the long run and we can potentially see the formation of a long-term bearish trend.
The dollar is expected to set a clearer direction for the currency pair as we focus on the Fed’s speech in the week ahead.