Last Week’s Market Overview
The EUR became the big loser among major counterparts last week and the major catalyst of the slump was the uncontrollable spread of COVID-19 across the European countries. Many countries were expected to extended the restrictions and lockdowns. For instance, Germany would tighten travel rules in coming few months in order to avoid the spread of new virus strain from the British to Germany.
Apart from that, the release of ECB December minutes on last Thursday showed that the ECB is concerned about low inflation and the rising euro, and these two issues are highly correlated. Therefore, the market was worried that the ECB would step in to lower the exchange rate of Euro, and thus the EUR was pulled to a lower level.
The GBP was undoubtedly the biggest winner last week, surging for 0.16% under a risk-off market. The GBP dropped on Monday as BOE Governors Tenreyro commented that the negative rate might provide powerful effects. However, Sterling skyrocketed for 1.12% on Tuesday amid the reduced market speculation of negative rates after Bailey said that there were lots of issues with negative interest rates.
The possibility of tougher lockdowns ahead, and the negative economic updates on the retail sales, housing price and GDP weighed on the sterling, forcing it retracing back to 1.3576.
Market Change Last Week
Market Focus This Week
Interest Rate Decision (Canada, Japan & EU)
Bank of Canada is going to decide the interest rate on Wednesday. The market expects the BoC will remain all monetary policies, including the interest rate and scale of bond purchase unchanged. The possibility of a micro rate cut is quite low in the upcoming meeting as the recent economic figures have shown a continuous economic improvement. For example, the unemployment rate stabilized at just above 8 % and the core CPI climbed up to 1.5% in November. Moreover, the update economic projections will be release during the BoC press conference.
The Bank of Japan will release the interest rate decision on Thursday. The governor Haruhiko Kuroda last week reaffirmed the bank’s readiness to expand monetary stimulus if the recovery was threatened by the pandemic.
However, Japan’s economy is still picking up now, so the market forecasts the BoJ will leave the interest rate at -0.1% during the Thursday meeting.
The members of European Central Bank will also meet on coming Thursday. Since the economic conditions are likely to affected by coronavirus pandemic continuously, some analysts think it may expand the size of bond purchase, PEPP. Furthermore, ECB has mentioned its concerns on exchange rate of Euro before, so we should pay attention to its opinions on the exchange rate.
The strong uptrend of EURUSD started in the early November has once reached 1.2350, but it experienced a sharp drop last week and has already broken below the resistance at 1.2150.
Technically, both two-line MA and RSI signal a trend reversal since the fast MA crossed the slow MA from above, and the RSI passed the 50-interval, settling at 41.72. Apart from that, we can observe that the price has set back and broken through the lower bound of trend channel.
All in all, it seems to be difficult for EUR to continue the original uptrend and it is highly possible to keep pulling back in the near future, but the downward movements may be resisted at significant support level at 1.1950.
Support: 1.1950, 1.1600
Resistance: 1.2150, 1.2350
USD Index (D)
Opposite the EURUSD, the USD Index has experienced a downtrend since early November and there was a 0.75% advance last week, pushing the price returning to above 90.00 psychological support.
For technical aspect, the RSI broke above the 50-interval and the two-line MA shows that the golden cross has come to an end too. In addition, as shown on the graph, the price is no longer confined within the downtrend channel.
All of these indicate the bearish momentums is fading away, so there is a good chance for USD to rebound in coming two weeks. Even though there is a retracement during the period, it is unlikely to go under 90.00 again.
Support: 90.00, 88.20
Resistance: 92.10, 94.60
S&P 500 (H4)
After the upward movements for concessive four week, the S&P 500 Index finally slumped for almost 1.4%, printing a red candlestick last week.
For RSI perspective, it has just broken below 50-mark. Nonetheless, the two-line MA maintains its golden cross pattern. Therefore, this week is really important as it will determine the outlook of the index.
If the RSI and the fast MA keep moving downwards in the coming week, the outlook would be more bearish and it is unconvincing for sustaining the current uptrend. In contrast, if the two-line MA keeps the bullish pattern and RSI can climb up to 50-mark soon, the uptrend would be resumed after the temporary retracement.
Support: 3550.00, 3230.00
Resistance: 3830.00, 4000.00
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