Is GBPUSD preparing to get higher?

We are looking for a break above 1.2500 level on GBP/USD – 4h chart. With a consolidation followed above the level the pair should be ready to move to around 1.2700

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eurusd-4h

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US dollar recap – market analysis

Market Analysis by Junaid Wilson

– Its coming up to the end of the Year and investors who have been short euros, long dollars for most of the year may start to take profits. Since we have had a 5% move in the EUR to the upside over the period of a week its very unlikely that we will see the dollar make new highs going into the new year, whether the FED raises rates or not.

 

Consumer spending drives the US economy and over this year spending levels have been low. Looking to the retail sales, weak report would hurt the USD and encourage more investors to bail out of the dollar pre-FOMC. The only person that could save the dollar is Janet Yellen and we won’t hear from her until next week.

Market Analysis FX

Yesterday Investors sold the GBP after the Bank of England’s monetary policy announcement but GBP/USD ended the day off its lows. While the decision to leave interest rates unchanged was the same as the previous month with 8 members voting for and 1 against the move, the central bank expressed concerns about wage growth the minutes clearly show that elsewhere on the MPC, there is no appetite for any early tightening with the economic scenario at home and abroad not regarded as significantly different from last month.

 

The UK economy is still doing OK, especially in comparison with most of the rest of Europe, but inflation pressures remain light. Moreover, with commodity prices in general and oil in particular still heading down, upcoming CPI data should further reduce any pressure for a tightening. Monetary policy should stay on hold well into 2016

 

The New Zealand dollar headed higher post RBNZ. While the gains were small, they reflect the market’s assessment of the central bank’s rate announcement. The Reserve Bank cut interest rates 4 times this year and they could lower them further if the economy weakens. But for now they feel that they’ve done enough.

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A dollar correction with dips against major currencies and commodities

Market Analysis by Junaid Wilson

Yesterday the AUD and NZD traded higher the EUR and the JPY edged lower, it was a light trading day.

Today, we have a sling of economic data realise starting with EA PMI’s followed by an unemployment report. We also have the manufacturing PMI being realised from the UK. In the US session we have Canadian GDP expected to come in flat. Then later in the day we have the ISM manufacturing report out of the US.

There has been a dollar correction with dips against major currencies and also commodities such as gold and silver have rallied. It is too early to see whether the dollar is going to have a prolonged correction. This means that all eyes will be on today’s ISM Manufacturing data for the US could be very interesting as the dollar bulls have enough buying power to take the market further.

The euro continues to drift lower with the downtrend and despite a tight daily range of 40 pips the bears remain in control.

Until the ECB meeting on Thursday it is likely that this drift sell-off will continue and that any intra-day rallies will be sold into ahead of the week’s big risk event. The main warning is will be that the vast majority of the market looks to now be short of the euro now and this could still set us up for a sizeable short squeeze if Mario Draghi does not meet somewhat high expectations of further easing on Thursday.

The JPY 122.20 support has improved the outlook for a weaker JPY. We are expecting this pair to consolidate in the range between 122.20/123.67 which it has been in for over three weeks, that is at least until Friday’s Non-Farm Payrolls. There may be a bullish bias to the technical indicators, however an upside break does not look imminent. Yesterday’s move above resistance at 123.25 could not be sustained and this failure suggests the bulls are not entirely in control.

Initial support now comes in today at 122.60, whilst the resistance is at 123.35. The outlook for today remains neutral.

GBP/USD and EUR/USD IN FOCUS

GBP/USD is consolidating at the moment suggesting further up movement. A break above the formed rectangle gives the possibility of reaching 1.5317 level (61.8% Fib level counted from 1.5495 to 1.5029). If this is the case, yesterday`s analysis for EUR/USD may not be valid as these pairs are still highly correlated. A strong up movement on GBP/USD will give a signal that EUR/USD should follow. In both currency pairs the situation is not clear right now. It may pays off to wait for the confirmation first. Especially after the terrorist attack in Paris, the USD dollar may strengthen on Sunday`s open.

gbpusd

eurusd1

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IS EUR/USD PREPARED TO MOVE TO 1.0600 LEVEL?

The EUR/USD, on a 4 hour chart, looks as it is prepared to move to the lover band of the descending channel. Caution is always needed, however the 1.0600 level is our next target. eurusd_down

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A BULLISH FLAG ON USD/JPY, 4h chart

USD/JPY has formed a bullish flag on 4h chart. The flag is not broken yet, however when it happens we may be prepared for a further up movement to 125 level (in the mid term).

usdjpy

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Inverse correlation – is EUR/USD turning to the downside?

As financial markets are correlated with each other, it is worth looking at USD/CHF daily chart where a triangle pattern has been formed.

usdchf
Usually a triangle finishes with E movement, and often the E ends around 61.8% Fibonacci level. If this is the case,
we may see a strong up movement on the currency pair. The triangle is over a 1000 pips wide and this is the mid term profit target. More importantly, as USD/CHF is inversely correlated to EUR/USD our assumption is that the latter pair may also move significantly lower. A further confirmation is needed, so we will watch the pair closely. If EUR/USD turns south the GBP/USD and AUD/USd should follow. In other words we expect strengthening of the USD dollar index, so USD/JPY should move higher and EUR/USD, GBP/USD and AUD/USD lower.

From the fundamental point of view, if Bank of Japan boost QE next month, Nikkei may move up. Also in Asia, according to Capital Economics, Chinese data are set to improve as well, as stimulus measures work their way trough. Eventually,
European Central Bank is ready to do whatever it takes to bring the economy up. These three factors support our view on the on the strengthening of US dollar index in the mid term.

 

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Inverse correlation – is EUR/USD turning to the downside?

As financial markets are correlated to each other, it is worth looking at USD/CHF daily chart where a triangle pattern has been formed.
usdchfUsually a triangle finishes with E movement, and often the E ends around 61.8% Fibonacci level. If this is the case,
we may see a strong up movement on the currency pair. The triangle is over a 1000 pips wide and this is the mid term profit target. More importantly, as USD/CHF is inversely correlated to EUR/USD our assumption is that the latter pair may also move significantly lower. A further confirmation is needed, so we will watch the pair closely. If EUR/USD turns south the GBP/USD and AUD/USd should follow. In other words we expect strengthening of the USD dollar index, so USD/JPY should move higher and EUR/USD, GBP/USD and AUD/USD lower.

From the fundamental point of view, if Bank of Japan boost QE next month, Nikkei may move up. Also in Asia, according to Capital Economics, Chinese data are set to improve as well, as stimulus measures work their way trough. Eventually,
European Central Bank is ready to do whatever it takes to bring the economy up. These three factors support our view on the strengthening of US dollar index in the mid term.

Risk Warning: Transactions in Contracts for Difference and Foreign Currency are leveraged products that can result in losses that exceed your initial deposit. These products may not be suitable for everyone. Please seek advice if you do not fully understand the risks.