Last week’s sell-off was limited to the level of 1.3427, but the Cable is now struggling to move above the level of 1.3500. If the bulls manage to breach the mentioned resistance, the corrective phase should continue towards the next target of 1.3575. If the bears stop the bulls’ attempt to dominate the market in its tracks, а breach of the support of 1.3427 would be the most likely scenario. A breach of the aforementioned level would strengthen the negative expectations for the future path of the Cable, leading to new losses for the pound against the dollar and a move towards 1.3407.
GBPUSD the UK is preparing for a possible lockdown
GBPUSD the UK is preparing for a possible lockdown. The British pound is showing a downtrend against the US dollar amid a serious deterioration in the spread of the Omicron strain in the UK. At the moment, the quotes of the trading instrument are in the area of 1.3225.
London Mayor Sadiq Khan declared a state of emergency amid an increase in the incidence of the new virus mutation (26K new cases of infection were recorded over the weekend, which is an absolute record since the beginning of the pandemic). The number of hospitalizations of citizens is also rapidly increasing, which entails a shortage of medical personnel and in the future may become a catalyst for the decision to introduce a new lockdown.
The reports of the authorities completely canceled out all the positive sentiment from the macroeconomic data, according to which the volume of Retail Sales in November added 1.4% after 1.1% recorded in October. The Core Retail Sales in annual terms also entered the growth zone and amounted to 2.7% after declining by 2.1% a month earlier, but these data were recorded before the spread of the Omicron strain, and in December, a serious correction of values may follow.
The American currency is trading at consistently high levels, having once again consolidated above 96 points in the USD Index. Investors continue to assess the impact on the markets of the rhetoric of the US Federal Reserve regarding changes in the course of monetary policy. The promise of the Chairman of the Fed Jerome Powell to raise the rate next year at least three times looks quite real, if the regulator manages to curtail the quantitative easing (QE) program in March. It is these expectations that will form a positive trend for the dollar in the near future.
Support and resistance
GBP/USD is trading within the global downtrend channel, remaining near the support line. Technical indicators maintain a sell signal: fast EMAs on the Alligator indicator are below the signal line, and the AO oscillator histogram is forming ascending bars trading deep in the sell zone.
The bulls still cannot prevail over the bears and, at the time of writing, the currency pair is located under the 1.1618 resistance zone. The few failed attempts at breaching the mentioned level could give the bears the necessary incentive to attack the next significant support of 1.1575. Today, the focus for investors will be the announcement of the European Central Bank interest rate decision (11:45 GMT), as well as the announcement of the initial jobless claims data for the U.S. (12:30 GMT). The outcome of the mentioned economic news could largely determine the future of the currency pair.
AUDUSD Australian economy is actively recovering. After a significant drop last week, the AUD/USD corrects upwards, trading at 0.7077.
The main driver of the positive dynamics was the accompanying statement by the head of the Reserve Bank of Australia (RBA) Philip Lowe after the regulator did not change the monetary policy and left the interest rates at the previous levels of 10 basis points. Securities purchases will continue at A $4B per week. In his speech, Lowe noted that the country’s economy had begun to show a positive recovery from the Delta outbreak, and the main positive was coming from the labor market, where wages are gradually increasing.
Core inflation is 2.1%, which is in line with expectations, and headline inflation barely exceeds 3%, driven by high gasoline prices and disruptions in supply chains. In general, the negative factors are gradually decreasing, and in the next quarter, a positive dynamic of the currency is expected.
USD Index stays at the previous week’s levels near 96.200 amid the lack of key macroeconomic publications. Trading activity for the instrument may increase as early as Wednesday when Initial Jobless Claims will be published. Analysts predict the labor market’s growth, expecting a decrease in the number of applications to 213K from 222K last week.
Support and resistance
On the global chart, the price forms a downtrend, within which it prepares for a reversal. Technical indicators keep a sell signal: indicator Alligator’s EMA fluctuations range is wide, but the AO histogram has formed the first upward bar.
USDJPY the US dollar began a rapid decline. USD/JPY is correcting, trading around 113.53. The yen reacted slightly to today’s decision by the Bank of Japan, which continued to pursue a policy of negative rates since, at the moment, it does not see a significant improvement in the economy, which would allow something to change.
The interest rate remained at the level of –0.10%, the purchase of Japanese government bonds (JGB) will continue without setting an upper limit, and their yield will remain near zero. The bank plans to acquire exchange-traded funds (ETFs) with a cap of 12T yen and Japanese real estate trusts (J-REITs) with a cap of 180B yen and 20T yen corporate bonds at least the end of March 2022. It follows from this that the regulator does not expect significant improvement in economic indicators, at least until spring, and the pressure on the yen will remain the same.
Tension around the dollar is growing, and for the first time since the beginning of December, the USD Index fell below 96 points after publication data on the labor market. Initial Jobless Claims rose to 206K after falling to 188K last week. Additional pressure on the American currency was exerted by a significant drop in the index of manufacturing activity from the Federal Reserve Bank of Philadelphia, which reached a year low at 15.4 points after 39.0 points in the previous period.
Support and resistance
The asset corrects, forming a possible Head and shoulders reversal pattern. Technical indicators are in a state of uncertainty: indicator Alligator’s EMA fluctuations range narrowed almost completely, and the histogram of the AO oscillator forms new upward bars, being close to the transition level.
The Sterling also took losses in the past week, with the decline being limited by the support of 1.3665. The key support remains 1.3575, and the first resistances are 1.3715 and 1.3760. There may be a change in the current sentiment if the resistance of 1.3715 is violated, and if prices rise above 1.3800, a continuation of the uptrend can be expected. The interest rates decision of the Bank of England this Thursday at 13:00 GMT will be decisive for the movement of the pair. A potential interest rate hike would shoot the sterling towards 1.3950.
EURUSD World Bank expects a slowdown in the EU economy
EURUSD World Bank expects a slowdown in the EU economy. The European currency remains under pressure, and the EUR/USD pair trades unstably, correcting within a sideways trend around 1.1373.
According to the renewed January report of the World Bank, in 2022, the growth rate of the world economy will decline to 3.2% after growing by 4.1% in 2021. EU GDP growth forecast dropped from 4.4% to 4.2%, although in 2021, it climbed 5.1%. Among the main reasons for the negative dynamics, the bank calls the high degree of spread of the Omicron coronavirus strain and an increase in the growth rate of world inflation.
Data on the volume of industrial production in the EU will be published today. According to analysts, the indicator will decline to 0.6% from 3.3% a month earlier, putting additional pressure on the euro.
The USD Index declines, reaching the lower border of the global corridor at 95.500. Investors reacted negatively to the statement of the head of the US Federal Reserve Jerome Powell during a speech in Congress, who noted that high current inflation was a consequence of a disruption in supply chains that led to an imbalance in supply and demand, and this process would be regulated on its own. In these words, some experts caught the official’s reluctance to tighten monetary policy soon.
Support and resistance
On the global chart, the price moves within the local Flag trend continuation pattern, the implementation of which has not yet begun. The fluctuation range of the EMA on the Alligator indicator has narrowed almost completely, while the histogram of the AO oscillator remains close to the transition level.
