The US Dollar Index is decreasing above its main simple moving averages near the 96.50 figure. The trend line comes in near 96.65 on December 4 and 96.80 at the end of the week.
Yesterday’s stronger than expected December ISM report, driven it appears primarily by rising new domestic orders (new orders rose to 62.1 from 57.4 and export orders were flat) suggest that US growth may have rebounded after a soft October. Moreover, between the surge in Japan’s industrial output reported last week, the upward revision in German and French manufacturing PMI, and slightly better than expected Chinese Caixin manufacturing PMI, maybe the doom and gloom that had crept into the markets (maybe to explain a downdraft in equities) may have been exaggerated.
The US dollar is losing positions after raising the investors’ risk appetite after the ceasefire in the US-China trade war. Following this news, the so-called “commodity currencies”, such as the Australian and New Zealand dollars, grew by 0.74% and 0.69% respectively. At the same time, “safe haven” currencies, such as the Japanese yen, are declining because of the increasing tendency of market players to look for risky assets.
EUR/USD technical analyse
The Euro remains strong in early Tuesday’s trading and pressures at the resistance zone 1.1400 USD. The US dollar stands at the back foot on risk appetite, sparked by trade conflict ceasefire agreement. Fresh advance is a positive signal, but the pair is still holding within near-term range and heavy under 1.1400.
During the trading yesterday the Euro raised its value from 1.1349 USD to 1.1352 USD. This morning, the currency pair is traded at 1.1375 USD.
If the Euro succeeds to overcome the resistance zone 1.1381-1.1383 USD, it will target to reach and test the zone 1.1411-1.1413 USD. Upon success, the upward movement will continue at 1.1442-1.1443 USD.
Break above 1.1400 resistance zone would improve the near-term structure and expose the next key barriers at 1.1461 (55SMA) and 1.1472. Conversely, an initial bearish signal could be expected on rejection at 1.1400 barriers and return below-converged 10/20SMA.
In case the Euro falls below 1.1322-1.1321 USD, it will seek further support in the area of 1.1291-1.1289 USD. In the case of breakthrough, the downward trend may continue to 1.1261-1.1260 USD.
GBP/USD technical analyze
During the trading yesterday, the British pound fell from 1.2742 USD to 1.2722 USD. This morning, the currency pair is traded at 1.2745 USD.
If the British pound overcomes successfully the resistance range of 1.2785-1.2798 USD, it will target reaching and testing the zone 1.2867-1.2874 USD. Upon success, the upward trend will continue to 1.2911-1.2924 USD.
With a fall below the support range of 1.2672-1.2659 USD, then the next support will be the area of 1.2622-1.2616 USD. In a breakthrough, the downward trend may continue to 1.2547-1.2534 USD.
British pound and Brexit
The British pound was the most vulnerable currency in recent years after Brexit, being shaken by almost every title in the media. It entered strong in 2018 and peaked after the Brexit referendum, but quickly managed to shed all accumulated profits, and the GBP/USD traded 5% down from the beginning of the year.
However, progress in the negotiations has to be noted and the solution seems to be getting closer. Britain and the EU have reached a pre-trade deal that has to be voted by the European and British parliaments before it becomes official. According to the text of the agreement, both sides are committed to “deep customs cooperation”, the establishment of a “unified customs territory” and a solution to the problem of the Irish border in the future. The EU will have to recognize the United Kingdom’s independent trade policy. A transitional Brexit period can be extended to “one or two years”.
Formal ratification of the deal will remove a huge weight from the pound and could result in a very sharp rise in GBP/USD and some decline in EUR/GBP pairs. We should add to the positive news also that the British economy seems to survive the initial shock caused by Brexit and has accelerated its growth in recent quarters. This may untie the hands of the Bank of England to build a steady cycle of interest rate hikes.
All this could lead to a GBP/USD increase in the new year, as the initial target will be the peak of 2018 at around 1.4370. On the other hand, with EUR/GBP, we may see a temporary decline, but a possible stable Euro performance can offset some of the GBP’s strength.
At the same time, a possible appreciation of the pound and potential tightening of the policy of the Bank of England will negatively affect the major British index FTSE100, which already presents unconvincingly in the second part of 2018.