Daily Market Report - 17th Dec 2020

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EURUSD

The EUR/USD pair surged to a fresh 2020 high of 1.2212 early during the London session, as hopes fueled demand for high-yielding assets. Progress in US stimulus talks and Brexit negotiations were behind the upbeat mood. Further supporting the shared currency, Markit preliminary December PMIs came in better than anticipated, showing that manufacturing output expanded, while the services sector recovered, although still within contraction levels.

The dollar found some demand after dismal US Retail Sales cooled down the market’s optimism. Sales were down by 1.1% monthly basis, much worse than the -0.3% anticipated. Then, it was the turn for the Federal Reserve to announce its latest decision on monetary policy and its economic outlook. As expected, the central bank kept the federal funds´ target rate in a range of 0% to 0.25%. Policymakers are committed to supporting the economy until they see “substantial further progress” in employment and inflation.

The macroeconomic calendar will include this Thursday the final version of EU inflation figures, while the US will publish housing-related figures, weekly unemployment claims and the December Philadelphia Fed Manufacturing Survey.

The American dollar advanced further as an initial reaction to the Fed’s decision, as the central bank fell short of expectations. The EUR/USD pair fell to a daily low of 1.2124, later recovering to the current 1.2190 area. The 4-hour chart shows that it’s trading around a mildly bullish 20 SMA while still above the longer ones. Technical indicators have turned south and pierced their midlines, supporting a corrective decline should the pair pierce the 1.2120 support.

Support levels: 1.2120 1.2075 1.2030 

Resistance levels: 1.2175 1.2230 1.2280

USDJPY

The USD/JPY pair fell to a fresh monthly low of 103.25 this Wednesday, as the greenback plummeted on the back of the market’s hopes. The pair neared June 2020 low at 103.17, bouncing ahead of the Fed’s announcement, as poor US data dented investors’ mood. The rally continued within the central bank event, with the pair peaking at 103.91 for the day. Still, the poor tone of equities and subdued dollar’s demand resulted in the pair settling around 103.50.

Data wise, Japan published its November Merchandise Trade Balance Total, which posted a surplus of ¥366.8 billion, missing the market’s expectations. Imports in the mentioned month fell by 11.1% while exported plunged 4.2%, both well below expected. The country won’t release relevant data this Thursday.

The USD/JPY pair retains its bearish stance in the near-term. The 4-hour chart shows that the intraday advance was quickly rejected by selling interest aligned around a bearish 20 SMA, which keeps moving away from the longer ones. Technical indicators recovered within negative levels but lost their positive momentum once nearing their midlines. Bears retain control of the pair, with a stepper decline expected now on a break below 103.15.

Support levels: 103.15 102.70 102.20

Resistance levels: 103.90 104.30 104.75  

GBPUSD

The GBP/USD pair kept rallying on Brexit hopes, reaching a fresh 2020 high of 1.3554. Reports indicated that progress has been made, but there’s no breakthrough yet, according to German Chancellor Angela Merkel. According to Reuters, an EU official has said that fisheries remain the main obstacle. Also, some headlines indicated that the UK has accepted the idea of “managed divergence” to get access to the single market. That means that if UK standards fell short of EU ones, the Union has the right to retaliate.

The UK published November inflation figures. The annual CPI was up by 0.3%, below the previous 0.7% and the expected 0.6%. The core annual reading printed at 1.1%, also missing expectations. The December preliminary Manufacturing PMI printed at 57.3, better than expected, although the services index came in at 49.9, missing the expected 50.5.

This Thursday, the focus will be on the Bank of England monetary policy meeting. The central bank is expected to maintain the current levels of facilities, and rates on hold. As it has been happening later, the focus will be on negative rates and the MPC´s view on their use.

The GBP/USD pair has trimmed part of its intraday gains but remains in the green for the day. The risk remains skewed to the upside, as long as Brexit hopes persist. Technical readings in the 4-hour chart favor further recoveries, as the Momentum indicator is bouncing from near its midline after correcting overbought conditions, as the RSI consolidates around 60. The 20 SMA has resumed its advance and is crossing above the 100 SMA, both below the current level, in line with a bullish extension.

Support levels: 1.3450 1.3405 1.3360

Resistance levels: 1.3555 1.3600 1.3665

AUDUSD

The AUD/USD pair has spent a fourth consecutive day confined to a tight intraday range near its year’s high. The pair is heading into the Asian opening, trading a handful of pips below such a high at 0.7577, little affected by the dollar’s back and forth. Early on Wednesday, Australia published the November Westpac Leading Index, which came in at 0.46%, improving from 0.3% in the previous month. The Commonwealth Bank Manufacturing PMI improved to 56 in December from 55.8, while the services index came in at 57.4.

Australia will release this Thursday November employment figures, and once again, the market’s forecasts seem a bit pessimistic. The country is expected to have added 50K new jobs after gaining 178.8K in the previous month. The unemployment rate is foreseen unchanged at 7%, and the same goes for the participation rate, which is expected at 65.8%.

The short-term picture for the AUD/USD pair indicates that further gains are still on the table. In the 4-hour chart, the pair keeps holding above its 20 SMA, while the larger ones head firmly higher below it. The Momentum indicator keeps easing, currently pressuring its midline, reflecting the lack of bullish strength instead of suggesting an upcoming decline. The RSI holds within positive ground and starts picking up, in line with a bullish continuation.

Support levels: 0.7510 0.7470 0.7425

Resistance levels: 0.7580 0.7620 0.7660

GOLD

Gold failed to sustain its move up on Wednesday as Fed kept its status quo sticking to its verbal commitment to act if needed. The only difference in the Fed’s statement from the November 5th meeting is the small change in verbal guidance. The Fed stated that they will continue to buy $80 billion a month in Treasuries and $40 billion a month in agency-backed securities until substantial further progress has been made on maximum employment and price stability goals. As a result, the USD index DXY managed to hold itself to mid-90.00 levels while Gold retraced from its daily highs at $1,865. On the other hand, Senate Majority Leader McConnell noted they are making good progress on passing something by Friday on the stimulus deal limiting the losses seen in Gold. While Fed decisions weighed on Gold, the yellow metal managed to pare its losses during Powell’s speech barely lifting itself to the positive zone.  

From the technical point of view, below the $1,860 level, the supports can be followed at $1,800, $1,763 ($1,451-$2,075 61.80%) and $1,700 levels. Over the $1,860 level, the resistances can be followed at $1,900 with $1,956 ($1,451-$2,075 38.20%) and $2,000 levels.

Support Levels: $1,800 $1,763 $1,700

Resistance Levels: $1,900 $1,956 $2,000

SILVER

Silver outperformed Gold on Wednesday with a wide margin while Fed kept its stance on its monetary policy and bond-purchasing programme. As a result of the Fed decision, the USD index DXY managed to lift itself away from the daily highs while Gold took a big hit slashing almost $20 on a daily basis. In meantime, despite the retracement seen in Gold, Silver managed to stay in the positive zone retracing slightly from the daily high at $25.29. While the Fed did not change the interest rates and the size of the bond purchase programme, it is stated once more that they will be committed to using the full range of tools to support the economy. Reflecting the Silver’s better performance, Gold to Silver ratio tested mid-74.00 levels at a fast pace after hovering around 76.00 levels lately. Silver’s dual roles as a precious metal and an industrial material make it more appealing during times when economic activity is expected to rebound. Therefore, lately, Silver trade was less volatile compared to Gold.

Below the $22.90 level ($11.63-$29.86 38.20%), the supports can be followed at $20.75 ($11.63-$29.86 50.00%) and $18.42 ($11.63-$29.86 61.80%). Over the $22.90 level, the targets up can be followed at $25.21 ($11.63-$29.86 23.60%), $26.00 (August-September support), $27.00 and $28.00 levels.

Support Levels: $22.90 $20.75 $18.42

Resistance Levels: $25.21 $26.00 $27.00 

CRUDE WTI

WTI kept its winning streak in its third consecutive day supported by the bigger than expected fall seen in the crude oil inventories. Crude oil inventories fell 3.1 million barrels more than the consensus estimate of a decline of 2.2 million barrels. The big draw was attributed to a sharp 1 million BPD drop with imports and an 800,000 rebound with exports. While the gasoline demand continued to fall back, US crude production declined for the first time since late October, but still remains over 11 million barrels a day. Stimulus deal expectations and vaccine optimism is supporting WTI at the moment as markets are willing to price a deal no matter what before the Christmas holiday.

Next supports can be seen at $45.00, $43.88 and $43.00 respectively while the resistances can be followed at $47.00, $48.50 and $49.00 levels.

Support Levels: $45.00 $43.88 $43.00

Resistance Levels: $47.00 $48.50 $49.00

DOW JONES

Dow Jones had a very limited trading session on Wednesday in the light of FOMC and Powell’s speech. The Federal Open Market Committee (FOMC) on Wednesday announced that it left the benchmark interest rate, the target range for federal funds, unchanged at 0%-0.25% as widely expected. Also, it is stated that they will continue to buy $80 billion a month in Treasuries and $40 billion a month in agency-backed securities until substantial further progress has been made on maximum employment and price stability goals. The FOMC statement was not much different from its November 5th meeting while some of the market participants were expecting a move from the Fed as the Congress still did not deliver anything about the stimulus deal. At this point, it is planned that the stimulus package would provide around $908 billion in total aid. The first part would be a $748 billion stimulus package that includes an additional $300 per week in federal unemployment benefits and another $300 billion for more PPP loans. This segment would also include money for vaccine distribution, education, and rental assistance. The second segment would be a $160 billion aid package and cover the more partisan issues of business liability protections and financial aid to state and local governments. Despite the uncertainty, the market expectation is a done deal before the Christmas holiday. Therefore, this expectation is driving the risk appetite at the moment. After the FOMC statement, Powell took the stage commenting that the monetary policy will continue to deliver powerful support to the economy while the pace of improvement in the economy has moderated in recent months. He also added that the next few months are likely to be very challenging while the increase in balance sheet will ensure the policy remains accommodative. On the macro data side, Retail Sales in the US declined by 1.1% in November to $546.5 billion, the data published by the US Census Bureau showed on Wednesday. This reading followed October's fall of 0.1% and came in worse than the market expectation for a decrease of 0.3% as a result of the lockdown measures announced.     

From the technical point of view, if the index stays over 29,000, 29,500 and 30,000 levels can be followed as new targets high while below the 28,400 level, 28,000 and 27,770 can be followed as supports.

Support Levels: 28,400 28,000 27,770

Resistance Levels: 29,500 30,000 30,500

MACROECONOMIC EVENTS

* All the Moving Average support and resistance levels are dynamic by nature. Means when the price approaches the Moving averages, slight variation occurs in the forecasted Moving Average support and resistance levels. Previous few days’ intraday levels are also signicant while trading the current day as the price tend to hover around these levels for some time. Levels in red indicate strong, critical or vital.

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