The Dollar is Resuming the Upward Trend
All eyes were on the UK Autumn Statement yesterday, which fundamentally is a mini-budget in the UK, as Chancellor Phillip Hammond was on stage. However, the major moves in trading were seen in the USD instead of the sterling pound. The USD surged to new highs against the basket of major currencies with the exception of the pound, forcing the EUR/USD to tumble below 1.0548, USD/JPY to go above 112 and dollar-dominated gold to slid widely.
USD might continue the upward trend
It seems the USD is resuming its long-term upward trend in the recent months after a pause at the start of this week’s trade. With Fed looks ready to raise interest rate in December and liquidity running short on time as the holiday period in the U.S. is rushing on, there are serious concerns that the Brexit will have a heavy impact on the UK economy. In fact, the Autumn Statement seams to reflect these concerns as the office responsible for budge revised downwards its growth estimates for 2016/2017. For instance, the forecast for 2017 has been reduced to 1.4% from 2.2%, while the forecast for 2018 from 2.1% to 1.7%. Moreover, trump administration is talking about the reins, so what will happen in early 2017 when the president-elect take office officially is a big question mark, which could transform into volatility in the markets.
Why the EUR/USD is bullying investors
Today, as the US is celebrating Thanksgiving Day the EUR/USD sharply maintains its decline, and some financial analysts argue that the Fed rate hike in December is basically priced in the market now. However, it is what happens after the anticipated Fed rate hike in December and if traders believe that the Federal Reserve will become more hawkish than the European Central Bank, the CMC markets are yet to see a further lower drift for the EUR/USD. Some investors think that parity represents a fair EUR/USD pair value, given the diverging paths of various interest rates in the US and the Eurozone. Unfortunately, it is not about what these investors see as fair value, it is all about the markets. In fact, the markets could fall below parity, or who knows it could start to increase from here. In short, no one knows what will happen next, but that should not prevent anyone from predicting what may happen in the market.
What could happen on EUR/USD resistance levels
On the weighing scale, the EUR/USD still appears heavy and a further breakdown seems more likely. After all, the normal weekly buoyant trend line is currently removed, and traders now need to study the price action carefully around 1.475 and 1.0525. These are the levels where the EUR/USD had changed from in the past. Currently, the low of the day is around 1.0530, and some online traders are using this as a point of reference. However, if current EUR/USD support at 1.0525 bows to pressure during the today or on the coming days, then it might revisit the low of 1.0460 witnessed in 2015.
Moreover, if the 1.0460 weakest levels seen in 2015 also give way, then traders might not have a reference point until the next parity level, 1.00. Certainly, every online trader knows that the EUR/USD could easily strengthen and stage a sharp rally. If it begins to rise above the already broken support at 1.0570, then as a trader you will need to trade a little more cautiously. Besides, if this week’s high break, 1.0660, then that could lead traders to the next point of reference at 1.0850, the last low the market experienced before the breakdown.
The bull trap with EUR/GBP
In the case of the EUR/GBP, the inside pattern could turn to a bull trap if fails to hold above range seen on Wednesday, around 0.8570. So, the EUR/GBP is likely to fall way below on Thursday and Friday, which is the next logical liquidity area as unquestionably many trades might place their stop loss order. In fact, if it happens, the EUR/GBP might potentially drop to its 200-day moving average of 0.8555. It is, therefore, very important to watch what happens in the market today and tomorrow around that 0.8570 level. However, if the EUR/GBP manages to hold their levels, then traders could see a little push towards the next resistance level, 0.8635 or higher before the EUR/GBP define their next move.