The Unbothered Pound

Fundamental breakdown

Prime Minister Boris Johnson has been under-pressure to resign by his own Conservative party colleagues following an apology before Parliament regarding the Christmas party he attended whilst the whole of UK was under lockdown. A vote of confidence on the Prime Minister would require the support of 54 Tories.

The pound does not seem to have any negative implications based on this political noise and we may continue to see this although there is a chance the UK may have a new Prime Minister, most chances Rishi Sunak, who is currently UK’s Chancellor.

The only chance to see a negative UK would be depending on how today’s meeting between UK Foreign Secretary and EU officials is concluding the unresolved dispute on Northern Ireland. EU has already indicated that a suspension of the NI protocol would prompt a trade retaliation.

On Bank of England, the market is currently determining an 85% probability of a 0.25% rate hike at the February meeting.

Technical Analysis

GBPUSD

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After a strong Impulse wave that we experienced GBPUSD, majority of 2021 was a correction of 2020’s midst pandemic-based move. 2021, formed a descending channel which the price highly respected as this formed the corrective wave’s parameters, however this has now been broken out of aggressively. The next key level we are aiming to breach would be 1.382 which would confirm a continuation of 2020’s bullish trend.

EURGBP

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Euro-pound seems to be going sideways after a strong impulse we witnessed in the previous decade. However, this seems to be a correction on higher timeframe of that impulse wave. We may be coming to an end of that correction as seen on this weekly timeframe, but the question is at what price will EURGBP bottom out. Should it break the grey highlighted (0.83) key support, we can expect the price to depreciate into 0.80 which would act as next support.

AUD/USD – One More Push for the Bears

The Elliott Wave principle in my opinion is essentially only an academic tool that can be utilised for research and analysis purpose. If you wish to trade the next forecasted impulse wave, you should assign trading and risk management rules to appropriately capitalise these moves. Today, I decided to break down my charts with using some of the wave counts.

Aussie’s bigger picture

Throughout 2020 at the peak of the pandemic we experienced a huge impulsive move to the upside until Q1 2021 before the market then decided to correct ever since. It will take year since February to complete correcting that bull move we had last year.

It seems like that according to my wave analysis, bears may have one final push of depreciation, before we ultimately expecting a bigger bull move as per shown in the below screenshot. We can expect the extreme of this correction to around 0.69 to the Australian Dollar.

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Zoomed in

Recently, we have been playing inside a small bullish channel which essentially was correcting the counter-trend move of this year, however it seems like it is running out of steam. I am eyeing up the price right now and waiting for it to break the 0.72 key level, that would be a good indication that the trend will resume to the downside. Our second confirmation would be when it breaks and closes outside of the ascending channel.

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To summarise, Aussie is preparing for a bigger move to the upside however in the next month or so far we can expect further push to the downside to complete the extreme end of the correction.

For a look at all of today’s economic events, check out our economic calendar.

Greenback – What to Expect From Major Pairs for Now?

The recently hawkish FOMC statement and forecasted plan will push the dollar to trend bullish in the coming months. On top of that, ECB seems to be more dovish and whilst the Fed is considerable responding to its high inflation levels. Speculators were expecting dollar to breach its previous high to form a new high for the year.

Could the delay be the fact we are approaching holiday season, who knows, but I do know that the above notion will continue to narrate dollar to be bullish next year. On top of that, we have Omricon variant spreading aggressively throughout the European Union which is returning some countries back to lockdown season, this will push the negatively correlated EURO to depreciate even further.

Breakdown of major pairs

DXY Current bias Future bias Near term target
Neutral Bullish 97.500

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Starting with the Dollar Index, hawkish Fed prepares dollar for next leg higher. Although DXY is holding a strong up trend it is currently correcting despite last week’s announcements. We are currently playing inside a symmetrical triangle which usually treated as a continuation pattern, therefore, with a breakout we could expect another push up into the 97.5 resistance handle.

EURO Current bias Future bias Near term target
Neutral Bearish 1.09000

Weekly view

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Weekly timeframe is showing EURO inside this long-term triangle pattern formation which has been active since Q4 2016. I can see the price is making its way towards the lower bound of this triangle.

Daily View

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Zooming in a bit more, we can see the same inverted picture as the Dollar Index. EURO is inside a symmetrical triangle as well and it seems like once we have a breakout to the downside, we can expect another push.

USD/JPY Current bias Future bias Near term target
Bearish Bullish 112.000

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Japanese yen may stay supported on unstable risk sentiment. I have recently written an article explaining how USD/JPY will be looking to appreciate in the long run but prior to that we may expect some mild bearish moves and I believe the trigger for that could be the Head and Shoulders pattern. This short-term short squeeze would effectively be a medium-term correction of the bullish run of USD/JPY.

NZD/USD – Bearish Until Further Notice – Elliott Wave

The week ahead

21st December – Noon (GMT) : Global Dairy Trade Price Index

I expect Global Daily Trade Price Index to be unchanged at the upcoming data release.

Deficit released in November was mostly motivated by exports and imports between N$5 – 7 billion. Although a smaller deficit is a good sign for New Zealand’s economy, we may not see those effects on the market as traders are more determined on risk trend’s which are focused around the currently threat of the Omricon variant.

Technical Analysis

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The way things are looking on the bigger picture is that the market has been correcting the huge surge we had through 2020’s Covid-19’s first major lockdown we had all the way up to February. So, according to Elliott Wave Theory, we completed a 5 wave count throughout 2020 and this year we have been correcting that.

The picture that I am viewing is that we are currently in Wave C, although a completion of Wave C indicates we will resume the previous trend but we still need to determine when Wave C will complete.

I can potentially see the price continuing its bearish momentum into the 0.654 support handle which is also combined with 50% Fibonacci Retracement. I will seek to resume the previous bullish trend when it breaches the 0.685 key level.

USD/JPY – More buying of US bonds – Fundamental and Technical Analysis

January-October 2021 aggregate data shows that Japanese investors net-bought JPY8.5 trillion of medium to long term US bonds, JPY7.5 trillion of US medium to long term sovereign bonds, JPY964.8 billion of medium to long term US non- sovereign bonds, and JPY5.5 trillion of USD bonds.

Technical Analysis

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USDJPY was correcting sideways inside this descending wedge formed pattern up until March this year when it eventually broke out of it ever since then we have been on a nice bullish trend. So the question isn’t where it is going now, it is what will it do before it continues to rise and potentially reach a long term resistance around the 118.000 handle.

G10 FX volatility should subside once we are through this busy week of key central bank meetings, however, with year-end approaching there is a risk this move higher for USD/JPY might not happen until the new year.

Possibly correct more into the new years

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As our hopes are going up for a continuation possibility for USD/JPY, we may experience some further correction as we are approaching the holiday season. I have spotted a Head & Shoulder pattern which may push the price further down to a possible area of 111.5 which also confluences with the 61.8% Fibonacci Retracement.

Near term bullish potential

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At this current price range, we may witness a classical continuation pattern such as a triangle, flat channel or a flag pattern. A breakout of that pattern would potentially push the price into that designated 118.500 resistance area.

 

Gold Price – Important Pattern Seeking a Potential Break-out

Fundamental breakdown

Today, Fed confirmed they have reached their inflation targets and will proceed with rate hikes at least three times next year including tapering. Ahead of time, we can expect some market moves as the market usually moves with what is expected than what is really happening.

Technical chart

Overall Gold is playing inside a large descending channel after the huge bullish wave we experienced last year which peaked at $2062. In the bigger picture, we can see a long-term correction within the market, this included the first bearish impulse wave prior to forming the blue highlighted triangle pattern shown below.

As you can see the market is currently correcting inside that triangle pattern indicates that we may expect another bearish low once it breaks out of that pattern.

Target zone

Long term target can be expected up the $1513 which is a confluence between 3 factors, equality of the first bearish wave of this correction, 61.8% Fibonacci Retracement of the previous bullish move and finally this is also a support region.

First target I would seek for price to aim towards using the 50% Fibonacci Retracement as a dynamic support zone.

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Breakout

The breakout may not be as simple as we hope it to be. At the end of the day, we are working on a higher time frame move so it may take some time to break the coil.

Although we can see a potentially breakout as it reaches the lower bound of the pattern, we may also experience another bounce before a breakout like the one you can see below’s example.

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To sum it up, we can see the market is preparing for a big move, ideally to the downside but nevertheless we should keep an eye out on the ceiling. I would be worried if the price breaks the $1860 region.

 

EUR/GBP – BoE Holding Their Horses

As we continue to monitor how the new Omricon variant unfolds in the coming weeks in the United Kingdom, I believe that Bank of England will hold fire on a rate hike this Thursday but nevertheless this does not mean the window for at least rate hikes are closed during 2022, starting from February. Regardless of their decision this week, we know the tone will be leaning more towards tightening plans in the near future. My prediction is 15bp this February and 25bp by August.

Inflation/Growth

In terms of growth rate, the committee are worried about inflation rate which is currently sitting at 4.2% which surpassed the 2% target and it looks like it is due to reach at least 5% by April 2022.

Omricon uncertainties

There has been talks and hints of alternative plans to restrict the spread of the new variant. The main question is what will the restrictions be? Right now, work from home if possible has been implemented, Covid-19 vaccine passports are required in main enclosed events such as Football, cinema and concerts. On top of that, worried Boris Johnson is hinting towards making the vaccine mandatory by February 2022.

EUR/GBP

Bearish Picture

H4 – Head and Shoulder Pattern

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As price approached the 0.86 resistance handle on 8th December, we can see it formed a reversal pattern which is visible on a 4 hour timeframe. As it has broken the “neckline”, blue line, we are likely to price to reach 0.846 region which is also supported by a minor key level.

Bullish picture

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As it is forming fresh lows a couple of times this year, we have a strong RSI bullish divergence, this indicates that the sellers are running out of steam…for now. If this is true then we can expect the market to break the next resistance key level and travel up to 0.865 handle and eventually reach 0.871 handle.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD – ECB’s Near Term Plan – Technical Analysis

This would potentially diverge EURO and USD even further considering the FED is already planning its rate hikes and tapering.

Technical Analysis

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Whilst we are on a downtrend on EURO, we should expect some further depreciation as this month unfolds into the new year and potentially Q1 2022.

Currently, EURO is correcting inside this triangle pattern and failed to break above 1.13. Although it is currently inside this triangle this does not mean it may continue to correct a bit deeper between 50% – 61.8% Fibonacci Retracement of the previous impulse wave. Either way, unless it breaks 1.169 resistance, I don’t see any hopes of EURUSD climbing. The screenshot below will show that as a potential example.

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So, it is quite clear that both technical analysis-based pictures are illustrating a further continuation alongside the supported fundamentals. There will be another update once we get a clearer picture of the plan this part decides to move forward with.