An Action-Packed Calendar Includes PMI’s and an FOMC Meeting
We have an action-packed calendar today as we approach the midway point of the last full week of trading activity for 2020. Markit PMI’s (Purchase Managers Indices) make up the baulk of the data. These important leading indicators provide a forward look at growth potential for the respective economies. Each report includes a survey for the manufacturing services sector with a composite read, with Australia, Japan, France, Germany Europe and the US all due to release reports. This places AUD, JPY, EUR and USD pairs into focus.
However, the main event will be the final FOMC meeting of the year. Whilst interest rates are expected to remain unchanged, there’s hope they will reveal how long they will keep rates low. The longer they keep rates low, the more bullish a scenario this paints for stock market indices.
Overnight Market Action
- US equities rallied overnight as traders felt more confident that vaccines would be rolled out efficiently and the further stimulus could be on the way. The Nasdaq rose by 1.1% in line with our bullish bias.
- The USD remained weak on improved sentiment, although it was the British pound which took the most advantage with a 1% rally. And this is despite a rise in unemployment and record amount of redundancies in the UK, and the potential for a no-deal Brexit. But the fact traders are pushing the pound higher suggests they are looking past the doom-mongering headlines and betting on a last minute deal.
- Commodities were mostly higher overnight, with gold and silver rallying 1.4% and 2.8% respectively. This means the potential head and shoulders top mentioned on Monday is now invalidated.
AUD/JPY: Consolidation Above Key Support
The four-hour chart remains in a bullish trend and prices are consolidating above a support zone around 78.00. The monthly MR1 pivot resides just above 78.00 which underscores the importance of this key level. For now, the bias remains bullish above 78.00, although a break beneath it would see us switch to a bearish bias.
- Bulls could enter long with a break above the correction line. Alternatively, a strong bullish candle could also signal the end of the correction against the bullish trend.
- 79.00 could make an initial target (as it is a round number) but the bias is for an eventual run to the MR2 level.
- A break below 78.00 brings the 77.00 level into focus for bulls. Although the swing low around 77.33 would also make a viable target.
DAX 30 (DE30): Bulls Eye A Breakout of Resistance
The DAX appears to be on the brink of a bullish breakout. Whilst prices have effectively been rangebound over the past month, a notable bullish candle formed yesterday which was its most bullish in over a month. A ‘buyer’s tail’ also appeared on Friday which respected the 50-day eMA, which shows demand around 13,100.
Also note how a momentum shift occurred around 11,500 which saw it rally an impressive 16% in just six sessions. Given momentum was clearly bullish leading into the congestion zone, the bias is for an eventual bullish breakout from it.
- 13,462 is the key level for bulls to conquer. Bulls can consider entering long with a breakout above this key level or wait for a daily close confirmation above it.
- If a breakout occurs, yesterday’s low or the breakout level itself can provide area to manage stop placement.
- The initial target is just under the previous all-time high (ATH) at 13,827. But given the strong momentum seen previously, the bias is also for a break to new highs.
Bitcoin (BTCUSD): Can Bulls Conquer 20k?
It must be said that everyone is looking at the 20k number. And with good reason. It’s a psychological round number and a milestone which, if broken, opens up the skies for its next momentous move. Yet until it has broken the greater the potential for a nasty retracement.
Still, the daily chart is clearly within a bullish trend. Despite a single volatile bearish session in November, it failed to close beneath 17k and a subsequent doji acted like a springboard for its next leg higher. Last week saw the end of a 6-day bearish streak, where two of the session lows provided buying tails at 17,600.
- Intraday traders could consider a break above yesterday’s high with a view to trade up towards the 20k level.
- EOD traders could use a market order to enter long with a break above 20k. Alternatively, wait for a break above 20k and see if this key level is respected as support before entering long.
- If a bearish candle (or series of bearish reversal candles) form below 20k, then we would switch our near-term bias to the short side and target just above the 17,600 lows.