The Pound Rebounds as Brexit Leaders Extended Deadline
It was a volatile and bearish week for the British pound as talks between the EU and UK failed to produce a trade deal by Friday’s close. The pound was broadly lower and lost notable ground against the Australian dollar with GBP/AUD depreciating by over 3%. Yet news late Sunday night that leaders agreed to extend the Brexit deadline yet again has seen pound pairs gap higher higher in early Asian trade. GBP/USD is back above 1.3300 and rebounded 0.94% whilst GBP/JPY has recovered by 1.04%.
Odds of US stimulus being rolled out before the new year weighed on sentiment and saw US indices under pressure midway through last week. That said, traders appear to be holding out to see if Santa’s rally can push equities back to new highs. Over the past 5 years the rally has generally occurred in the second half of December.
Commodities moved broadly higher with Thomson Reuters CRB commodity index pushing to a 9-month high. Yet Gold (XAU/USD) bugs failed to make any impact as the yellow metal essentially closed flat for the week.
Crypto markets continued to retrace lower from recent highs, yet momentum is not convincing enough to assume a bearish reversal. Bitcoin (BTCUSD) and Ethereum (ETHUSD) produced bearish engulfing weeks and Ripple (XRPUSD) produced a bearish outside week, yet all markets remain above key support levels.
Today’s Calendar Events (Times are GMT+11 Sydney)
- There are no major economic events scheduled for today.
- Traders will keep close tabs on any Brexit headlines.
EUR/USD: Bias Remains Bullish Above 1.2000
The weekly chart is carving out a strong, bullish impulsive move and recently closed to its highest level since April 2018. Given the strength of the move the bias is for an eventual break above the 1.2555 high over the coming months. Yet a bearish harami pattern has formed to show a hesitancy to break higher. Given signs of USD strength elsewhere, we could see prices retrace before continuing on its bullish trend.
- The daily chart is consolidating within a potential bull flag pattern and found resistance around the February 2018 lows. A break above 1.2177 assumes bullish continuation.
- A break beneath Wednesday’s low assumes a deeper correction and brings 1.2000 into focus for bears.
- Yet we expect 1.2000 to provide solid support and for dip buyers to return, forcing EUR/USD to resume its bullish trend.
Nasdaq 100 (USTEC): Can Santa’s Rally Push Nasdaq to New Highs?
US indices have pulled back from their record highs but, given the second half of December tends to be a strong week for equities for “Santa’s rally” then we are on the lookout for a resumption of the trend. However, there are a few warning signs of a deeper correction.
The weekly chart remains in a strong uptrend but a dark cloud cover pattern has formed at the record highs. A break beneath 12,085 confirms the bearish reversal pattern.
A bearish engulfing candle saw momentum reverse at the record high, although two bullish pinbars have found support around the 50% retracement level and October’s high.
- A break above Thursday’s bullish hammer suggest a minor rebound could be in play. Although we would want to see strong bullish momentum to suggest a ret-test (and breakout to new highs) is on the cards.
- A break beneath Thursday’s hammer low assumes a re-test of 12,085 (61.8% Fibonacci level).
- A Break below 12,085 confirms the 2-week dark clod cover pattern and brings the 11,805 lows into focus.
Gold (XAU/USD): Lower High Forms Within Bearish Channel
In line with 30-year seasonality pattern, gold is currently trading higher in December. Yet price action on the weekly chart remains choppy to suggest it is still within a correction and last week closed with a bearish pinbar pattern. Price action also remains confined within a bearish channel.
The daily chart also suggests a swing higher has formed 1875.25 due to the bearish opening marabuzo candle which formed on Monday.
- The near-term bias remains bearish below 1850, which is also near the 50% Marabuzo line of the daily chart.
- A break beneath 1818 assumes bearish continuation and confirms a bearish head and shoulders pattern. The pattern projects a target around 1768 although 1800 makers a likely interim target.
- A break above 1850 invalidates the near-term bearish bias and brings the 1875 high into focus.
