USD in Freefall and Indices Hit New Highs on Stimulus Bets
US indices closed to fresh record highs as investors remained optimistic that a coronavirus stimulus package was close. The USD remains in freefall, with the dollar index (DXY) closing beneath 90 for the first time since April 2018.
Commodity currencies reaped the benefits of a risk-on environment, with AUD/USD and NZD/USD being the strongest majors of the session and trading at their highest levels since June 2018 and April 2018 respectively. AUD also enjoyed the stronger-than-expected employment report which saw unemployment fall to 6.8% (vs 7% forecast) and headline employment rising to 90k (vs 50k expected).
The BOE (Bank of England) kept monetary policy unchanged overnight (0.1% interest rate with £875 billion QE program) and said they would be willing to tolerate an inflation spike in the event of a no-deal Brexit. This means that policy would remain unchanged if inflation were to rise above 2% temporarily.
Brexit talks appear to have hit a brick wall with UK’s PM Boris Johnson saying it’s “very likely” no deal will be made unless the European Union “substantially” changes its position.
Today’s Calendar Events (Times are GMT+11 Sydney)
- No major economic data is scheduled for today.
- No change is expected in today’s BOJ meeting.
AUD/CAD: Bullish Continuation Pattern Points to Parity
AUD/CAD has recently broken out of an inverted head and shoulders (H&S) pattern. Given it has occurred within a bullish trend it can be used as a continuation pattern. If successful, the pattern projects a target around 1.0000 (parity).
The weekly chart produced a bullish engulfing candle to show support around 0.9450 two weeks ago, and momentum on the daily chart has seen prices break above the neckline of the inverted H&S pattern.
- The bias remains bullish above the broken neckline / 0.9600 support.
- The 50% retracement of yesterday’s Marabuzo candle, or yesterday’s low can be used to fine-tune risk management for a short-term trade.
- Or a wider stop ca be used to target parity. However, key highs reside around 0.9775 and 0.9930 which make them viable interim targets.
S&P 500 (US500): Can It Rally into The Weekly Close?
US equities remain firmly bullish as they embrace Santa’s rally. The Nasdaq 100 has moved higher in line with our bullish bias, although there is a tight zone of resistance around 12,865 made up of the monthly R1 and weekly R2 pivot points. As the S&P 500 does not have such resistance levels so close to price action it may provide the better bullish opportunity around current levels.
We can see on the four-hour chart that support has been around at the weekly R1 pivot point and the 10-period eMA. Prices are also consolidating just below record highs. Given the overall strength of the bullish trend the bias is for bullish breakout.
- Bulls can consider entering long on bullish breakout above 3723.66.
- A break beneath weekly R1 suggests a retracement is underway and may of interest to counter-trend traders.
- Keep in mind that the weekly pivot points will be recalculated on Monday, so these levels apply for today only.
Ripple (XRPUSD): Arguably Much Better Value Than Bitcoin
With Bitcoin (BTCUSD) breaking above 22k, cryptocurrencies are also enjoying another bout of buying as investors seek value relative to the exorbitant Bitcoin. And one such place to look would be Ripple’s XRP which currently trades around 0.6000.
Throughout November, volatility exploded and saw Ripple stage a 242% rally. Volatility has since subsided and a flat correction has found support around 0.4300. If we have seen the end of the correction, this week’s rally may be the beginning of a impulsive move higher, so we are keen to explore long opportunities on any retracements above 0.4300.
- Bulls can seek bullish setups if prices retrace towards the 50% or 61.8% Fibonacci level.
- The bias remains bullish above 0.4300.
- The initial target is the high around 0.7800 but, if we have seen the beginning of an impulsive move, it should break to new highs as part of its bullish trend.