On the forex front, the U.S. Dollar Index extended its decline on Monday, dropping 0.2% on the day to 96.74. Peter Navarro, a topmost trade counsel to President Trump, said a preliminary trade deal with China is completed.
Regarding the U.S. economic data, wholesale inventories were flat on month in November (+0.2% expected). The Market News International Chicago PMI rose to 48.9 in December (47.9 estimated) from 46.3 in November. Later today, economists expect the Conference Board Consumer Confidence Index to rise to 128.5 in December from 125.5 in November.
USD/JPY - Bearish Bias Dominates the Pair
The USD/JPY was closed at 108.873 after placing a high of 109.484 and a low of 108.765. Overall the trend for USD/JPY remained strongly bearish that day.
At 6:30 GMT, the Goods Trade Balance from the United States was released for the month of December, which came in as -63.2B against the expectations of -69.2B and supported the US dollar. The Prelim Wholesale Inventories for November also helped the US dollar when it came in as 0.0% from expected 0.2%.
At 7:45 GMT, the closely watched Chicago Purchasing Managers Index (PMI) showed an increase to 48.9 in the month of December from forecasted 48.2 and further supported the US dollar on Monday. However, the Pending Home Sales for November from the United States came in ad 1.2% less than expected 1.5% and weighed on the US dollar.
The macroeconomic data from the United States was in favor of its currency dollar, but it failed to raise USD/JPY prices on Monday. The pair dropped with a massive pressure amid the US airstrikes in Iraq & Syria on Sunday.
The US attacked Iran-backed Iraqi militia on Sunday in response to attacks on US civilian contractors. The defense department said that five sites associated with Kataib Hezbollah were attacked by the US military.
The US secretary of State stated that the US would not stand by and put American lives in danger by Iran. However, the leader of Kataib Hezbollah, named Jamal Jafaar Ibrahim, has warned in reply to US airstrikes that the blood of the martyrs will not be in vain and that their response will be callous of American forces in Iraq.
The Prime Minister of Iraq denounced the violation of the sovereignty of Iraq by the US military. The foreign ministry of Iran stated that the US airstrikes were an act of terrorism.
This raised the tensions between the US & Middle East and decreased the demand for riskier assets like USD/JPY, which caused a sudden fall in the prices of USD/JPY to the level of 108.7 on Monday.
Chart - USDJPY
USDJPY - Daily Technical Levels
Pivot point: 109.02
USD/JPY - Daily Trade Sentiment
The USD/JPY slipped dramatically in the wake of a weaker dollar and stronger Japanese yen. The pair is heading towards the triple bottom level of 108.400. Closing of 4-hour candle above this level may drive bullish reversal in the USD/JPY.
Above 108.400, the USD/JPY can drive bullish retracement until 108.750. The RSI and MACD are still trading in a bearish zone, holding below 50 and 0, respectively. Consider trading bearish below 108.700 to target 108.400.
EUR/USD - Triangle Breakout Still In-Play
The EUR/USD pair was closed at 1.11985 after placing a high of 1.2206 and a low of 1.11713. Overall the movement of the EUR/USD pair remained bullish that day. The EUR/USD hits fresh 4-months high above 1.120 level on Monday amid weak US dollar. The US dollar has remained under pressure on Monday on the back of raised optimism of global growth. The US-Sino trade deal developments have weighed the safe-haven US dollar. Investors are awaiting the signing ceremony between the world’s two largest economies in early January.
Between Christmas and New Year, the trading conditions are thin, and this has given a boost to the action from the market. The upcoming American elections have also started to provide its move in the market, and the US dollar is facing pressure.
Besides the weakness of the US dollar in the market against a basket of six currencies, the Euro has also found support from Germany as many economists have predicted the rising inflation for the German economy. Germany is the largest economy of the European Union, and the success of the Euro highly depends on better German economic conditions.
Next week, on Friday, there will be the release of the German consumer price index for the month of December. According to the forecast, there will be a substantial uptick in the price pressures, which will support the Euro against its rival currencies.
However, analysts stated that the improvement in the inflation rate would not be enough to increase the interest rates by the European Central Bank. But this will help the Euro exchange rate to rise. On the other hand, if the actual value will come in short of expectations, then it will reverse the direction of the Euro.
Furthermore, at 1:00 GMT, the Spanish Flash Consumer Price Index for the year was dropped to 0.8% from the expectations of 0.9% and weighed on single currency Euro. Although the data released from Spain was not in favor of the Euro, it could not reverse the movement of EUR/USD due to high pressure on the US dollar.
Chart - EURUSD
EUR/USD - Daily Technical Levels
Pivot Point: 1.1203
EUR/USD- Daily Trade Sentiment
The EUR/USD hasn't shifted much as it extends to trade around 1.120, just below the horizontal resistance level of 1.1215. The bullish impulse in the EUR/USD has driven the currency pair into the overbought territory as we can notice the leading indicators RSI and MACD.
The formation of candles below 1.1215 is likely to accelerate bearish correction in the EUR/USD until 1.1160. Alternatively, the bullish crossover of the EUR/USD pair above 1.1215 can point to its prices towards 1.1256.
GBP/USD – Double Top Breakout
The GBP/USD pair was closed at 1.3117 after placing a high of 1.31500 and a low of 1.30656. Overall the movement of GBP/USD pair remained bullish throughout the day.
At 2:30 GMT, the UK Finance released the report of High Street Lending for the month of November, which showed a rise to 43.7K from the expected 41.3K and supported Sterling.
Stronger than expected number of new mortgages approved for home purchases by High Street banks of Britain for the month of November gave strength to Pound against US dollar and helped GBP/USD pair to surgeon Monday.
This month has been up & down for British Pound. Prime Minister Boris Johnson won the UK election for the second time and provided political stability, which has been lacking after the announcement of Brexit 3 years back.
After the result of elections, Pound jumped to1.35 level, but the gains proved to be of short-term. The pound came back to 1.30 level because of the announcement by Johnson of making his Brexit deal as a law. He gave the EU the deadline for next year's end to reach a trade deal with the UK. This raised the no-deal Brexit concerns and caused the drop-in prices of Pound.
However, the US dollar has remained weakened on the back of progress in US-Sino trade relations in December. On Monday, US airstrikes on Iraq & Syria also weighed on US dollar and helped GBP/USD to rise above 1.315 and end its trading day with a bullish candle for the 4th consecutive day.
Chart - GBP/USD
GBP/USD - Technical Levels
Pivot Point: 1.3116
GBP/USD - Daily Trade Sentiment
The GBP/USD pair is trading at 1.3115, just below 1.3150 resistance level. Overall, it's a double top level, which is keeping the GBP/USD under bearish pressure. Today, we should keep an eye on the 1.3150 resistance area as the violation of this level can extend buying until 1.3235. While on the lower side, the GBP/USD is likely to find support around 1.3060.
All the best for the New York session!
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