USD continues to weaken as Fed remains on hold

The USD continued to weaken against a basket of its major counterparts, especially against the pound which got a boost due to increased Brexit hopes and the common currency which may have gotten some encouragement as the preliminary PMIs were better than expected for the area. The FOMC as was widely expected maintained its rates unchanged yet failed to meet the market’s dovish expectations as it made no changes to its asset purchases schedule, keeping the current pace of bond buys until ‘substantial’ progress towards its goals is made. The instant push higher for the USD was erased later on as Fed Chairman Powell underscored the substantial dovishness of the bank in his press conference. On other news, negotiations in the US Congress are still ongoing for a deal regarding a possible stimulus and could boost market sentiment. Given that the Fed’s meeting is over and should the risk on attitude of the markets continue to guide them, we could see the USD retreating further.
EUR/USD continued to rise yesterday breaking the 1.2155 (S2) resistance line and despite a correction lower, the pair’s buying momentum resumed, pushing the price also above the 1.2215 (S1) resistance level, with both of the prementioned resistance levels, now turned to support. Should the buying momentum continue to guide the pair, we could see its’ next stop being the 1.2285 (R1) line, yet it should be noted that the EUR/USD has reached a new 2 ½ year high. The RSI indicator below our 4-hour chart though seems to confirm the dominance of the bulls as it approaches the reading of 70 yet may imply also that there is still room for the pair to go higher. Should a selling interest be displayed by the market, we could see the pair, reversing prior gains by breaking the 1.2215 (S1) support line and aiming if not breaking the 1.2155 (S2) level.

Pound continues to rise ahead of BoE’s rate decision

The pound tended to gain against the USD, CHF and JPY yesterday, boosted by an intensification of hopes for a possible Brexit deal. It’s characteristic that EU Commission President Von der Leyen stated that she sees a narrow path towards a deal, while EU sources stated that fishing rights are now the major last hurdle, according to Bloomberg. Despite recognizing that Brexit remains the key fundamental issue and given the lack of high impact financial releases from the UK, we also highlight BoE’s interest rate decision in the late European session (12:00,GMT). The bank is widely expected to remain on hold at 0.10% and GBP OIS imply currently a probability of 97.45%, for such a scenario to materialize. Given the inability of the bank to act due to the uncertainty caused by Brexit, we expect the main monetary settings of the bank to remain also unchanged, yet a slightly dovish tone could be employed, despite vaccination in the UK being underway. However, should the headlines continue to stress the possibility of a Brexit agreement, we may see BoE’s decision being overshadowed. GBP/USD continued to strengthen yesterday, breaking the 1.3470 (S1) resistance line, now turned to support and despite some hesitancy continued higher to aim the 1.3585 (R1) resistance level. We tend to be bullish on the pair as long as the pair remains above the upward trendline incepted since the 15th of the month. Should buyers persist with their bid, we could see cable breaking the 1.3585 (R1) line and aim for the 1.3700 (R2) level. On the other hand, should cable come under selling pressure, we could see it breaking the 1.3470 (S1) support line and aim for the 1.3375 (S2) support level.

Other economic highlights today and early Tuesday:

Its going to be mostly a central bank day as besides BoE, the Swiss, Norwegian, Czech and Japanese (during tomorrow’s Asian session) are scheduled to release their interest rate decisions. In the American session, we also highlight the US data regarding the construction sector for November, the weekly initial jobless claims figure and the Philly Fed Business index, while just before the Asian session starts, we get New Zealand’s trade balance. Also please note that ECB’s De Guindos and Schnabel are scheduled to speak.

EUR/USD H4 Chart

Support: 1.2215 (S1), 1.2155 (S2), 1.2100 (S3))

Resistance: 1.2285 (R1), 1.2340 (R2), 1.2415 (R3)

GBP/USD H4 Chart

Support: 1.3470 (S1), 1.3375 (S2), 1.3285 (S3)

Resistance: 1.3585 (R1), 1.3700 (R2), 1.3835 (R3)

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