Another Brexit agreement, but still no Brexit deal

Weekly Update, Dec 10 – 14: Top Forex Setups & Economic Events to Trade

Posted Sunday, December 9, 2018 by
Arslan Butt • 3 min read
  • On Friday, the Greenback slipped against the bucket of six currencies, after data showed US employers hired fewer workers than forecast in November. This also hurts the interest rate hike sentiment.
  • The UK GDP and Parliament Brexit Vote are keeping the Great Britain Pound in highlights this week.
  • What happens if the British Parliament votes down Theresa May’s Brexit deal?
  • Dollar index had a losing week; can inflation figures underpin the Greenback?

Dollar Index – Ascending Triangle Ready to Support

The dollar dropped against the bucket of six currencies after data showed US employers hired fewer workers than forecast in November, boosting concerns that US growth is declining and that the Federal Reserve may stop hiking rates sooner than previously thought.

Fundamentally, the current week is loaded with high impact economic events which have the potential to drive big moves in the Greenback. Let’s take a quick look…

PPI m/m – On Tuesday at 13:30 (GMT), the Bureau of Labor Statistics will release the Producer Price Index (PPI). The figures are expected to drop from 0.6% to 0.0% this month which is negative in nature.

CPI m/m – On Wednesday at 13:30 (GMT), the Bureau of Labor Statistics is scheduled to release US inflation data. Economists aren’t expecting any rise inflation which is sort of an unfavorable situation for the dollar. CPI is forecast to rise by 0% vs. 0.3% during Oct.

Core Retail Sales m/m – On Friday, the core retail sales will be in focus. Interestingly this figure is also expected to rise by 0.2% vs. 0.7% during October.

Looks like the United States is going to face a slight economic slowdown. First, it was the weaker labor market figures. The US nonfarm payrolls grew by 155k jobs last month which is way less than economist forecast of 200k. While the unemployment rate was unchanged at near a 49-year low of 3.7%. Average hourly earnings by 0.2% in November after gaining 0.1% in October.

Fed policymakers are still broadly anticipated to boost interest rates again at their December 18-19 meeting, but the focus is on how many rate hikes will follow in 2019. Considering the upcoming US events and their forecast, investors may trade the dollar with dovish policy sentiments.

Weekly Support & Resistance Levels
Support Resistance
96.8 97.5
96.59 97.71
96.24 98.06
Key Trading Level: 97.15

Key Technical Points

  • On the daily timeframe, the dollar index trades above 20 & 50 periods EMA which still signifies a bullish sentiment of traders.
  • The dollar is showing a strong sell over fundamentals. But here’s the thing – the bullish trendline is likely to support it near $96.50.
  • The RSI & Stochastics are still holding above 50, indicating a strong bullish momentum in the dollar.
  • The dollar index has formed a Doji candle above bullish trendline that can cause an upward reversal until $97.45.

GBP/USD – Eyes on Parliament Brexit Vote

The British Pound strived to stabilize itself after having suffered a turbulent slide on Thursday. Investors feared political turbulence in the country could see it tumble out of the European Union without a divorce deal. With two days to go until the critical Brexit vote, the Prime Minister has informed MPs that they face “uncharted waters” if they refuse her deal.

Check out my colleague Skerdian’s update Brexit Vote Is Coming. What Are the Options? for a better understanding of the possible scenarios.

GBP/USD – Technical Outlook
On the daily chart, the cable took a bearish turn to drop below 20 and 50 periods EMA at $1.2880, but it failed to break below the triple bottom level of 1.2685. This signifies uncertainty regarding the bullish reversal in the pair. It’s a fundamentally driven week, and we can’t determine much based upon the technicals.

GBP/USD- Fundamental Outlook
GDP m/m The Office for National Statistics is forecast to release the GDP figure at 9:30 (GMT). The GDP (gross domestic product) is expected to rise by 0.1% vs. 0.0% in the previous month.

However, considering the recent slowdown in the UK’s inflation figures from 2.6% to 2.5%, investors will remain cautious over the GDP growth rate. On the release of positive news, Sterling can stay bullish as the BOE (Bank of England) will be expected to keep the hawkish tone in its monetary policy meetings.

Weekly Support & Resistance Levels
Support Resistance
1.2648 1.283
1.2563 1.2926
1.2381 1.3108
Key Trading Level: 1.2744

GBP/USD – Trade Plan
The pair may face an immediate resistance near $1.2790 and $1.2850 along with a support near $1.2690. So, the idea is to enter a sell position upon a bearish breakout of $1.2675 to target $1.2515.

Good luck and keep following FX Leaders for another profitable week.

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