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Andreas Zanin
Analysis | January 5, 2021

KTM FX Weekly: Alright, that’s it. 2020 is done, finally.

All of the EUR crosses in the main segment closed in favorable terrain, and four crosses reported 5-7% gains since last Christmas. Besides, the major surged a double-digit gain of 11% at the same time frame.

Base currency EUR

Since Christmas 2019, the currencies not only formed new highs but crashed to multi-year lows. The major EURUSD rallied 11%, while the EURCAD, EURGBP, and EURJPY rallied between 5-7%. In all, the year gone by was indeed an unusual fashion for the FX markets by the unprecedented COVID-19 crisis. It’s all the liquidity that supported the financial markets, and credit goes to the Global Central Banks.

Looking ahead, signs of the hope of economic recovery supported by the improving data points in the past few months, vaccine development, and local government’s several stimulus measures boosted sentiment so far. Bond yields will remain for 2021 with a continuation of significant central banks’ stimulus.

2021: The positive vaccine news on the COVID-19 supports the sentiment, but the daily covid-19 infection numbers weigh in the trade’s mind. When writing this article, we learned that Boris Johnson imposes a nation lockdown on England to combat the new COVID variant.

  • British Prime Minister Boris Johnson said England is adopting a national lockdown that he hopes will be tough enough to contain a new, highly contagious variant of Covid-19- CNBC reported.

Another breaking news hit the screens a few seconds ago. New York Gov. Cuomo confirms the state’s first case of new Covid strain initially found in UK-CNBC reported.

FX:

The US dollar is trading at the lowest point since April 2018 but managed to hold the Dec 2020 low on the first trading session in 2021. In all, a positive start against the G10 currencies.

G10 currencies dropped on Monday, the first trading session of 2021. New lockdowns and concerns over the new COVID strain hit the sentiment. The pound sell-off 0.70%, followed by AUD 0.60%. But our subject currency EUR managed to hold its color GREEN.

On Monday, EUR rallied 0.60% against AUD, CAD, GBP, and SEK.

Macros: Eurozone manufacturing ended 2020 on an encouragingly strong note, with production growth accelerating to one of the fastest seen over the past three years. 

  • German final December Manufacturing PMI at 58.3 vs. 58.6 forecasts. Previous was 58.6.
  • French final December Manufacturing PMI at 51.1 vs. 51.1 forecasts. Previous was 51.1.
  • Italian final December Manufacturing PMI at 52.8 vs. 53.7 forecasts. Previous was 51.5.
  • Final Eurozone Manufacturing PMI at 55.2 in December (Flash: 55.5, November Final: 53.8)

According to the IHS Markit, Eurozone Manufacturing PMI improved to its highest since May 2018 during the final month of 2020. Posting 55.2, up from 53.8 in November but a little softer than the earlier flash reading, the headline index was above the crucial 50.0 no-change mark that separates growth from contraction for a sixth successive month.

Looking ahead, we have December’s Services PMI on Tuesday and German IP on Friday. Besides, US NFP data due on Friday.

TECHNICAL OVERVIEW

The common currency is currently trading at 1.2250 against the US dollar, representing a gain of 0.05% for the Monday session. We would be concerned if EURUSD could not push and hold above 1.2300-1.2330 over the next day or two. Investors may need to see how the US employment data plays out before chasing a move in EURUSD.

From a medium-term perspective, we continue to target 1.2500+. Turning to near-term support exists at 1.2230 and 1.2200. Flipside, a decisive breakout above 1.2330, could allow the pair to claim 1.2550, its Feb 2018 high, and 1.2600 it’s 200MA Monthly, which co-insides with 61.8 fib reaction (please see chart below).

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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