KTM FX Weekly: Final wave higher looms

• The EUR jumped over November, but shy at 1.20.
• Heading into December, we expect a breakout higher.
• 3 EUR crosses to buy if they fall.

November has not been a reasonably good month for the common currency. But this November is special to the EUR lovers as the EURSUD gained nearly 2.40%, which resembles the 2017 November move (see chart below). Along with the euro cross-movement, three crosses saw an up move average of 2% in a month, but two crosses traded down with an average of -2.50%.

FX:

In November, EURUSD rose 2.40% to 1.20 as on November 30, 2020, the last trading day of the month, from 1.1645 on October 30, 2020. However, the price action traced out a near term top via a double top pattern. Month-end rebalancing act, I believe. 

Many of the EUR crosses which were laggards are now picking up, as the major EURUSD has almost reached its high. So, our interests (risk: reward) have moved to the places which were laggards. In EUR crosses, EURAUD, EURGBP, and EURNZD are at oversold levels.

Heading into the last month of this year, the December ECB meeting and timing of the EU recovery fund could be the key driver to the EUR.

Macros: 

Week 49 opened on an optimistic note in terms of macro data points. Starting with Asia, China reported better than expected PMIs for November.

In November, China’s Manufacturing Purchasing Managers Index ( PMI ) was 52.1%, an increase of 0.7 percentage points from the previous month, and was above the threshold for nine consecutive months, indicating that the recovery growth of the manufacturing industry has accelerated, National Bureau of Statistics reported on Monday. The latest PMI data suggest China remains the global COVID engine of growth on which world trade seems to be based.

Meanwhile, EZ PMIs were mixed, and in the US, flash PMI readings for November have come in much better than expected. The data from Germany was mixed with German GDP printed at a stronger note than reported in the 1st release in October. But Consumer climate dealt a blow by the second wave, as per the official release. A rapid increase in infection rates has prompted a second lockdown by the German government, albeit with less stringent restrictions than faced during the lockdown earlier this year—besides, Germany’s headline inflation drop into negative territory.

“Headline inflation continues its downward trend, leading to the longest deflationary streak since 2009,” ING says.

• The gross domestic product (GDP) rose by 8.5% in the third quarter of 2020 compared with the second quarter of 2020.
• GfK has forecast a figure of -6.7 for December 2020, 3.5 points down from October this year (revised to -3.2 points).

 TECHNICAL OVERVIEW

EUR falls 0.30% to end November but posted a strong gain of 2.40%. If we look back to history, only five times the EURUSD posted strong gains mover 2% since 1996. This November 2020 move is resembling 2000 and 2017 moves. On both the occasions, the following month was produced a massive green candle. In this case, we expect a breakout higher with a target at 1.2090 and 1.2150 in the medium term.

Coming back to the near-term pattern, the price action was traced out a double top pattern between September and November. The daily RSI has been losing momentum, and so do the oscillator. If the price is trading down, supports located at 1.1880 and 1.1800 below here, focus shifts to 1.1600. As long as 1.1600 is supported on a monthly closing basis, we expect the final wave higher.

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

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