The new week started with profit shedding as the general market mood fell. The stock markets are shedding profit, thus, dragging riskier FX along. Metals are on the bounce while the oil market started the week on the downside.
The dollar ended last week bullish despite a poor December US job data. Bitcoin with other cryptos maintains the bearish weekend as the bulls take a breather. Another interesting market week ahead as US politics and developments around Covid could take the central stage amid a very few high-impact economic events. Fed chair’s speech and the US retail sales data are the only macro events worthy of a high impact move this week.
US Politics
President Trump’s second impeachment is gaining momentum. Last week, the Capitol building was attacked by protestors who were reported to be supporters of the outgoing president. Despite the importance of this drama, the market has reacted mildly and maintained its normal pace. In the course of the week, the market will start preparing for the new President and react more to the headlines in this regard.
Covid-19 & Vaccines
Covid 19 infection and death cases are rising in the US and UK. The UK has been on llockdown since January 5. The market might panic if the lockdown extends to other countries and vaccines producers are not meeting up with the required numbers. So far, vaccination has only reached far less than 1% of the affected population. Headlines on lockdowns, vaccines production and result might trigger significant moves this week.
Macroeconomics
There is very little macroeconomics to watch this week. Aside from the Fed Chair’s speech on Thursday and the US retail sales data on Friday, most of the other market events are of low impact. Attention could therefore be directed more on the risk drivers mentioned above.
Market Forecast
Currencies
The dollar is adding to last week gain as the DXY jumped to 90.5 for the first time this year. To the upside, 91 is attractive. However, the trend remains bearish and traders should be cautious of not getting caught in the bullish trap. To the downside, the dollar index could slide below 90 and off to 88 in the coming weeks.
Meanwhile, EURUSD has broken below a rising 4-weeks old channel. The price can get supported at the critical 1.211 Fibonacci level. Further rally is, therefore, likely toward 1.245 unless this support level is breached.
Pound Sterling has been bearish across the board since last week. Post-Brexit issues and covid impact on the UK economy could be vital going forward. GBPUSD gas dropped below 1.35. However, the dip is corrective. If the Dollar falls as a result of resurgent risk appetite in the coming days, GBPUSD could move above 1.37. However, traders should watch out for the 1.349 and 1.3415 support levels where the bullish traction might resume.
The dollar-yen bulls sparked last week as Gold fell. The divergent USDJPY-Gold nature is back. USDJPY could touch prices around 104.3 before a dip toward 103.5 or even lower to 103.3. However, at the end of the correction, this currency pair has the potential to rebuild the recent bullish run toward 105 or higher.
As for the commodity currencies, a lot will depend on the general market risk mood. Chances are high that risk will return as we near Biden’s inauguration. Therefore, AUDUSD and NZDUSD bullish trend could resume toward 0.785 and 0.735 respectively. On the other hand, USDCAD could plunge to 1.26 especially if it stays below the 1.28 handle.
Commodities
Gold should continue the current bullish correction toward 1890. However, we can’t ascertain yet, whether the current bearish flash has hit its low yet. In the long-term, the metal will most likely plunge further toward $1,740 after the bullish corrective phase. Silver should move in a similar manner with Gold, with the long-term eyeing below $20 per ounce. Meanwhile, focus this week should be on the development of the current bounces on these metals.
As for the energy market, oil prices remain bullish and have shed some profit on Monday. However, their near-term direction will be influenced by the market risk swing. After the current dip, we might see WTI off to $53-54 per barrel and Brent toward $56-57.
Cryptos
The buzz around the crypto market is expected to persist this week as new buyers would be looking for the opportunities to buy at lower prices. Bitcoin has shed 20% since the weekend, now trading below $35,000 after falling for the 3rd consecutive day (assuming Monday losses persist till the end of the day). A lot of technical analysts are already calling for the start of another bearish phase. While their arguments might look good for now, we will have to see if BTC drops below $28,000 to confirm a new bearish phase. Historically, the dips are much more sluggish than the rise. Bitcoin’s current all-time high stands at $42,000. Overall, the bullish trend is still intact and a new high at $50,000 is very much likely if the premier crypto stays above $28,000.
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