It was really a tough week in the market. Following the short squeeze on EUR, the dollar weakened significantly as well, with USDJPY breaking below it’s support level at 122.30 and is now trading around the 120.80 level. But having said that, it exposes us to many interesting aspects of the market; forcing us to research more in depth into the various forces of the market – what is moving the market beyond the fundamental forces from the central banks, the different sentiments (risk-on/risk-off) in the market, various aspects of intermarket analysis, etc.
While we agree that trading should be kept simple, we also strongly believe that a good understanding of the market is crucial to bring us to our eventual milestone – a Million Dollar Trader!!
This week’s sole focus will be on the 16th December FOMC Fed rate decision. While it is almost certain (80%) that the Fed will increase it’s interest rates, analyst foresee that the dollar will weaken with this rate hike – at least for the immediate term. And that is with valid reasonings! So if you are looking to buy into dollar strength, do take a step back and rethink your trading thesis.
Having said that, can the dollar strengthen? Absolutely, just like what happened last week on the EUR when Draghi announced the ECB decisions. There is definitely no certainty in the market.
We have a potential Bat pattern setting up on GBPUSD with PRZ around the 1.5285 region. This area also confluences with the many fib level which includes the 141.4 and 161.8 inversion + a 127.2 expansion.
Having said that, we also need to take into consideration the fundamental aspects of the market. The FED is likely to increase the interest rates by 25 basis points, and we believe that many investors/traders will be liquidating their long positions after the 16th Dec FOMC . Hence we might see a short term weakness on the dollar.
This might give us the push up towards the PRZ on this technical chart. The medium term aspect on the fundamental is still dovish on GBP and hawkish on USD .
Let’s keep an eye on this and see how this pair pulls off!