The global market which is currently weighed down by geopolitical issues is further pressured ahead of year-end holiday and political turmoil in the US.
Summary: Global equity and forex markets are trading range bound since trading session opened for the day with slight bearish bias amid thin liquidity in the market owing to holiday season over concerns of a global economic slowdown and political tensions in key global markets. Asian stocks were subdued in early trading hours over cues from Wall Street as investors fretted that political instability in the United States was leaving the country rudderless at a time when the global economy was showing signs of faltering. U.S. President Donald Trump’s budget director and chief of staff on Sunday said the partial U.S. government shutdown could continue into January when the new Congress convenes, and Democrats have taken over the House of Representatives as President Trump has been denied of his request for funds to build the border wall. Investors view the ongoing scenario as a preview of what lies ahead once the new Congress is sworn in on January 3. This has greatly boosted safe-haven demand in the market which is adding a bearish influence to forex and equity markets.
GBP/USD: The pair is trading range bound as political tensions from both sides of Atlantic add a great deal of bearish pressure to the market. While Brexit proceedings and a no-confidence vote on PM May is weighing the major, gains in US Greenback is limited owing to heightened worries over political instability in the US on partial US government shutdown and falling US Treasury bond yields. The trading session is expected to close early today on account of Christmas Eve, and the UK market will remain closed for the next two days owing to festive celebrations. British Pound needs to retain its position above 1.26 handle to head back to the upside when trading resumes later this week.
USD/JPY: The USD/JPY pair managed to reverse an Asian session dip to the very important 200-day SMA support and filled the weekly bearish gap, albeit lacking any strong follow-through. Sentiment in financial markets remained fragile on fears of a global economic slowdown, which combined with news of partial government shutdown in the US greatly boosted demand for Japanese Yen as a safe-haven demand. Political tensions in the US combined with recent Fed forward guidance has painted bearish outlook for US Greenback helping original safe haven assets reclaim their rightful place amid ongoing risk averse scenario. Geo-Political events across global combined with dovish developments in US market are expected to keep Japanese Yen supported as trading session closes for the year.
AUD/USD: The AUD/USD pair caught some fresh bids at the start of a new trading week and recovered a part of Friday’s sharp slump, back closer to yearly lows. The partial US government shutdown, coupled with growing concerns over the US economic prospects turned out to be key factors that helped the pair to gain some positive traction today. However, trading volumes remained thin ahead of the year-end holiday season and might now hold investors from placing any aggressive bets which is expected to induce a range-bound trading action and cap any subsequent up-move across this week. The ongoing recovery move could see the pair head towards 0.7135-40 supply zone post new year as US political woes are expected to escalate once the new Congress is sworn in on January 3, 2019.
On the Lookout: This week is expected to see very little volatility owing to the year-end holiday season. Global markets are currently on bear’s path with all major markets involved in some sort of international strife while also experiencing some local political & economic issues as well. All of which began after US President Donald Trump aggressively pushed forward with his America first approach and initiating the “Tariff Wars”. Aside from what’s happening in the US, investors focus will now be on Brexit proceedings in UK and Sino-U.S trade negotiations in January 2019 as the rest of the week will see very little action on cautious investor stance.
Trading Perspective: While markets are expected to remain closed for next two days, the last two trading sessions of the year will see retail traders book short-term profits on macro data filled USD price dynamics driven market which is expected to keep volatility relatively high despite cautious tone prevalent among global investors.
EUR/USD: The EUR/USD pair built on its steady intraday climb, with bulls now looking to extend the positive momentum further beyond the 1.1400 handle. The pair regained positive traction on the first day of a holiday-shortened week and recovered a part of Friday’s sharp intraday fall of around 120-pips. A combination of negative forces exerted some fresh downward pressure on the US Dollar, which was eventually seen as one of the key factors driving the pair higher. It, however, remains to be seen if bulls are able to maintain their dominant position amid relatively thin liquidity conditions ahead of the year-term/Christmas/new-year holiday season and relatively silent macro calendar in both sides of Atlantic.
USD/CAD: Canadian Loonie is gaining upper hand as US Greenback suffers owing to US political uncertainties and concerns of an economic slowdown. The pair is expected to see continued downtrend movement during trading sessions this week as bearish sentiment surrounding USD is expected to increase as the new Congress is sworn in on January’s first week which is expected to keep partial government shutdown active for some time. This combined with recovering crude oil price in the broad market is expected to keep the Canadian Loonie supported during last two trading sessions of the week. Technical indicators on the daily chart point to near-term overbought conditions which support Loonie’s rebound.
Dollar Index: The Dollar Index (USD/DXY) is currently trading near 96 handle down from yearly highs of 97.71 as political turmoil in the US weighs down the greenback in the broad market. But Dollar has been the most profitable asset of 2018 supported by fed rate hikes, and since ongoing trade war and political issues in Europe are expected to weigh respective markets, Dollar is expected to retain upper hand regardless of declines owing to temporary news and event-driven price action. Meanwhile, short-term outlook remains bearish owing to declining T.Yield and a partial government shutdown.