Welcome to a new and pivotal trading week. After smaller market movements on the back of a low liquidity backdrop the past week, the fundamental docket will get far busier this week. We get the last run of major data before the Christmas holidays with several high-profile event risk coming up within the next days.
The Federal Reserve is getting close to pivoting to easier policy and is thus expected to announce a 50bp rate hike on Wednesday, while the Bank of England and the European Central Bank are expected to follow suit on Thursday.
In terms of volatility, the Fed will carry the greatest weight this week and since much of the central bank’s less-hawkish stance is already priced in into the market’s recent risk appetite and subsequent upward momentum, the greatest risk of volatility would be a sharp move to the downside.
The U.S. dollar started this week with an uptick against other peers and traders now turn their eyes to Tuesday’s U.S. consumer inflation data ahead of the Fed meeting. For the dollar to rally we would need to see core CPI above 6.3 percent whereas a reading below 6 percent could ignite another sell-off in the greenback.
EUR/USD: Looking at larger time frames the euro has been in a downtrend since May 2021. The only driving force behind the euro’s recent ascendency has been a softer U.S. dollar which traded lower on signs of easing U.S. inflation. In other words, the fundamental picture and developments in the US the next days will dictate the euro’s price action.
From a purely technical view, the currency pair remains stretched to the upside with a need for correction. Below 1.0340, chances increase in favor of the bears with a lower target seen at 1.01. Bulls on the other side will have to overcome the resistance zone between 1.06 and 1.08 in order to change the sentiment in favor of further bullish action.
GBP/USD: Like in the euro, the U.S. data and Fed decision will dictate the cable’s direction in the next days. It seems as if bullish momentum is waning and if the pound breaks below 1.21, we may see a steeper correction towards 1.18. Above 1.2350, however, bulls may push for a test of 1.25.
Our trading ideas for today 12/12/22:
Long @ 1.0540
Short @ 1.0490
Long @ 1.2265
Short @ 1.2190
Long @ 14330
Short @ 14270
Settings for all trades today: Entries from 8:00 am UTC, SL 25, TP 40
Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.
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