Risk Appetite Will Likely Wain

The positive risk sentiment stalled last Friday as we enter the final week before the Christmas/New Year break. Volumes are expected to turn sharply lower as well as the market’s risk appetite. On Friday we saw some sharp corrections from the euro and British pound’s lofty highs. Prior to that, the recent wave of optimism saw the euro and pound accelerating while the DAX printed a fresh all-time high at 17000.

DAX – The trend is our friend

The German Index rose to an all-time high of 17004. While we expect more upside momentum towards a next high at around 17200, we also pencil in an important support area between 16400 and 16500.

The U.S. dollar slid on the Federal Reserve’s dovish pivot last week, while the Bank of England and the European Central Bank both held their hawkish outlooks. In contrast to the Fed, which sees three 25bp rate cuts in 2024, expectations of a series of rate cuts by both the ECB and BoE next year were paired back.

EUR/USD – Not in an uptrend

Looking at larger timeframes such as the weekly chart, we see that the euro hasn’t formatted an uptrend so far since it remains still below the EMA200 at around 1.10. Should euro bulls make it above 1.1010, the next hurdle comes in at 1.1080 – the descending trendline. Only a clear break above 1.11 would increase chances towards a bullish bias.

GBP/USD – Working on a breakout

The cable seems to work on an upside breakout above the EMA200 at 1.2740. Above 1.2760, traders will focus on a renewed test of 1.28 and further 1.2850. On the other side, a current support is seen at 1.25.

We recommend traders not to reinvest their monthly profits this week as volume is thinning out. However, the U.S. PCE report, due for release on Friday, could be worth watching as weaker-than-expected numbers could reinforce the dollar’s recent decline, whereas strong numbers could trigger a bullish reversal.

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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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