Markets await fresh evens as consolidation period deepens – Market Analysis

Markets await fresh evens as consolidation period deepens – Market Analysis

Technical consolidaiton for most global currencies

The US Dollar continues its upward correction and rises slightly against most counterpart currencies, including the Japanese Yen.

Although the stock markets suffer some losses on the day, the Yen avoids the usual strengthening against the Dollar, in all probability due to the effects of a possible presence of the Bank of Japan in the market.

EUR/USD

In the case of EUR/USD, the downward correction is maintained today after briefly hitting highs in the 1,1905 zone.

The target of 61.8%, 1.1820, a Fibonacci retracement of the entire previous bearish leg that began in February 2018 has been met. After slightly exceeding it, the pair consolidates in a corrective movement characteristic of this type of price action.

In the short term, it finds a support zone at 1.1700, below which it would have an open path to the 1.1600 zone where the 100 SMA line passes in the 4H chart.

The market needs to decongest from the high levels of overbought reflected in the historically long position data on this pair reported by the futures markets. In short, we are in the process of profit-taking of long Euro positions.


EU political & economical entanglement

But fundamentals continue to point to a stronger Euro in the future.

In the case of the EUR/USD due to the intrinsic weakness of the Dollar that will be maintained over time while the low-interest rates of this currency cause a process of disinvestment in assets denominated in Dollars and, at the same time, due to the buying interest of assets in Euros.


To keep in mind that more than 60% of investment-grade bonds in the world have negative yields and only in Europe, in countries like Italy or Spain, there are sovereign bond investment grades with low yield levels but are still positive.

The backstop of the European Central Bank with its € 750 trillion asset purchase program mainly buying bonds from these countries, and the recently approved European Commission mutual debt fund, is sufficient guarantee to eliminate investors' fears of a debt crisis in Italy, as was originally feared.


This has been stated by several of the world's leading asset managers that invest in fixed income.

So the buying flows of the Euro will continue in the market with significant probability. The market participants will take advantage of falls in the EUR/USD pair to buy on dips, with more ambitious targets above the psychological level of 1.2000.

The GBP & the United Kingdom


Early Thursday morning European time, the Bank of England meeting is held. The market consensus is that they will leave the benchmark interest rates unchanged and not modify their asset purchase program.

But, as time progresses without improvements in the Brexit negotiations and with an economy hobbled by the aftermath of the pandemic, and the potentially devastating consequences of an exit from the European Union without an agreement, the central bank will be forced to act with monetary stimulus policies and possibly with negative interest rates.

The consequence of this is a weakening of the Pound Sterling, which could be precipitated by any comment in this regard that may be made after Thursday's meeting.

GBP/JPY is receding after a sudden bullish momentum triggered by the unusual USD/JPY bounce last Friday.

This correction would have its objective levels in the area of 136.00 and 134.80, where the 100 and 200 SMA lines pass in the 4h chart.

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