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Ethereum has opened the new trading week strongly, with the ETHUSD pair the strongest performing cryptocurrency amongst the top twenty cryptocurrencies by market capitalization. The recent break above the $126.00 level has triggered a bullish inverted head and shoulders pattern, with an upside projection extending well above the $150.00 level. Sellers need to move price back under the $142.00 in order to ease intraday bullish momentum.

The ETHUSD pair is bullish while trading above the $126.00 level, key resistance is found at the $160.00 and $195.00 levels.

If ETHUSD pair falls below the $142.00 level, sellers may test the $126.00 and $120.00 levels

The euro is back under selling pressure against the US dollar on Monday, following Friday’s strong reversal lower from the 1.1470 level. Sellers now need to force price below the 1.1360 support level, in order to encourage further technical selling in the EURUSD pair. Failure to move price below key support may prompt a bullish recovery back towards the 1.1430 resistance level.

The EURUSD pair is bearish while trading below the 1.1400 level, key technical support is found at the 1.1360 and 1.1300 levels.

If the EURUSD pair trades above the 1.1400 level, buyers may test towards the 1.1430 and 1.1470 resistance levels.

It will be a low volume day as people around the world prepare for Christmas. For this reason, many markets will remain closed today and tomorrow. In some countries like the United States, United Kingdom and Canada, the markets will open for half a day. However, even with the low volumes, the prices of securities will continue to move up and down.

Christmas eve comes as the government shutdown continues in the United States. The shut down came after the senate failed to pass a funding proposal. They refused to do so because the US president insisted on having $5 billion for the wall in the budget and the democrats are not incentivized to act as a new term nears. Over the weekend, the president insisted that he was likely to continue shutting down the government until he gets his wall. The shutdown will likely not have major implications in the markets but the happenings in Washington will likely impact investor and consumer confidence.

The price of crude oil started the week on a high note with Brent and WTI gaining by 1% and 0.85% respectively. This upward trend was not attributed to any major news. The reason could be driven by investors belief that the low prices could hamper production from the United States. It could also be because of technical traders and algorithms who believe that the price is oversold.

EUR/USD

The EUR/USD pair moved higher in early trading as investors looked at the US government shutdown. It moved from Friday’s close of 1.1355 to a high of 1.1390. On the hourly chart, the pair’s current price is along the 14-day EMA but lower than the 28-day EMA. Today, with no major economic data expected, investors will focus on the government shutdown in the United States. A deal between democrats and republicans will likely lead the pair lower.

GBP/USD

The GBP/USD pair rose slightly today from a low of 1.2615 to a high of 1.2680. On the hourly chart however, the price remains within a narrow range of between 1.2600 and 1.2700. This current price of 1.2670 is slightly above the 14-day and 28-day EMA. Like with the EUR/USD pair, this price will likely depend on the US government shutdown.

XTI/USD

The XTI/USD pair moved to a high of 46.22. Still, the current price is close to the 15-month low. On the hourly chart, the price is close to the 14-day and 28-day EMA. The RSI is at 50 and moving up. In the short-term, the price could continue moving up. However, this could be a false breakout, which means that the price could resume the downward trend.

China's Ministry of Finance announced adjustments on some import and export tariffs today, effective January 1. In short, export tariffs on 94 products are canceled, including iron ore, and fertilizers. For imports, China will levy temporary tariffs on 706 products and maintain relatively low import tariffs for aircraft engines.

Import tariffs on 14 information technology products will be cancelled starting July 1, 2019. China will also further cut most favoured nation tariffs on 298 information technology products from July 2019.

Full release from MoF of China.

US politics catch a lot of headlines today and over the weekend which might caused some anxiety in analysts. But such nervousness is not really reflected in the markets, in particular the currency markets. Major pairs and crosses are staying in very tight range today. At the time of writing, the biggest mover, AUD/USD, is just up 28 pips.

Headlines mainly centered around four issues. Firstly, it's reported on Friday that Trump is considering to fire Fed Chair Jerome "Jay" Powell after last week's rate hike. Treasury Secretary Steven Mnuchin then tweeted and denied it. Mnuchin noted Trump said "I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so". Then WSJ reported on Sunday that advisers of Trump have discussed in recent days arranging a meeting between him and Powell.

https://twitter.com/stevenmnuchin1/status/1076614027093061632

https://twitter.com/stevenmnuchin1/status/1076614123155218433

Secondly, it's Mnuchin again. He said he made individual calls with CEOs with the six largest banks. And, "The CEOs confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations." "He also confirmed that they have not experienced any clearance or margin issues, and that the markets continue to function properly." Mnuchin will convene a call with the President's Working Group on financial markets on Monday too. Some criticized that Mnuchin's move was counter-productive as it portrayed a sense of worry to investors.

https://twitter.com/stevenmnuchin1/status/1076958380361543681

Thirdly, the partial federal government shutdown with start today with no immediate end in sight. Mick Mulvaney, the acting chief of staff of Trump, warned that "It's very possible this shutdown will go beyond (December) the 28th and into the new Congress."

Fourthly, Trump is going to replace Defense Secretary Jim Mattis two months earlier than expected after being annoyed by the latter's resignation letter.

Key Highlights

• The Euro faced a strong barrier near 1.1480 and declined recently against the US Dollar.
• EUR/USD faced a strong resistance trend line at 1.1485 on the 4-hour chart.
• The US GDP in Q3 2018 increased 3.4%, less than the forecast of 3.5%.
• Today in the US, the Chicago Fed National Activity Index for Nov 2018 will be released, and it could decline from 0.24 to 0.21.

EURUSD Technical Analysis

This past week, the Euro gained bullish momentum and broke the 1.1420 and 1.1450 resistance levels against the US Dollar. However, the EUR/USD pair struggled near 1.1480, resulting in a fresh drop.

Looking at the 4-hours chart, the pair climbed sharply above the 1.1420 level, but it could not even test the 1.1500 hurdle. A high was formed at 1.1485 and the pair declined heavily after the US GDP report was released this past Friday.

It seems like the pair failed near a strong resistance trend line at 1.1485 on the same chart. It declined below the 50% Fib retracement level of the last wave from the 1.1269 low to 1.1485 high.

The current drop looks real and if sellers gain pace below the 1.1350 level, there could be more losses towards 1.1320 or 1.1300. On the upside, an initial resistance is near the 1.1400 level, above which the pair might revisit the 1.1450 resistance zone.

Fundamentally, the US Gross Domestic Product report for Q3 2018 was released this past Friday by the US Bureau of Economic Analysis. The market was looking for an increase of 3.5% in the US GDP in Q3 2018.

The result was lower than the forecast as the US GDP grew 3.4% according to the “third” estimate. On the positive side, real gross domestic income (GDI) posted a solid increase of 4.3% in Q3 2018, compared with a 0.9% rise in Q2 2018.

The report added that:
The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 3.8 percent in the third quarter, compared with an increase of 2.5 percent in the second quarter.
There was a sharp rise in the US Dollar after the release and EUR/USD traded below 1.1400. AUD/USD also declined sharply, but pairs like GBP/USD and NZD/USD remained stable.

Economic Releases to Watch Today

• Chicago Fed National Activity Index for Nov 2018 – Forecast 0.21, versus 0.24 previous.
• Japan’s Corporate Service Price Index for Oct 2018 (YoY) – Forecast 1.2%, versus 1.3% previous.

GBP/USD recovered recently, but it faced a strong resistance near the 1.2700 level. USD/CAD remains in a solid uptrend and it recently broke the 1.3550 resistance area.

Important Takeaways for GBP/USD and USD/CAD

• The British Pound recovered above the 1.2600 and 1.2660 resistance levels.
• There is a major bullish trend line formed with support at 1.2625 on the hourly chart of GBP/USD.
• USD/CAD recently climbed above the 1.2500, 1.2550 and 1.2580 resistance levels.
• The pair is following two bullish trend lines with support at 1.3545 and 1.3490 on the hourly chart.

GBP/USD Technical Analysis

The British Pound started consolidating in a range above the 1.2500 level this past week against the US Dollar. Later, the GBP/USD pair started a decent recovery and moved above the 1.2600 and 1.2660 resistance levels.

The pair even settled above the 1.2660 level and the 50 hourly simple moving average. However, the pair struggled a lot to break the 1.2700 resistance area and it recently formed a high at 1.2705 on FXOpen.

The pair corrected lower below 1.2680 and the 38.2% Fib retracement level of the recent wave from the 1.2529 low to 1.2705 high. However, there is a strong support formed near the 1.2600-1.2620 zone.

Buyers also defended the 50% Fib retracement level of the recent wave from the 1.2529 low to 1.2705 high. Moreover, there is a major bullish trend line formed with support at 1.2625 on the hourly chart of GBP/USD.

As long as the pair is above the trend line and 1.2600, it could make another attempt to break the 1.2700 resistance area. A successful close above the 1.2700 barrier may start a decent upward move towards the 1.2800 resistance in the near term.

Overall, GBP/USD is currently consolidating in a major range and it is likely preparing for the next key break either above 1.2700 or below 1.2620.

USD/CAD Technical Analysis

The US Dollar remained in a solid uptrend from the 1.3320 swing low against the Canadian Dollar. The USD/CAD pair climbed above the 1.3400 and 1.3480 resistance levels to move into a positive zone.

Later, there was a break above the 1.2550 resistance zone, which cleared the path for more gains. The pair traded close to the 1.2600 level and formed a high at 1.2599. At the moment, the pair is correcting lower and broke the 1.3580 level.

Sellers pushed the pair below the 23.6% Fib retracement level of the recent wave from the 1.3492 low to 1.3599 high. However, the pair remains well supported on the downside near the 1.3540 level and the 50 hourly simple moving average.

Besides, there are two bullish trend lines in place with support at 1.3545 and 1.3490 on the hourly chart. The first trend line coincides with the 50% Fib retracement level of the recent wave from the 1.3492 low to 1.3599 high.

Should there be a break below the first trend line and the 1.3540 support, the pair could test the 1.3500 pivot area. The overall trend is very positive for USD/CAD and it seems like the pair could resume its upward move after a short term downside correction towards the 1.3540 or 1.3500 supports.

EURUSD faces risk of medium term trend resumption following its price reversal on Friday. Support lies at the 1.1300 level where a violation if seen will aim at the 1.1250 level. A break below here will aim at the 1.1200 level. Further down, support comes in at the 1.1150. On the upside, resistance resides at 1.1400 level with a break through there opening the door for further upside towards the 1.1450 level. Further up, resistance comes in at the 1.1500 level where a violation will expose the 1.1550 level. All in all, EURUSD continues to threaten further bear pressure.

USDCHF reversed losses with eyes on more strength in the new week. This leaves resistance residing at the 0.9989 level as the next upside target. A break of here will clear the way for more gain towards the 1.0050 level. Above here, resistance comes in at the 1.0100 level and then the 1.0150 level. Its daily RSI is bullish and pointing higher suggesting further upside pressure. On the downside, support is seen at the 0.9900 level. A turn below there will set the stage for more decline towards the 0.9850 level. And then the 0.9800 level. All in all, USDCHF faces further upside threats.

I am a HUGE fan of Christmas “ginormous” presents, Christmas trees, Turkey with all the trimmings, and the dog swallowing baubles aside; it’s time when cliché thrives like bacteria on a mince pie. So, I promise I will spare you from any more Xmas clichés in my pre-holiday market note. Other than to wish everyone a very happy holiday.

• Markets
• Oil Markets
• Gold Markets
• Currency Markets ( JPY, MYR, CNH)
• A busy Friday on Wall Street
• Trump is firing Powell, say what?
• Government Shutdown
• Cryptocurrencies 

Markets

I think we are all struggling to make heads or tales of this market and while quantum physicist will tell you perception is 99 per cent of reality,  today’s market volatility is more perception than reality as  Wall Street ‘s ” Pretzel Logic” and ” Fed Spin” has the markets on very shaky grounds. Deferring a December rate hike could have been as equally destabilising but rest assured the markets will be able to channel their best Goldilocks( economy)  impression as its very unlikely the Fed will raise rates again before mid-2019 unless there is a surprising development on the trade war front.

Oil Markets

The production cuts haven’t yet taken effect, yet OPEC Oil ministers are already taking to the airwaves with ” price stability at all cost” mantra with U.A.E’s energy minister while suggesting that the 1.2 million barrel-a-day cut will clear global inventories, he left all options on the table  by suggesting that OPEC can hold an extraordinary meeting to discuss finding the right balance.

Incredibly in the face of even deeper production cuts, petroleum markets have hit fresh lows. And while the production cut should restore a semblance of supply balance for the first half of 2019. Global growth concerns and shale production which continues to make new record highs has investors deeply concerned.

Macroeconomic fear seems to be dominating sentiment and causing virtually every growth related asset class to melt away like a snowflake in May. And while this bearish run was was fun, its time to put my economist hat on for a few minutes. Even if  US GDP data for 3Q drops to 3.4 % and 2.9 % in Q4 those numbers are nowhere near recessionary fear, nor is China’s slowdown from a GDP of 6.5 % to 6.4 or even 6.3 % in 2019 for that matter. That’s not to say growing late-cycle recession fears will not consume investors psyche as the relative yield curve continues to invert.  Its just that recessionary fears are not here today nor do they look likely to seat in the medium term.

But this type of market fear tells me on the thing for sure; traders will start to adopt”bad news now is good news” mentality  (i.e. the weaker the data, the more dovish the Fed will be), which will create more irrational market moves.

In the News 

International Energy Agency chief Fatih Birol reportedly said US production could rival Saudi Arabia and Russia combined by 2025. Reuters  Indeed ” The Times They Are A-Changin’ “

US Shale producers to hit the brakes on 2019 spending. Reuters   I think this is hard to argue with prices falling, but with the technology advancement, well production cost has declined dramatically while major shale players have hedged a good chunk  2019 liquid volumes that could insulate some players. I’m not sure if December ” silly season” meltdown should be factored into the longer-term projection, but its a slipperier slope than most had anticipated

Gold Markets

The downdraft in Global equity markets has firmed up the major support level to $ 1240. However, after trading above $1265  markets softened on profit-taking as the USD dollar charged back after investors priced far to much USD  risk into the negative impact of a government shut down only to realise the sun always rises in the morning. But given the shaky global equity markets, we should expect safe-haven demand for gold to remain firm into year end

Currency Markets 

Japanese Yen 

US economic and policy uncertainty in the wake of the weekend headlines( Trump vs Powell) suggests risk will continue to struggle on Xmas eve. USDJPY is trading below 111 as the US political overhang is predicably dampening this morning open. And while I don’t think the shutdown risk is particularly dollar negative. In the Yen’s case, solid arguments are being formed around being short USDJPY on the back of Japanese lifer repatriation flow or increased hedging propensity. But there’s an abundance of investor money parked on the sidelines and given the dire state of the US equity markets; I wouldn’t be surprised to see the US administration move more constructively to resolve trade war issues with China, which should go a long way to stabilising risk and boost global equity market sentiment.

Malaysian Ringgit 

China tax cuts will be mildly positive for regional growth. But with oil prices weakening and markets still fretting about global growth concerns, it’s unlikely the Ringgit will make any significant headway into the  New Year

Yuan 

China’s Central Economic Work Conference wrapped up on Friday. The Xinhua News Agency reported earlier that prudent monetary policy will strike a balance between tightening and easing in 2019, vs. last year’s language saying it should be kept neutral. “Significant” cuts to taxes and fees will be enacted in 2019. The tax cuts are designed to spur domestic demand and offset the fallout from trade war while maintaining currency stability.

Meanwhile, US-China tensions too yet another cyber escalation. China on Friday demanded the withdrawal of US Justice Department charges overnight that alleged Chinese officials coordinated a decade-long espionage campaign to steal intellectual property and other data from dozens of companies.

A busy Friday on Wall Street 

Besides the weekend headline that Trump was considering firing Powell, more on that in a second, the best tidbit I read was the US exchanges has their busiest volume day since the day after Brexit vote.

Indeed, nothing like a panic parade during “the silly season” but with 80%+ of pro’s sidelined and the rest in the risk reduction mode, investors relying on asset prices to anchor based on a squiggly line on a chart was sheer folly. As such, loss aversion and the herd mentality took over as individuals’ tendencies toward irrational investment decisions were on full display post FOMC.  While I still don’t know if the market necessarily knows what to make of the last Fed hike, as I’ve never seen a post rate hike debate go on this long. Central banking is an exercise in confidence, data analysis and trying to predict the future. I thought Powell hit all the right notes and I have to agree with Secretary Steve Mnuchin that the market’s reaction is ” completely overblown”   Bloomberg I thought the Fed did exactly what I thought they would do, the market’s reaction, however, continues to befuddle. But market fragilities are beyond comprehensible, none of which was the Fed’s doing but have certainly tipped the current scales in favour of a policy mistake if price action is a good barometer of sentiment.

However a significant problem has been global pension funds have continued to divest equities in favour of bonds, while Yen strength has triggered some equity outflow from Japanese lifers. Unfortunately, from my experience, these US equity outflows are coming at the wrong time of year when big speculators have little appetite to stand in front of moves knowing full well these opportunities will be there post January 2. But there may be a sliver of light at the end of the equity market tunnel of despair as some sector reallocation may be on the horizon.  ” Meanwhile, Credit Suisse Group AG estimated on Tuesday that pension funds would move $63 billion out of bonds and $24 billion into developed market stocks. Investors often sell assets that have done the best and buy those that have done the worst at the end of the quarter to “rebalance” to a target position. Reuters

Trump is firing Powell, say what ??

Honestly, I couldn’t believe my eyes when I read the Bloomberg headline over the weekend that Trump was considering firing Powell. Markets rise on confidence as well as economic growth and coming off one of the worst weeks since GFC; one would have expected more reassuring comments from the Whitehouse

Thankfully Mnuchin came to the rescue to squash any thought’s of this happening as I was about to crazy glue my “sell button” down at  Monday’s open.

I’m, not a constitutional lawyer, so I will not wade in the debate if Trump has the power to fire a “Governor.” And while It’s not exactly surprising that Trump was up and arms about the Fed chair hiking rates and even downgrading GDP forecast for 2020 (#election2020). What is even more bizarre is that the President seems unconcerned that his constant Fed berating makes the FOMC committee even more resolute to prove their independence and stay the course on monetary policy.

Government Shutdown

While a short-term government shut down doesn’t have enough economic punch to force Congress into an agreement any time soon, which means that drag could go on for a while.  But the shutdown erodes investor confidence in ” the process” and adding this kind of political uncertainty on top of the mountain of economic and financial risks around the world is bound to hurt markets. But frankly, there’s a host of more significant concerns weighing on investor sentiment than a US government shut down

Cryptocurrency 

BTC appears to be anchoring its self to the $4000 level marker, and I’m getting an eerily similar feeling like $ 4000 is the new $6000 as investors are just waiting for the next big thing, good or bad to happen.

I think there remains a lot of downside risk given that regulatory actions have been reactive instead of establishing a strict cohesive policy substructure that would create worldwide investor trust. In my view, this continues to act like an anvil around the cryptocurrency markets neck. However, I remain entirely optimistic about the future of blockchain projects primarily in the financial sectors which should accelerate in 2019, and I think this will provide a high level of confidence for the future of crypto coins, assuming the regulatory committees can put forth some proactive actions and establish a robust public policy framework.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.