Uptrend to Resume with Intact Inverse Head and Shoulders Pattern

Forex

Central Bank

Summary:

GPBUSD continued to face pressure during the European session on Friday, breaking below the 1.2650 level. Data released in the UK showed a 0.1% MoM decline in the Gross Domestic Product (GDP) for October, putting additional pressure on the GBP.

BUY GBPUSD

Close Time

CLOSED

1.26470

Entry Price

1.30450

1.26250

1.25216 -0.00018 -0.01%

22.0

Pips

Loss

1.26250

1.26248

Exit Price

1.26470

Entry Price

1.30450

Fundamentals

On Data released by the UK's Office for National Statistics on Friday indicated a -0.1% MoM decrease in GDP for October, which was below the expected growth of 0.1%. The primary reasons for the decline were a -0.6% contraction in production output, no growth in the service sector, and a -0.4% decrease in construction output.

Looking at a three-month consecutive period, the GDP for the three months ending in October saw a slight increase of 0.1% compared to the previous three months. This modest growth was attributed to a 0.1% increase in the service sector and a 0.4% increase in construction output. However, a -0.3% contraction in production output dragged down the overall performance.

Market observers note that despite the UK's GDP falling again in October, this may overstate the recent slowdown in economic momentum. According to our forecast for the UK's annual GDP in 2025, the UK economy will outperform most Western European countries next year. This may say more about the economic health of other regions on the European continent but also largely reflects the impact of recent fiscal stimulus measures in the UK. Compared to the previous Conservative government's budget, public spending has increased by about £60 billion, accounting for more than 2% of GDP. Most of the increased spending will flow to government departments in the form of current funds, much of which will eventually appear as wages. Therefore, the fiscal transmission to broader economic growth may be quite high.

The Bank of England is unlikely to take action due to the unexpected decline in UK output. GDP fell for the second consecutive month in October due to weak consumer demand, coupled with end-of-month concerns about the government's budget. However, according to our forecasts, retail sales and other sectors will rebound in November, ensuring slight overall economic growth in the fourth quarter.

With service sector inflation hovering around 5%, next week's Bank of England meeting may be somewhat inconsequential, as policymakers are expected to once again choose to keep interest rates unchanged until February next year.

Uptrend to Resume with Intact Inverse Head and Shoulders Pattern_1

Technical Analysis

The British Pound Sterling was significantly devalued against the US Dollar on Friday due to the weak UK economy, but the uptrend is expected to resume as the "Head and Shoulders" pattern remains unbroken.

If the market can recoup the losses during the day, it may stimulate optimistic sentiment among bulls. In the short term, resistance levels at 1.3045 and 1.3100 may support a bullish retracement.

On the other hand, if the downward trend line is broken again, it will confirm a negative structure. Currently, attention is focused on the minor support level at 1.2615. If this level is breached, it will first retest 1.2486. If this level is also breached, it will resume the overall downtrend from the cluster support area between 1.3433 and 1.2298.

Overall, although the GBPUSD remains in a bearish territory, especially after failing to break through the MA200, the "Head and Shoulders" pattern is intact, and the uptrend is expected to resume after adjustment.

Trading Recommendations

Trading Direction: Buy

Entry Price: 1.2635

Target Price: 1.3045

Stop Loss: 1.2625

Deadline: December 28, 2024, 23:55:00

Support: 1.2614/1.2595/1.2561

Resistance: 1.2675/1.2748/1.2810

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Summary:

The NZD/USD dropped to an 11-month low, driven by a dovish RBNZ, concerns over China’s recovery, and a strong USD. Bearish momentum is expected to continue unless market conditions change.

SELL NZDUSD

Close Time

CLOSED

0.57650

Entry Price

0.56500

0.58200

0.56245 -0.00111 -0.20%

18.4

Pips

Profit

0.56500

0.57466

Exit Price

0.57650

Entry Price

0.58200

The NZD/USD pair extended its downward trajectory on Friday, marking the fourth consecutive day of losses and plunging to 0.5755—its lowest level since November 2022. The sustained weakness in the New Zealand Dollar (NZD) reflects a combination of factors, including a dovish stance by the Reserve Bank of New Zealand (RBNZ), persistent concerns over China’s economic recovery, and a robust U.S. Dollar (USD) supported by shifting Federal Reserve monetary policy expectations.

The RBNZ’s dovish pivot continues to be a critical driver of the NZD’s underperformance. Recent policy signals from the central bank emphasize a focus on economic stability, with markets interpreting this as a shift away from aggressive tightening measures seen earlier in the year. While this approach aligns with New Zealand’s domestic economic challenges, it has diminished the Kiwi’s appeal to global investors, especially when juxtaposed with the more hawkish tone of other central banks.

Compounding the NZD’s woes are lingering fears about China’s sluggish recovery. As New Zealand’s largest trading partner, the state of the Chinese economy has a direct impact on New Zealand’s export-driven growth. Weaker-than-expected demand from China has placed additional strain on the NZD, amplifying the negative sentiment stemming from domestic monetary policy.

On the other hand, the U.S. Dollar has continued to consolidate its recent gains, driven by a mix of robust fundamentals and shifting expectations regarding the Federal Reserve’s policy path. Key inflation data released earlier this week, including the Consumer Price Index (CPI) and Producer Price Index (PPI), indicate that the Fed’s battle against inflation remains incomplete. While headline inflation has moderated significantly from its peak, underlying price pressures remain stubbornly persistent, creating a scenario where the Fed is likely to adopt a cautious approach to any further rate cuts.

Market participants are increasingly betting that the Fed’s monetary policy stance will remain less dovish in the near term, particularly in light of anticipated expansionary fiscal measures under the Biden administration. This expectation has fueled a rise in U.S. Treasury yields, which in turn has bolstered the Greenback’s strength against its counterparts.

Geopolitical tensions have also provided additional support for the USD. The ongoing Russia-Ukraine war, escalating tensions in the Middle East, and renewed fears of a U.S.-China trade war have collectively driven safe-haven flows toward the dollar. This dynamic has created a challenging environment for risk-sensitive currencies like the NZD, which tend to suffer during periods of heightened global uncertainty.

With no significant U.S. economic data releases on Friday, the NZD/USD pair has been left at the mercy of broader market sentiment. The bearish momentum reflects the prevailing fundamental backdrop, and traders appear reluctant to take aggressive positions ahead of the upcoming Federal Open Market Committee (FOMC) meeting next week. The meeting is expected to provide further insight into the Fed’s policy outlook and could potentially influence the pair’s trajectory in the near term.

Technical Analysis

From a technical standpoint, the NZD/USD remains firmly entrenched in a bearish trend. The pair is nearing critical support at the 0.5740 level, which, if breached, could pave the way for further declines toward the next target of 0.5650. The 50-day Exponential Moving Average (EMA) is exerting consistent downward pressure, reinforcing the negative outlook. A decisive break below 0.5740 would signal a continuation of the downtrend, while a move above the 0.5870 resistance could negate the bearish bias and spark a corrective rebound.

TRADE RECOMMENDATION

SELL NZDUSD

ENTRY PRICE: 0.57650

STOP LOSS: 0.5820

TAKE PROFIT: 0.5650

Risk Warnings and Disclaimers

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Alan

Central Bank

Forex

Summary:

Yesterday, the European Central Bank (ECB) met market expectations with a 25-basis-point rate cut, with inflation forecast to reach 2%. Yet, the overall economic outlook remains bleak for the Eurozone, facing multiple challenges. Further easing measures from the ECB seem likely.

SELL EURJPY

Close Time

CLOSED

161.000

Entry Price

151.500

162.500

164.559 +1.314 +0.80%

150.0

Pips

Loss

151.500

162.500

Exit Price

161.000

Entry Price

162.500