The major story in trading overnight focuses on the Eurodollar declining to fresh seven-month lows at 1.0655. There is still a continually strong divergence in both monetary and economic sentiment between the United States and Europe that is consistently encouraging sellers to attack the currency pair. The increased expectations that the ECB might ease monetary policy once again in December have also been joined by the emerging concerns that geopolitical tensions might impact consumer confidence around Europe.
WTI Oil continues to trade with heightened sensitivity and after hitting another two and a half month low at $40 during trading on Monday, the commodity managed to bounce back to trade as high as $42.24. The reoccurring theme of a persistent oversupply of the commodity is continually punishing WTI. The recent statement from OPEC that the oversupply was at its highest in a decade is going to weigh on investors’ minds as a result and limit any hope of a significant rebound in prices. Although the commodity is clearly finding tough support slightly above $40, WTI remains bearish on the daily timeframe and a breakdown below $40 may invite an opportunity for sellers to send prices towards $39.
WTI has breached the inverted wedge pattern and prices have found resistance below the daily 20 SMA. The MACD has crossed to the downside and even if prices did somehow manage to rebound higher, $43 may act as a dynamic resistance which should invite sellers to send prices back down towards $39.
Later on during the European session, most focus will be on the UK economy where the latest inflation data will be released. The Sterling remains victim to a dovish BoE and a renewed risk-off trading environment may threaten the Sterling bulls. If CPI fails to meet expectations today, this may unearth some concerns which market participants have about the potential slowdown in economic momentum in the UK economy. The GBP may be left vulnerable and open to additional losses as investors push back UK interest rise expectations further.
Dollar Index creates higher low
Despite Friday’s soft retail sales report, the heightened expectations around the Fed raising US interest rates in December has empowered USD bulls further. Dollar sensitivity to US interest rate expectations remains rife in the global currency markets and this can be seen in the USD index after the recent rally towards 100. The next major event risk for the US economy this week will be the CPI report on Tuesday and if results exceed expectations, then the USD bulls may be offered a welcome boost which should accelerate the incline towards the 100.00 psychological resistance.
The AUDUSD is technically bearish on the daily timeframe. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. As long as prices can keep below the 0.7150 resistance, there may be a decline back below 0.7000.
The USDCAD is technically bullish on the daily timeframe. Prices are trading above the daily 20 SMA and the MACD has crossed to the upside. A breakout above the 1.3350 resistance may open a path to 1.3450.
The GBPAUD is technically flat. Prices are meandering between the daily 20 SMA and the MACD is lacking any momentum. A breakout above 2.1700 or breakdown below 2.1100 may be the first signals for the trend resumption.
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