Dear Traders,
This week will be one of the most important and decisive weeks for currency traders. Not only do we have the European Central Bank which is forecast to boost stimulus, but also the U.S. Payrolls data could be a guide for the Federal Reserve's monetary policy decision on their Dec. 15-16 meeting. Moreover, Fed Chair Janet Yellen is scheduled to address the Economic Club of Washington on Wednesday and appear before a congressional committee on Thursday.
The ECB is widely expected to announce more easing on Thursday in order to increase the region's sluggish inflation. This expectation should keep the EUR/USD under pressure ahead of the ECB meeting. In addition, U.S. employment data is expected to continue to show that job growth is still expanding solidly, justifying a rate hike before year-end. All these are good reasons to continue dollar buying but there is no trend without a correction and given the high expectations of the ECB's and Fed's actions, traders should be prepared for sharp corrections in the dollar rally.
How low could euro and sterling go before a correction may occur?
EUR/USD
Key will be the ECB's monetary policy decision on Thursday and depending on how aggressive additional measures will be announced, the euro could experience further losses. In the short-term, a next bearish target could be at 1.0540 with an extension towards 1.0520. As long as the pair remains above 1.05, we could see relief rallies towards 1.0670, 1.0770 and 1.08. Going into the ECB meeting, the euro could test the March low at around 1.0470. Once the 1.0460-level will be breached, the euro could free-fall towards parity.
GBP/USD
Taking a look at the weekly chart, sterling is trading within a clear downward channel. The support line is currently at around the 1.4930-level, where we see a possible support for the currency pair. Before touching lower levels, the 1.50-mark is key. Remaining above 1.50, significant corrections are becoming more likely, driving GBP towards 1.5150 and 1.5240. We see a major resistance at 1.54. However, a break below 1.4930/00 should accelerate the bearish momentum.
Today we will watch German Consumer Prices, scheduled for release at 13:00 GMT, which could impact on the EUR/USD. Furthermore, U.S. Pending Home Sales are due for release at 15:00 GMT.
We look forward to a volatile and challenging week and wish every trader many profitable trades.
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