• Audere Research

Weekly FX Outlook December 21st



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GB Pound

Sterling had another volatile week.


Movements

GBPUSD opened at 1.3383 and initially continued to rally to reach a new high since April 2018 (1.3625) on Thursday before initiating a sharp downside correction and closing at 1.3274 (-0.81%).


GBPEUR opened at 1.1013 and after a quiet start it traded with a positive bias to reach 1.1130 on Thursday. It then commenced to fall heavily to end the week with a loss of 1.19% at 1.0882.


Movement rationale

Volatility reigned in all GBP currency pairs as we entered another crucial week of Brexit negotiation. Optimism on reaching a trade deal was high, pushing Sterling to levels not seen since April 2018 against the Dollar on Thursday. UK Labour data, which was better than expected, also helped support the UK currency. This came to an end once a lack of progress and general pessimism started to appear, with disagreements on access to British fishing waters and limits on state aid still unresolved. The negative GBP movement towards the end of the week was probably also exacerbated by the recent worsening of the pandemic in the UK with the southeast of England entering an emergency lockdown and EU countries banning UK travel over a new COVID variant.


Week ahead

Sterling volatility is likely to be remain high with the currency responsive to Brexit news and the following main economic events:


Calendar

Tuesday 8am | Gross Domestic Product (Q3)

US Dollar

The US Dollar remained under pressure.


Movements

EURUSD opened at 1.2151 and continued to trade sideways during the first half of the week, before moving higher, recording a new high since April 2018 (1.2270). It then gave away part of the gain to close at 1.2196 (+0.37%).


GBPUSD opened at 1.3383 and initially continued to rally to reach a new high since April 2018 (1.3625) on Thursday before initiating a sharp downside correction and closing at 1.3274 (-0.81%).


Movement rationale

Dollar movement over the week was mainly driven by risk on sentiment and hopes of a fiscal stimulus. The currency hit a 2.5 year low against major currencies and was particularly under pressure during the first half of the week amid optimism over vaccine progress (with the Moderna vaccine being approved for use in the US). Agreement on the stimulus package was finally reached on Sunday (for roughly $900bn). The latest blow to the Dollar came from the Federal Reserve, which pledged to keep rates low during the pandemic crisis even if the outlook for the US economy improves. Some support towards the Greenback arrived toward the end of the week as investors started to move into safe assets as many countries tightened Covid-19 lockdowns.


Week ahead

As we enter in the last two weeks of the year and holidays season, there is a light economic data agenda. Reduced market liquidity has the potential to influence all currency movements:


Calendar

Tuesday 2:30pm | Gross Domestic Product (Q3)

Thursday 2:30pm | Durable Goods Orders (Nov)

Euro

The Euro had a relatively strong week.


Movements

EURUSD opened at 1.2151 and continued to trade sideways during the first half of the week, before moving higher, recording a new high since April 2018 (1.2270). It then gave away part of the gain to close at 1.2196 (+0.37%).


GBPEUR opened at 1.1013 and after a quiet start it traded with a positive bias to reach 1.1130 on Thursday. It then commenced to fall heavily to end the week with a loss of 1.19% at 1.0882.


Movement rationale

After the previous week’s pause, Euro resumed its upward movement, tipping 1.22 versus the Dollar for the first time since 2018. Strong economic data, with the Eurozone manufacturing output expanding faster than expected, supported the currency. Positive sentiment was also driven by optimism which followed the EU recovery fund deal, which is meant to finance an unprecedented amount of joint debt and revive the Bloc’s economies from the pandemic.


Week ahead

As we enter in the last two weeks of the year and holidays season, there is a light economic data agenda. Reduced market liquidity has the potential to influence currency movements:


Calendar

Monday 4pm | Consumer Confidence (Dec)


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