EUR/USD
The EUR/USD pair rallied on Thursday, as traders started to take profits after selling. The 1.05 level of course has caused a bit of resistance in the past, and should continue to do so. Even if we break above there, I believe that there is plenty of resistance above, and extending all the way to the 1.07 handle. Because of this, I ultimately believe that the sellers will return and on the first signs of an exhaustive candle, and push this market lower. At this time of the year, liquidity becomes an issue so it’s not surprising that we have not been able to make a significant move yet. However, with the European Central Bank extending quantitative easing by another nine months, it makes sense that we should continue to sell off over the longer-term.
GBP/USD
The British pound initially rallied on Thursday but turned around to form a shooting star-like candle. Because of this, I think that the sellers are going to return every time we rally, especially considering that we are in such a longer term downtrend at the moment. The 1.21 level underneath is supportive, but I think it is only going to be temporary. The real target of course is going to be the psychologically significant 1.20 level underneath, as it was the site of a massive bounce previously. If we can break below that level, we will more than likely see an attempt to get down to the 1.15 handle. However, none of this is going to happen today, as it is the last trading day of the year and liquidity will be almost nonexistent.
The British pound continues to be punished for the exit vote, and all of the uncertainty that goes along with it. While in the end the British economy should be fine, the reality is that the Federal Reserve has already suggested more interest rate hikes are coming, so the downtrend should continue.
