Forex Update: Dollar Rallies Amid Epic Short Squeeze in Stocks and Oil

Forex Market Snapshot

Asset Current Value Daily Change
EUR/USD 1.1367 0.14%
GBP/USD 1.2653 0.16%
USD/JPY 111.00 -0.31%
AUD/USD 0.7073 0.09%
GOLD 1,274 0.35%
WTI Crude Oil 46.05 -1.22%
BTC/USD 3,807 -0.11%

Traditional financial markets had a very active day, despite the usually dull holiday season, as one of the most volatile Decembers continued to deliver wild swings across asset classed. While two days ago, US stocks had their worst Christmas on record, today, bulls had their moment on the sun.  The major risk-off assets, such as the Yen and gold plunged fell significantly, while the main risk-on currencies were mixed despite the surge in equities.

The Dollar ticked higher, defying the risk-on shift compared to the Euro and the British Pound, as the fears regarding an open war between President Trump and Fed Chair Jerome Powell eased. A White House official reassured markets that the position of the central banker is 100% safe, and that helped the Greenback in recovering most of Monday’s dip.

Despite the huge bounce in risk assets, the broader bearish shift is still clearly dominant, and the major currency pairs are all confirming risk-off environment, with the Yen, the US Dollar, and gold being in favorable positions ahead of 2019.

Technical Analysis

EUR/JPY, 4-Hour Chart Analysis

The EUR/JPY pair is aligned with the broader trends in the forex segment, with the recent key breakdown being clearly intact despite today’s bounce. The short-term downtrend is established, and although a move back above the 127 level is possible in the coming days, traders should continue to look for short positions, as the oversold short-term momentum readings get cleared. Initial resistance is head near 126.65, while support is found near 125.75.

Nasdaq 100, 4-Hour Chart Analysis

The Dow and the S&P 500 both had their best day ever regarding points, while gaining almost 5% during today’s furious short squeeze as the Nasdaq surged by close to 6%. The move, which resembled a bear market rally much more than a bull run, only erased two days of steep losses, but given the still positive seasonality for stocks, and the still oversold momentum readings, the rally could continue this week.

Due to the horrible returns so far this month, the technical picture will likely remain bearish for the major indices, and next year, we expect the trend to continue, as the global economy is clear slowing and cracks continue to appear in credit markets.

EUR/USD, 4-Hour Chart Analysis

Although the main European markets were closed today, and the US Richmond Manufacturing index fell by the most on a month-to-month, to its lowest level since mid2016 basis the EUR/USD pair still finished lower even amid the bullish short-term shift in risk assets.

The pair continues to be stuck below the key 1.1440 level, and as the end of the period of positive seasonality is quickly approaching, the continuation of the broad downtrend is more and more likely in January. That said, the short-term trading range is clearly intact, and the short-term outlook is still rather neutral.

WTI Crude Oil, 4-Hour Chart Analysis

After flash crashing to $42.50 per barrel on Monday, the WTI crude oil contract exploded higher today, gaining almost 10% in one session and getting very close to the key $46.60-$47 support/resistance zone. As in the case of stocks, the oversold rally might continue, and a test of the $50 level is possible before the next swing lower.  The escalating tensions in Syria and the OPEC’s promised supply cut could fuel the counter-trend move in oil, but the global fundamental backdrop remains weak for the commodity.

Key Economic Events Tomorrow

ChartBook

Forex

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

AUD/JPY, 4-Hour Chart Analysis

GBP/JPY, 4-Hour Chart Analysis

USD/CHF, 4-Hour Chart Analysis

USD/CNH, 4-Hour Chart Analysis

Commodities

Gold Futures, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

 

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.