Year-End Correction For Crude Oil And Pound Blues

The approach of the Christmas weekend and New Year holidays are accompanied by a fall in market liquidity making them more sensitive to any news. It looks like we risk a correction this year after a seven-week rally since early November.
  
Global markets managed to shake off most of the initial fears and rebounded from much of the initial decline on the day. The S&P500 fell 0.44% over Monday, although intraday futures were down 3.2% at one point. The situation is similar in the FX market, where EUR/USD ended the day with a symbolic decline of 0.1%, although intraday losses exceeded 1%.


  
GBP/USD, the anti-hero of the day, reduced its losses to 0.5% by the end of Monday vs a 2.5% decline in the middle of the day. From a technical analysis perspective, it managed to gain support on the dip to the 50-day moving average, which has acted as support over the past two months and has earned a reputation as a short-term trend signal line.
  
The persistence above the 50 and 200-day averages clearly shows the superiority of the buyers, but the situation could change rather quickly. A decline in the GBP/USD under 1.3200-1.3250 area would overrule the optimistic scenario.
  
The pessimistic - correctional - scenario is on the table for this week. On Tuesday morning we see further caution prevail in the markets; key indices are back in the red zone and the dollar is adding, pushing GBP/USD, at one point, below 1.3400.


  
Traders should have even more caution toward Crude Oil. Brent is now trading at the $50 line, having lost more than 4.5% from Friday's highs. That said, there are few signs of a reversal in oil on Tuesday.
  
Buyers' weakness there is easy to understand as a new strain of the novel coronavirus in the UK and South Africa has led to a sharp tightening of lockdowns around the world, putting fears on the prospects for oil demand recovery. On the daily charts, the RSI climbed into overbought territory late last week, and a sharp reversal to the downside yesterday gave an informal start to a corrective pullback after the euphoric rise from the beginning of November.

For Crude Oil, the nearest target for the correction may lay around $49. A deeper, albeit very likely, target for the pre-New Year correction is the $46.5 area, where prices consolidated in early December and where the 61.8% Fibonacci rally line runs.

The FxPro Analyst Team