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Risk-on Mood Fuelled By U.S. Stimulus Bill

29 December 2020

Global sentiment brightened on Tuesday after the US House of Representatives approved an increase in stimulus payments to a majority of Americans. Given how it was only Sunday that Trump signed a $2.3 trillion spending package, this encouraging development is set to lift risk appetite and investor confidence. A potential boost in stimulus aid that increases payments to $2000 from $600 will be a welcome development for qualified Americans while uplifting confidence over the US economy. 

However, it may be too early for celebrations as the Senate will need to approve the bill for it to become law. When factoring in how Republicans controlling the Senate may not be open to the increased amount, things could get messy this week.

Most Asian stocks rose with U.S futures on Tuesday amid the positive U.S. stimulus developments while European equities are likely to soak up the risk-on vibe.

Dollar waves white flag 

It's slowly shaping up to be a depressing week for the Dollar. All the positive news around the U.S stimulus bill and prospects of inflation rising in the United States is weighing heavily on the Dollar. The former king of the currency markets has weakened against every single G10 currency this month, quarter, and year. With bears clearly in the driving seat as fundamentals batter the Dollar, the path of least resistance points south. 

Taking a look at the Dollar Index, it has shed over 6.60% since the start of 2020. Prices are struggling to keep above 90.00 as of writing. A breakdown below this level is likely to open a path back towards 88.00.

Pound…what next?

One would have expected the Pound to push higher after the United Kingdom and the European Union reached a breakthrough in terms of a post-Brexit deal. While this development may remove a layer of uncertainty for the UK as 2021 looms, many questions around the trade agreement remain unanswered. With the way things are going, the Brexit saga could release a spin-off in 2021 revolving around the trade agreement. 

In regards to the technical picture, the GBPUSD could experience a pullback before pushing higher. Sustained weakness below 1.3482 may open a path back towards 1.3300 and 1.3200. Should 1.3482 prove to be reliable support, prices may target 1.3630.

Commodity spotlight – Gold 

The next few days could choppy for Gold prices due to conflicting forces. On one side of the equation, surging coronavirus cases, a fast-spreading new strain of COVID-19, lockdown restrictions, a weaker Dollar, and US stimulus hopes have supported Gold bulls. However, optimism around the COVID-19 vaccinereviving global growth continue to blunt appetite for the precious metal. Given how risk-on remains thename of the game amid the positive US stimulus developments, this is likely to limit Gold’s upside. It maybe best to keep a close eye on how prices react around $1850, $1870 and $1900.



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