Today is a risk-on day, and it doesn’t matter whether you look at the European equity markets, US equity futures, or cryptos. Green is the dominant colour across the board, indicating that bulls are back in town and ready to bag some bargains. Traders have been waiting for a Santa Rally for the past number of days, but what we experienced in the markets was an intense sell-off, a blessing for bargain hunters. Equity markets are now oversold, cryptos are also oversold, and commodities have been battered. The intense sell-off was pretty much due to two main factors: firstly, traders were worried that the hawkish monetary policy stance among the central banks was likely to hurt economic growth. Finally, the ongoing situation of Omicron. The fact is that no one wants to see another lockdown, and over the weekend, we saw Covid restrictions tightening up in a number of countries, which has made traders nervous.
It is important to keep in mind that a Covid vaccine’s booster shot provides strong resistance against Omicron, and this is what traders and investors need to focus on. More and more people are getting booster shots, and this should mitigate the risk of any economic slowdown. We do not think current Covid restrictions which are imposed by countries like Netherland or other European countries are going to last long.
These lockdowns aren’t going to be anywhere similar to the previous one. These are only temporary conditions that are purely designed for the holiday season to prevent the spread of Omicron. Going into next year, we are likely to see the situation going back to normal. Having said that, the full normality of life and the economic cycle may not return until the end of Q1 of next year as the cancellation news of the World Economic Forum in Davos has adversely influenced the sentiment.
Biden’s economic agenda is another factor that is also very much influencing the market’s price action and is highly likely to continue to impact the price action of the US equity market. When Biden announced the US economy’s $2 trillion growth plan, we saw a massive rally for the US equity markets as investors saw that as a positive sign for the US economy. However, the current obstacles opposed by the lawmakers are making traders nervous. The only fundamental which is going to help the US economy is Biden’s trillion-dollar stimulus plan. The fact that the loose monetary policy is leaving town—loose monetary policy usually stimulates economic growth, we hope to at least see Biden’s economic plan coming to fruition. Despite Democratic Senator Joe Manchin’s resistance, the Senate will vote on Biden’s massive social safety net and climate policy plan in January.
It’s uncertain whether Democrats will try to pass a bill that simply contains portions of the whole package.
Gold prices are likely to continue to be choppy in the coming days. The price has slipped below the 1,800-price level once again, which means that bulls are losing control of the price. The weakness in the gold price is primarily due to the strength in the dollar index. This week, we do not have any important economic event, but traders will find other external factors such as Omicron to drive the gold price action. Any risk-off event is likely to drive the gold price higher. As long as the price continues to trader above the 1,800-price mark, it is highly likely that we will see higher highs for the shining metal. However, if the price fails to break above the 1,800-price mark, we are likely to see bears driving the price action lower.
Bulls are back as the Bitcoin price was flirting with the 200-day SMA on the daily time frame. There is no doubt that the Bitcoin price is oversold, and we have seen an intense sell-off for the past number of weeks. But the fact that the price is bouncing back up from the 200-day SMA is positive news, but it will only remain as a positive sign if the price continues to stay above this price level. Overall, it is pretty clear that we have seen smart money taking advantage of lower prices and adding more Bitcoin in their portfolios during the past number of weeks.