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Awaiting new drivers

3 December 2020

US stock markets have opened up lower on the day as investors struggle to find fresh catalysts to extend their buying of stocks. The latest ADP private payrolls report just released Stateside also disappointed, with gains of 307k versus the expected 410k. With the weekly initial jobless claims and ISM employment also recently showing weakness, there are numerous signals pointing to a fading labour market – will this mean further bad news on Friday’s much anticipated non-farm payrolls?

Consolidation after big market moves is no bad thing, as we consistently say, and boy, could dollar bulls do with some of that! The greenback is just off two and a half year lows against the Euro and a basket of major currencies hit earlier in the session. Investors remain wary of the competing stimulus proposals between Republicans and Democrats which still reflect a wide gap in thinking on the Hill in Washington.

In commodities, oil is hanging in there even though OPEC and its allies have left markets in limbo by postponing a formal meeting to decide whether to lift output in January. The surprise build in private inventories overnight has also impacted. Brent made new lows for the move below $47 before finding willing buyers to push it back into recent consolidation. Gold has risen for a second day as inflation expectations continue to rise, with US 10-year bond yields gunning for the key 1% level.

Trade headlines hit Sterling

As expected, this week has been full of Brexit headlines as traders endeavour to judge what is actually happening in Brussels and London. The major news on today’s wires reported that the EU’s trade chief Barnier has warned that there may not be a deal with the UK as negotiators desperately aim for agreement by the weekend. He noted that there has still been no change in the three major outstanding issues – fisheries, level playing field and enforcement.

EUR/GBP has busted out of the descending channel of lower highs and lower lows which it had been carving out since mid-September. The strong spike higher has also taken out a major Fibonacci level from this year’s low and high around 0.9034 which now acts as support, and now trades just below the 50% retrace level of the March to May move at 0.9084.

After the largest one-day move since 10 September, bulls will want to hold onto these gains, though momentum indicators are not overbought.



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