Risk sentiment is starting to become a concern. The virus picture is looking increasingly negative across the world with hospitals overwhelmed and daily deaths breaking records. Even with US stimulus and vaccines being distributed markets cannot ignore the fact that stricter global lockdowns are imminent. So, do we really want reduced fears of tapering driving the USD bid again?
So far, the USD sell off has been able to resume against growth currencies as Biden’s $1.9T stimulus plans have lifted risk sentiment. Meanwhile EUR has remained under pressure. It seems as though the spread of the virus across Europe and their slow roll out of vaccines has dented sentiment towards the EUR. Given most of Europe is headed for tougher restrictions, EURJPY could continue lower, a close below 126.00 will be significant.
Powell spoke overnight “When the time comes to raise interest rates, we will certainly do that,” he said. “And that time, by the way, is no time soon.” With other FOMC members also pushing back against tapering expectations and CPI not showing any cause for concern (yet), expect the fear of higher US yields to continue to fade.
New York and Florida both reported over 200 deaths. Meanwhile Spain posted record cases, France is extending a 6pm curfew across the country and Angela Merkel wants to tighten Germany’s lockdown.
US Initial Jobless Claims came in worse than expected at 965k vs 789k expected. This should also limit the move higher in US yields as it’s too early to be concerned about a tight labour market.
We are also expecting this overall sentiment to lead to further EUR weakening against currencies where the vaccine is being rolled out rapidly such as the UK. A close below 0.8863 in EURGBP would be significant.
Numbers to Watch
EURUSD is a tougher call as the USD downtrend can resume now that tapering fears are fading but any risk off moves are likely to drive USD bid again. It broke 1.2130 support yesterday so positioning should be very clean here.
Short AUDJPY and CADJPY makes sense.
- EURUSD – The dollar remains well supported keeping the Euro below the 200-SMA, amid higher US yields after President-elect Joe Biden announced a $1.9 trillion Covid relief plan. Meanwhile, the ECB Meeting Accounts showed that the Governing Council is concerned about the euro’s exchange rate and its potential negative impact on the inflation outlook. Our short-term bias turns negative for now on the single currency, as we expect further weakness on the pair if the bulls couldn’t break back above 1.2175.
- GBPUSD – The pound looks stuck between 1.37 and 1.3615 in the short-term after a muted reaction to the UK GDP numbers. The data showed that the economy shrank by 2.6%, better than the estimated 4.6% contraction. On one hand, PM Johnson is pressured to ease the current lockdown as the UK vaccination campaign gave back hope to the people and the economy. On the other hand, the US bond yields’ resiliency keeps the Dollar well supported, putting pressure on the Cable. Our short-term view remains unbiased, leaning a bit to the bearish side, as we wait for price to confirm its next destination.
- USDJPY – The dollar/ yen retested the 103.60 support level yesterday as expected, after the Fed intervened and pushed the dollar lower by mentioning that it is not appropriate even to begin talking about slowing down the asset purchase program. However, after the speech, the 10-year started to climb back higher, which kept dollar’s losses limited, weakening the yen at the same time. Today, if US bond yields recover, then we will see a bounce back towards 104.
- FTSE 100 – Stocks in London are opening lower this morning in the wake of the stimulus plan announced by the incoming Biden administration despite the better-than-expected GDP reading released a few moments ago. UK industrial production fell 4.7% missing market consensus. UK manufacturing production decreased 3.8% YoY. The FTSE100 index has support levels at the 200-period SMA around 6750/6700 and the old resistance now turned support at 6670. The economic calendar still has US retail sales at 1330 GMT followed by US industrial production at 1415 GMT.
- DOW JONES –President-elect Joe Biden officially unveiled his $1.9 trillion stimulus plan that proposes $1400 direct payments to Americans on top of the $600 checks already going out. He also will increase extra jobless benefits and set a $15 per hour minimum wage nationwide. Markets are expected to react positively to Biden’s rescue plan today, however, on the futures market, the Dow futures are down this morning hinting at a weak start as investors ponder over yesterday’s weak jobs data. Therefore, a minor pullback towards the 30800-support level and even 30625 in extension is likely before attempting higher highs. JPMorgan (JPM), Citigroup (C), and Wells Fargo (WFC) report earnings pre-market today with stock valuations concerning some investors who worry that earnings will have to be exceptionally strong in the coming year to justify the hefty multiples.
- DAX 30 – European equity futures are seen retreating on Friday as investors explore Joe Biden’s much-anticipated $1.9 trillion Covid-19 relief plan, but positive sentiment pulled back over the re-emergence of Covid-19 cases in China. From a technical perspective, if the German DAX index prints below the 200-period moving average (orange line) the move will trigger accelerated selling and re-test of the 13800/13700 weekly support area. On the data front, the euro zone balance of trade for November is due at 1000 GMT.
- GOLD – The yellow metal failed to print an hourly close below 1835 support level, printing higher lows despite a weakening greenback as investors weighed ongoing weakness in the labor market and a smaller than expected relief plan, while US10Y held above the 1%-mark, capping demand on the safe-haven. An hourly close above 1850 resistance/support level will favor further upside as the 20 and 50 period SMA confirm a bullish cross with 1860 and 1870 as the closest resistance targets.
- USOIL – WTI Crude hit our resistance target at $53.50 only to reverse and end yesterday’s session in the red, topping below the $54 resistance level and currently trading below the 20 and 50 period SMA as they turn to form a bearish cross favouring lower prints with $52.60 and $52 as closest support targets as global Covid-19 deaths near 2 Million mark and more countries mull nationwide lockdowns.
Rony Nehme, Chief Market Analyst at SquaredFinancial
Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.