Another bearish onslaught on the Pound Sterling across the board as Brexit hits a rock. The dollar is recovering as the week starts on risk-off. Meanwhile, traders and investors’ concern on US-China relations will increase although much of the spotlight will be on Brexit, ECB and BoC this week. Vaccines roll-out to begin this week.
COVID19 & VACCINES UPDATE
The virus still rages in the US. Reported cases rose to 14.46 million from 14.26 million with the total death toll now increased to 282.3k in the country. Partial restrictions still ongoing in some states and many of the countries in the EU zone. UK has relaxed its restrictions while Germany, France, Belgium and some others have extended restrictions till January. Meanwhile, the progress in vaccines will continue to raise investors’ hopes. Vaccines injection will commence in the UK on Wednesday before the US. Some other countries might join before the year runs out. Meanwhile, it seems the market has overcome the virus. The two main issues now include possible set-backs in the efficacy of the vaccines and how much banks and governments are ready to roll out so support their economies.
Banks and Stimulus
Talking about supporting the economies, the banks are ready to pump out more. On Monday (Today), a group of US senators is expected to unveil legislation for an additional fiscal stimulus worth $908 billion.
The PBoC (China) is set to inject 50 Bln Yuan through a Reverse Repo while the BoJ (Japan) has acquired more of its local stocks, hoarding $434 Bln worth to become Japan’s biggest stock owner.
The RBNZ (New Zealand) buys NZD 310 mln in government bond while the RBA (Australia) is offering to do the same adding AUD 3 Bln to its bond purchasing program.
Later this week, we have the BoC (Canada) and the ECB’s (EU) monetary policy reports. They are expected to enlarge their QE programs as well.
All of these are positive for the overall market mood.
Geopolitics
Meanwhile, a fresh trade war between the US and China could start. Last week, the US passed a bill to sanction some Chinese firms. Latest reports suggest that the US is readying a new sanction on Chinese officials over the Hong-Kong crackdown. The concern is growing for investors. However, no response from China so far. Traders should add this to their list of possible risk sentiment drivers.
EU-UK Brexit Deal Negotiations
Negotiations will continue on Monday. EU’s chief negotiator Barnier told the EU Envoys on Sunday that a deal is not yet done with the UK. The three main issues are still open. GBP pairs opened the new week with a bearish gap as a result. There is still a high probability that the deal with go through, whether this week or next. However, traders should watch out for headline risks.
Macroeconomics
During the Asian session, China Nov trade surplus with the United States came better than expected – $37.42 Bln Vs $31.37 according to their custom data. Later this week, there are a few high-impact events in the calendar. On Thursday and Friday, the US inflation and unemployment claims will be released. Meanwhile, before that, the major spotlight will be on the ECB and BoC statements
FX
Dollar: The DXY maintains Friday’s resurgence across the major pairs. DXY is now up by 0.4% since the closing hours of the last week. Fresh concern regarding the US and China is leading to profit booking by the bears. The most recent bottom at 90.47 is around an important technical support level. The London session might intensify the current rally to at least 91. However, the overall picture still paints bearish for the buck.
EUR: The most traded currency pair is preparing for the ECB later this week. The market fears the bank could jawbone the Euro as they might fear the strength might limit their competitive advantage in international trades. The currency pair is currently retreating from its 30-month high. The EU-UK trade deal, US-China concerns, lockdown extension with delay in vaccine injection in the region, ECB’s decision later this week and the performance of the dollar are the major catalyst of this currency pair.
GBP: The pound sterling is perhaps the most risky currency now due to uncertainties surrounding Brexit negotiation. No deal yet ahead of the December 31 deadline. If a deal doesn’t happen this week, traders should expect the Sterling pairs to flow with Brexit headlines – positive and negative. The currency is negative so far this week against all the majors due to the weekend report that the outstanding issues are yet to be resolved
CAD: The Canadian dollar was the biggest gainer last week. The bullish spark was as a result of the risk-on sentiment, rallying oil prices and a very massive CAD employment data. However, the currency is retreating on Monday ahead of Wednesday’s BoC rate statement. CAD might resume the bullish trend later on Monday and up till the mid-week. Risk-appetite is still high.
JPY: The week is opening on a minor risk-off sentiment. The Yen is gaining across the FX board (except CHF) early on Monday. However, this might not last as a result of the BoJ’s recent action and possible return of risk-on later in the week.
AUD & NZD: The commodity currencies are shedding some gains. They have been among the major gainers together with CAD due to the bright market mood.
Commodities
Gold: Commodities are starting the week bearish. Metals are shedding some profits on Monday after rejecting further rallies into the 1950-1960 resistance zone. Further decline is very much likely to 1800. Silver has been down as well by over 1%.
The oil market prices are flowing downside as well. WTI and Brent attempting $45 and $48 respectively.
In the week, the risk drivers remain Brexit, Geopolitics, Banks and Stimulus.
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