Risk sentiment headlines are mixed on Thursday as traders weigh on which (hopes or concerns) would have a bigger impact on the market.
Market is driven by vaccine and stimulus hopes amid rising Covid cases
On the fore-front of risk aversion is the rising global Covid cases. Lockdowns are therefore extended in France, Germany, and some other countries in the Eurozone until January. However, the supposed adverse effect is quietened by positive developments around vaccines and the new US relief package to stimulate economic recovery. The US Senators have approved a $908 billion stimulus package while UK will begin injecting Covid patients with Pfizer/ BioNTech vaccines from December 8. Thus, risk-on still wins as stock markets stay close to the top while the dollar plummets much harder.
US Congress passes a bill on Chinese companies
Earlier in the London session on Thursday, the dollar bounced. Fresh reports surfaced that the US congress has approved a bill meant to scrutinize Chinese companies in the US. This could lead to fresh concerns of a possible trade war with China. The two countries have entered a truce since January 15 but the cold war, covered by the efforts to stimulate the economies and the US election, still goes on underneath. President Trump is ready to sign the bill. As time passes, this might be another risk event traders will have to worry about.
GBP recovers on Brexit upbeat headlines
Concerning Brexit, positivity seems to have returned. The markets expect the deal to go through despite EU chief negotiator Michel Barnier’s Wednesday dovish comments. GBP tanked on Wednesday but has recovered nearly all of that as a result of fresh optimism. However, the latest reports suggest France might decline a deal if it notices foul plays, especially on fishing which has been a major roadblock to successful negotiations. Series of headlines will continue to drag GBP up and down until the deal is finally done or broken down completely.
OPEC meeting will continue today
OPEC+ are about to complete a deal on their production policy for 2021. A delegate told reporters that the talks are in the advanced stages. The deal will allow OPEC+ to increase production next year but not more than 500,000 BPD from January. Oil prices are down by over 1% from the London session and a few hours before the New York session opened.
Stocks seem overbought
The US stock market seems overbought. We might therefore see dips all across in the coming days. The bullish run is squeezing at the top. This shows signs of exhaustion. The S&P 500 chart below shows a bearish wedge pattern struggling to complete.
The price might hit $3,675. If there is no fast surge above $3,700, we might start preparing for the stock index weakening toward $3.550-$3,515.
A similar pattern shows in the Dow above. Dow should dip to 1880 if the exhaustion persists between the current level and $30300. NASDAQ should hit $10900 or at least $11500 in a similar manner.
Will the NFP spark a dollar bullish reaction?
The dollar got a little lift on Thursday but that might not be enough. A dip to the 38.2% Fibonacci level at 90.4-90.5 is very much likely before Friday’s employment data. If the NFP comes far above the expected 500k and the unemployment rate drops as expected or below expectation, the dollar should get a boost toward the 91.75 resistance.
Also, with the possibility that the stock market is overbought, DXY could get a lift. We will have to see if that will happen and whether NFP will trigger the moves.
Gold closing up to a resistance zone
Gold has been very bullish this week, covering over 800 pips from the 1763 bottom. As it stands, the commodity approaches a strong resistance zone. In addition, the H4 RSI indicator, which has been very useful in spotting extreme tops since September, also approaches the overbought region. We might therefore see bearish reactions at the 1850-1860 resistance zone.
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