Market risk tone this week has maintained positivity ahead of President Biden’s fiscal policy revelation. It seems stocks will climb higher thus dragging risk-on FX like AUD, NZD and CAD along with them.
Is risk drifting away from Trump toward Biden?
There is a feeling among traders that the market is fast pricing-in more risk appetite. However, the downside risk has been even more limited despite the quick spread of Covid-19 second wave and the chaotic display in US politics last week. President Trump’s alleged supporters invaded the capitol building and then followed was the threat of his second impeachment. Of course, the impeachment went ahead on Wednesday. However, the market continues to react mildly to outcomes from Trump-related headlines from the US. That shows us one thing – the Trump uncertainty is gone and all attention is now on Biden. Biden-related headlines are set to move the markets more. Ahead of the January 20 inauguration, the US President-elect is already making waves.
Blue waves sweeping the US? – the new $2 trillion fiscal package
On Wednesday, some Biden aide revealed to reporters that the upcoming blue President is putting together a $2 trillion fiscal package. Now that the Democrats have swept the Senate, the fiscal package, if confirmed later today by Biden himself, is expected to meet little or no friction from the Congress. Thus, optimism is still very high. The downside to the current risk appetite, in the near-term, is the new Covid strains and the rampaging second wave of the virus in the face of a big sufficiency gap in vaccine distributions. However, the government and the central bank’s hesitation not to ‘pump’ more money, will support market risk in the meantime before vaccine production finally meets up with demand. At least, that’s the current prevailing market sentiment.
Technical outlook: US & Asian Stock Indices, DXY, AUD & NZD FX Pairs
With the expectation of more risks, what instruments are good for willing buyers? First, the stock market. Wallstreet is expected to rally further. S&P500, Dow and NASDAQ all paint clear bullish technical set-ups. Also, Asian stocks especially the Shanghai composite index and Hong Kong’s Hang Seng index remain firm to the upside. As for currencies, the dollar is expected to plummet further while riskier fx should add to gains as the video analysis below shows.
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