Trump still makes (or fakes) the news

We start the day risk-on with US and European index futures pushing higher and touching all-time highs following the news that the US Fiscal package could be a lot higher than originally expected.  This was after the House backed the president’s proposal to boost checks to $2,000 from $600 and after Trump approved the combined $2.3 trillion Covid-19 relief and government funding package.

It is unlikely that this new package will get Senate approval, but Asian stocks rose based on the news with Japan leading the way and benchmarks in Australia and Hong-Kong also climbing.  This could be trump playing with the news again to prove he still has power, but the markets still react to what he says. 

Risk-on is also getting a boost from the Brexit agreement which is finally in place as the UK marks the dawn of a new era which allows for continued tariff-free trade with the EU single market.  GBP/USD retracement in a "sell-the-news" effect while UK shares rise to 10-month highs.

On the coronavirus front, more restrictions are being imposed to fight the spread of the new, more infectious strain.  Covid-19 hospitalizations in the U.S. reached new highs, while California plans to extend a regional stay-at-home order.  South Korea’s daily toll of fatalities rose to a record, while Thailand reported its first virus death since November.

Looking at the assets to watch at the moment, WTI Crude Oil pared an overnight loss as investors focused on looming new supply from OPEC+ and Bitcoin fell back after a rally over the holiday pushed it past $28,000 for the first time ever.

Our overview and outlook of the key trading pairs and indices is as follows

EUR/USD – The Euro bulls are attempting to break to new 2020 highs after the US House passes $2,000 pay check turning down Trump’s veto over defence bill, weighing further on the greenback. Additionally, the upbeat sentiment in the US Equity Futures could keep the US Dollar under pressure. Today, in the presence of thin volume coupled with broad optimism backed by the coronavirus vaccine, can keep the greenback pressured. We will keep buying dips on this pair, targeting above 1.23.

GBP/USD – The Pound tumbled more than 150 pips yesterday after the Brexit trade deal flagged concerns on the exclusion of the crucial services sector from the accord. This, coupled with UK’s Covid woes, kept the bulls subdued below the 1.3620 resistance level. Our bias remains bullish for now, as we believe the Cable still has more room to the upside if equities keep breaking to new all-time highs.

USD/JPY – The dollar/yen is basing above 103.20 as progress on additional US stimulus triggered a risk-on mood pushing investors to dump the anti-risk Yen. Optimism around the US Stimulus and the last-minute Brexit trade deal boosted investors’ confidence, pushing US equities to new all-time highs. Our bias remains mildly bullish in the near-term, as dips will probably be bought targeting the 104 level.

FTSE 100 – The FTSE100 index of UK stocks is at a 10-month high as a Brexit deal was finally struck just a few days before the new year and four and a half years after the referendum. UK shares are now expected to rally into the last week of 2020 after global markets got a boost by Donald Trump’s green light for the $2.3 trillion pandemic spending package. Companies on the blue-chip index operating in foreign currencies will also be given a boost by a slight dip in sterling which fell against a resurgent dollar from a December peak of $1.3620 to $1.3480 this morning.

DOW JONES – The Dow ended yesterday’s session on a record daily close, as we continue to print at all time highs in today’s session as risk on sentiment received a boost after the House of Representatives backed Trump’s higher stimulus checks proposal, now upped from $600 to $2000, and as Novavax became the fifth vaccine to begin phase 3 trials in the US. Uncertainty remains high today as investors wait for the Senate’s vote on the bill with 30625 resistance level to breach in order to favour further upside.

DAX 30 – In Frankfurt, the DAX set a new historical record yesterday thanks to the adoption of the latest stimulus plan of $900 billion and today stocks are set to open even higher as the German blue-chip index moves closer to the 14000 level which should offer some kind of a resistance as investors start to book profits before the end of the year and with more restrictions being imposed to fight the spread of the new more infectious strain of the coronavirus.

GOLD – Clearing uncertainty on the EU/UK front with the UK securing post Brexit trade deals worth £900B, coupled with a risk on sentiment as global equities hit record highs, dented the demand on the yellow metal, as it failed to hold above the $1900 mark. Ongoing dollar strength however should keep higher prints supported with an hourly close above 1880 resistance level to favour a run towards 1890 resistance target.

USOIL – Rising investor risk appetite on the back of a Brexit trade deal between the UK /EU, expectations of larger direct payments in the US, global equity markets hitting record highs, and ongoing weakness in the greenback all provided a boost to energy prices. Short term technicals however have WTI Crude set for a correction with 47.60/47.40 as the closest support targets ahead of today’s weekly API inventory data.