Vaccines and Bitcoin drive markets at the start of the year

We are expecting to see a positive start to the first full trading week of 2021 as vaccine rollouts fuel hopes that Covid-19 will not be as devastating to economies in the new year.  At the same time Bitcoin and now Ethereum are hitting new highs as investors pile into cryptocurrencies. 

Stocks in China are showing decent gains, European markets are opening higher, and US markets are expected to also open in the green as investors focus on the good news.  In the UK we expect to see buying of the FTSE100 stocks early in 2021 following the EU-UK agreement on post-Brexit trade and we believe that if GBP clears the major key resistance level at 1.37 this week this may trigger accelerated buying and stops.

Even with the vaccines being distributed Covid-19 infections have risen in the UK and in other European nations and there are fears that England, and other countries such as Germany, Denmark and Ireland will extend their lockdowns.  Japan may declare state of emergency in Tokyo.

The downside for the markets is that the NYSE is kicking out China's big telcos and oil majors which could lead to concerns over what will happen in the last days of the Trump administration.  Will we see more trade issues, as no-one is expecting the President to ‘go quietly’?

With Bitcoin soaring past USD30K and Etherum up over USD1,000 there will be an increased focus on cryptocurrencies today as traders look at backing the run or deciding that this is the time to take profit. 

Finally, the OPEC+ meeting 1 out of 12 starts today as WTI Crude hit multi month highs as investors expect group to keep output production capped in February.

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

EURUSD – The US Dollar attempted to make a comeback last week amid global coronavirus concerns. However, the dips will likely be bought today as risk appetite remains strong in the new year after US equities kept rallying to new all-time highs. 1.23 will be retested today, however bulls might face some resistance around that area as Germany set to extend coronavirus lockdown beyond January 10.

GBPUSD – The Pound kept going higher, reaching as high as 1.37 this morning, despite fears of a third national lockdown. Hopes for a strong global economy in 2021 remained supportive of the prevalent risk-on environment. The US Dollar Index remained depressed near multi-year lows amid the increasing likelihood of additional US financial aid package and expectations that the Fed will keep rates lower for a longer time. We remain with our ‘buy the dips’ strategy as the Cable might break above 1.37 very soon.

USDJPY – The dollar/yen broke below the 103 critical support as relentless USD selling remains the main market narrative amid this risk-on sentiment. Traders have been betting on a strong global economic recovery in 2021 amid the mass distribution of vaccines, which remains supportive of this current risk-on environment. A break below 102.87 will extend losses towards 102.50.

FTSE 100 – The health crisis is still very much in focus today. Covid-19 case numbers have risen in the UK and there is talk that England is in for even tougher restrictions with the new strain of the coronavirus likely to be in the headlines. Nevertheless, investors are still optimistic about a quick vaccine rollout in 2021 and with the Brexit saga out of the way, FTSE100 stocks are opening slightly higher this morning with the 50-period SMA acting as resistance around the 6550 level as a next possible target.

DOW JONES – We ended 2020 by hitting an all-time high target on the Dow Jones, only to kick off 2021 on further gains with 30800 as the next long target on an hourly close above 30700, as investor optimism continues to build on lower-than-expected Initial Jobless Claims, while all eye’s focus on Georgia’s senate runoff tomorrow with 2 seats up for grabs that would determine senate control in the next administration.

DAX 30 – The DAX 30 index ended its last trading session of the year slightly lower but not far from a record high of 13903 and booked a 4.4% yearly gain in 2020 and it seems that this stock market rally, supported by optimism about the EU-UK agreement on post-Brexit trade on one side and the roll-out of COVID-19 vaccines on the other, will spill over to 2021 with German stocks trading higher today on the first trading day of the year and the DAX 30 hitting 14000 this week is highly likely.

GOLD – A weaker greenback is boosting momentum on the yellow metal, as we kick off the year above the $1900 handle, with $1920 level offering the closest support as technicals favour ongoing bullish momentum with $1930 as the next resistance target. On the fundamentals side, global Covid-19 cases topping 85M, concerns over further lockdowns, and increasing geopolitical tensions should keep the safe haven bid.

USOIL – WTI Crude above $49pbl ahead of OPEC+ meeting today after comments from OPEC Secretary General on Sunday, expecting an increase in demand by 5.9 mbpd, while investors remain optimistic that January production levels won’t be increased in February as Covid-19 infections continue to rise globally. Short term technicals indicate strong bullish momentum, favouring a run towards $50 handle, with $49.15 support level needed to hold.