It’s A Wrap

This year was very interesting for foreign exchange market traders, and the next year will likely bring more volatility.

The market’s attention will be focused on the fate of the U.S. dollar which may find itself under more pressure if the Fed continues to print money while the world economy recovers from the blow dealt by the pandemic.

Commodity-related currencies like Australian dollar and Canadian dollar may enjoy more support if demand for commodities continues to grow together with the economy.

After days of stalling and criticizing the legislation, President Donald Trump signed a $1.4 trillion spending bill and accompanying $900 billion economic stimulus package into law on Sunday evening, averting a Tuesday government shutdown and clearing the way for $600 stimulus checks and $300 weekly enhanced unemployment benefits.

 The fate of the U.S. dollar will be the main question for traders in 2021.

 Here are the key market moving factors for the week:

 The US

• An article by New York Post cites CNN as saying that President Trump has signed a $2.3 trillion COVID-19 relief and government funding bill that includes $600 stimulus checks for most Americans.
• The bill authorizes direct checks of $600 for people earning up to $75,000 per year.
• The bill creates a new $300 weekly unemployment supplement and replenishes a forgivable loan program for small businesses.
• There’s an additional $600 per child stimulus payment.
• Gold prices soared 1% to hit the US$ 1,900 mark before giving back some gains, and risk assets rallied broadly following the news. Although the US Congress passed the stimulus package as early as on December 21st, President Trump’s refusal to sign the bill had created much uncertainty over the last week.
• As sentiment improved, the US Dollar fell to a one-week low of 90.10 and looked set to continue its downward trajectory. Gold prices and the DXY US Dollar Index historically exhibit a negative relationship, with a correlation coefficient of -0.78 over the past 12 months

 EUROPE

• Europe has kick-started vaccination on Sunday. The good news may maintain markets in a risk-on mood.
• The European Commission has proposed to provisionally apply the deal until February 28, 2021, as the EU nation members are scheduled to meet in January.

The UK

• A post-Brexit agreement was finally reached on Christmas Eve. During the weekend, the EU and the UK published the full text of their post-Brexit arrangement, which includes details on trade, law enforcement and dispute settlement among other things.
• The accord needs to be ratified by the respective parliaments. On fisheries, the most controversial issue, both parts agreed on a  five-and-a-half-year transition period, in which EU fishing vessels will still have full access to UK waters, with a 25% cut gradually imposed to its fishing quota.

JAPAN

• Industrial output in Japan was flat on a seasonally adjusted basis in November, the Ministry of Economy, Trade and Industry said on Monday.
• That missed expectations for an increase of 1.2 percent following the 4.0 percent gain in October.
• On a yearly basis, industrial production sank 3.4 percent, matching forecasts following the 3.0 percent drop in the previous month.
• Upon the release of the data, the METI maintained its assessment of industrial production, saying that it is picking up.

AUSTRALIA

• Australian Dollar is set to finish the year 2020 on a strong note. The main reason for this strength is the recent strength in the commodity segment, especially in the iron ore market.
• The dovish policy of the Reserve Bank of Australia had little impact on AUD/USD because other central banks were dovish as well.

CHINA

• China’s imports of Australian copper concentrate fell by 34% to 26,717 tonnes in November, the lowest level since January 2017, according to the data released by the General Administration of Customs. The imports dropped as the Chinese government instructed companies not to purchase copper ore and concentrate from Australia because of souring relations between the two countries.
• Copper is one of Australia’s top exports along with iron ore and gold. As such, the decline in exports to China, the world’s biggest commodity importer, and the second-largest economy, could be called an AUD-bearish development.

Market Overview:

 Gold

• Gold prices stay positive near a one-week high, currently up 0.80% while easing from the intraday high of $1,900.35 to $1,895, during early Monday.
• In doing so, the yellow metal extends the last Wednesday’s recovery moves from $1,859 toward the monthly top as the market’s sentiment improve on US President Donald Trump’s signing of the coronavirus (COVID-19) aid package.
• Following his initial rejection, Trump surprised global markets during the early Asian trading while signing the US covid aid package for $600 paycheck and an additional $300 weekly unemployment supplement, per the New York Times.

 Oil

• Crude oil prices gained as the UK clinches Brexit deal with the EU but rising COVID-19 cases and restriction imposed by some nations capped the upside.
• Crude oil ended the week with a loss of 1.67 percent for the week. Crude prices declined 3 out of the four trading sessions on the MCX.

Below are the major market moving events for the week:

 All times listed are EST

Tuesday

10:00: US – CB Consumer Confidence: expected to rise to 97.0 from 96.1.

 Wednesday

10:00: US – Pending Home Sales: seen to jump to 0.2% from -1.1%.

20:00: China – Manufacturing PMI: likely edged up to 52.2 from 52.1.

 Thursday

8:30: US – Initial Jobless Claims: anticipated to have jumped to 835K from 803K the previous week.

 Friday

Global markets closed for the New Year holiday.

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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