Fasten your seatbelts and brace for potential volatility over the next few days!
Investors have been juggling with conflicting themes since the start of the week. On one side of the equation, surging coronavirus cases in the United States and US-China tensions promoted caution. However, hopes for a stimulus deal and positive news on the Covid-19 vaccine sweetened risk appetite.
Although the risk pendulum has swung back and forth this week, the mood across markets is positive this morning with Asian shares marching to fresh record highs. European markets are looking pretty while US futures are green after the S&P 500 closed above 3,700 for the first time in history. While the stimulus charmed life could inject equity bulls with further confidence, there a couple of key events that could spoil the party, spark volatility, and dampen the mood.
In the United Kingdom, all eyes will be on Prime Minister Boris Johnson as he gets suited and booted for an 11th-hour dinner with the European commission president, Ursula von der Leyen on Wednesday. Considering how the future of Britain’s relationship with the rest of Europe may hang on the success of this three-course meal, it is a big deal for the Pound and UK economy.
Talking technicals, the GBPUSD remains bullish on the weekly charts. Key levels of interest can be found at 1.3200, 1.3300, 1.3482.
Euro set to extend gains?
Traveling to Europe, the European Central Bank (ECB) meeting and EU summit on Thursday could inject more life into the Euro. The ECB is expected to ease policy but the major question is what form will the stimulus take. Markets project the central bank to increase its Pandemic Emergency Purchase Programme to 1.8 trillion euros from 1.35 trillion euros, while potentially extending the program by six months.
Looking at the charts, the EURUSD is firmly bullish. A solid daily close above 1.2175 could open a path towards 1.2300.
Keep a look out for US inflation
Across the Atlantic, the latest US inflation figures will be in focus on Thursday. Inflation is forecast to cool 1.1% from 1.2% in October while core inflation is expected to remain unchanged at 1.6%. Taking a quick look at the Dollar Index, bears remain in control with sustained weakness below 91.00 opening a path towards 90.00.
Let's not forget about Gold...
The $1850 resistance could transform into dynamic support. This may open the doors towards $1900. Should prices slip back under $1850, prices are seen declining towards $1815.
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