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New Coronavirus Variant Darkens Recovery Prospects

New Coronavirus Variant Darkens Recovery Prospects

Asian stocks tumbled with U.S. futures on Tuesday morning as the swelling coronavirus outbreak and round of lockdowns dampened the outlook for the global economic recovery.

Investors hoping for a ‘Santa clause rally’ may be left empty-handed as rising virus cases and the emergence of a fast-spreading new coronavirus strain in the United Kingdom fuel risk aversion for the rest of 2020. Although U.S. lawmakers have approved a $900 billion pandemic relief package and countries across the globe are rolling out the COVID-19 vaccine, the good news is being overshadowed by current negative developments.

This sentiment is likely to be reflected in European markets as risk aversion encourages market players to maintain a safe distance from equity markets.  S&P 500 futures slipped after the benchmark dropped on Monday and may extend losses if risk-off remains the name of the game.

UK GDP revised up in Q3

The last 36 hours have been chaotic for the British Pound. It has been bashed and thrashed by Brexit related uncertainty and a wave of countries closing their borders to Britain amid tougher lockdown restrictions to fight the new strain of COVID-19. Although the week ahead is likely to be rough and rocky for the Pound due to Brexit talks, there was some good news this morning.

The final reading of the third quarter of 2020 UK GDP came in at 16.0% versus 15.5% expected while on an annualized basis the figure stood at -8.6% vs. -9.6% expected. Sterling picked up fresh bids in reaction to the positive GDP numbers. However, the upside is poised to face many obstacles as investors closely observe Brexit talks.

In our technical outlook on Monday, we discussed the possibility of the GBPUSD rebounding from the 1.3300 support level. Prices are trading around 1.3440 as of writing with the MACD trading to the upside. A daily close above 1.3440 may open the doors back towards the 1.3600 regions.

UK GDP revised up in Q3

Dollar steady ahead of US GDP

All eyes will be on the latest GDP date from the United States this afternoon.

Markets expect the third estimation of GDP for Q3 to rise around 33.1% due to an overall increase in consumer spending and fixed asset investments.  Since this estimate is in line with the past two readings, the market reaction could be muted if the report meets expectations. An upside surprise may boost sentiment towards the largest economy in the world, potentially weakening the Dollar amid the improving market mood.

Speaking of the Dollar, it has weakened against every single G10 currency since Monday despite the risk-off sentiment. Although Dollar bulls were inspired by the negative developments revolving around COVID-19, bears gained ample support from the bipartisan breakthrough in U.S. stimulus talks.

Looking at the technical picture, the Dollar Index (DXY) is under pressure on the daily charts with prices wobbling above the 90.00 support level. A breakdown below this point may inspire a decline towards 88.00. Should 90.00 prove to be reliable support, the DXY could have a shot at testing 91.00 in the short to medium term.

Dollar steady ahead of US GDP

Dollar steady ahead of US GDP

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.


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