Mixed risks in the market last week as prices swing back and forth from aversion to appetite. The week ahead in the forex market is expected to be volatile amid minutes from the ECB and Fed.
November 22, 2020 / AtoZ Markets – Last week started with massive risk appetite after Moderna declared a 94% efficiency of its covid vaccines. The markets moved in this direction as the dollar plunged toward the low of the previous week. However, the greenback covered some ground as infection cases across Europe and the US forced the authorities to introduce more restrictive measures. New York announced the close down of schools. Gold recovered the Monday’s sharp decline while Oil prices dip by mid-week. Meanwhile, the market swing back to risk-on in the second half of the week based on positive headlines from the stimulus angle. US congress have resumed debates on the next stimulus package while the ECB and Fed look to support the economy further.
Earlier, the Bank of England and the Reserved Bank of Australia eased monetary policies while their counterparts in Japan, Canada, China and New Zealand are still holding back. The Central Banks might offer more stimulus packages at least before vaccines pass through clinical stages and are released in commercial quantities. Lockdown will most likely continue till 2021. Therefore, 2020 Q4 data should come worse than the last quarter.
Traders should prepare for more vaccine news this week. Just like we had with Pfizer and Moderna, another major vaccine announcement will most likely boost risk before the market adjust. Other social and geopolitical factors include Brexit and US Politics. Minutes from the US Federal Reserve Bank and the European Central Bank will also dominate headlines next week amid other strong economic data.
Banks and Economic Data
In the US, the Fed will read the minute of its last FOMC meeting on Wednesday. The bank was on hold in its November meeting amid election uncertainties. Now that the election is over, investors will expect the bank to reveal its next monetary policy which will generally be geared toward expanding its current QE programmes to support the US economy. US PMI data on Monday and quarterly GDP figures on Wednesday before the FOMC minutes. On Thursday, Banks in the US will close to observe the country’s thanksgiving service.
Elsewhere in the Eurozone, the European Central Bank could announce further easing programmes. The bloc is on lockdown as a result of rising Covid cases. Also, the zone’s PMI data will come out on Monday before Germany and France’s GDP data later in the week. In Asia, Japan banks will go on holiday on Monday for the country’s Labor thanksgiving day. In Australia, traders will watch out for the markit PMI data and New Zealand’s retail sales and trade balance.
UK and Brexit
In the UK, Brexit remains clouded in uncertainties. Although the two parties are positive that a deal will eventually happen, there still remains key issues unsolved. Investors will hope issues concerning fishing, dispute resolution and level-playing ground will be resolved this week, in time for the legislatures of the two parties to veto before the December 31 official deadline. The UK is still observing a partial lockdown.
DXY Technical Analysis
From the long term perspective, the corrective wave (4) could take one more leg toward 95. A double zigzag pattern is emerging. In late December, we believed the corrective structure had completed with a simple zigzag pattern at 94.75. However, the dip that followed to 92.1 is corrective and that keeps our eyes on further rallies up to 95. However, as the DXY technical analysis below shows, we will have to see a surge out of the short-term falling channel and a bounce to break the 93.2 top.
The move should, however, be sharp or another corrective bounce leading to a dip below 92.1 will follow. Below 92.1, we have the 91.7 support which will act as the gateway to further dollar crashing. The risk mood is currently mixed with the market swinging between hopes and uncertainties. This might continue next week.