SThe tock markets in Europe ended on a bullish note yesterday, amid optimism that the UK and the EU are on the verge of a trade deal.
Trade talks between the UK and the EU drag on indefinitely and patience is running out. Yesterday afternoon it was reported that a deal was “imminent” and this boosted sentiment in European stock markets. The FTSE 100 underperformed its continental counterparts as the rally in the pound held it back, but the FTSE 250 rose by more than 1.7%, outperforming Eurozone markets.
While the UK’s future relationship with the EU grabbed the headlines yesterday, the health emergency continues to be a problem. A second strain of Covid-19 has been identified in the UK and this may well pose a problem in the coming weeks. It is worrying that several countries have identified the new variant of the virus, but dealers were more interested in the trade situation between the UK and the EU. Sterling rallied on optimism surrounding UK-EU talks and the CMC GBP index outperformed. There has been talk in the last few hours that Prime Minister Johnson will deliver a speech at 11am UK time on the trade situation – the pound is more bullish on the deals. One report even claimed that the EU would hold a press conference at 8 a.m. (UK time).
US stocks were less volatile yesterday. The proposed $ 900 billion coronavirus stimulus package was the center of attention as the House of Representatives and Senate backed the program, but President Trump was not so enthusiastic about the plan. It was believed that “the Donald” wanted the stimulus package to include a payment of $ 2,000, while the program includes a payment of $ 600. House Speaker Nancy Pelosi was reported to be looking to rework the stimulus package, but Republicans might not be in favor of such a payment. Last night the S&P 500 finished slightly higher and the Russell 2000 set a new record.
The United States released numerous economic reports yesterday, with mixed results. November’s reading for personal income was -1.1%, which was a significant drop from the -0.6% posted in October. Personal spending was down 0.4%, from the previous reading of 0.3%. The durable goods indicator showed 0.9%, but that was a sharp drop from the 1.8% recorded in October. The University of Michigan’s final consumer sentiment reading for December was 80.7, while October’s report was 76.9. It is encouraging to see that consumer confidence has improved during this very important shopping month.
The initial US jobless claims report fell to 803,000 from 892,000, the highest level in nine weeks. A drop in the unemployment rate is a step in the right direction, but keep in mind that the lowest reading in November was 709,000.
Commodities saw a positive development as the general bullish mood in the markets helped copper, platinum, palladium, gold and oil. It should be noted that the sector lost ground earlier in the week and the dollar decline yesterday also helped.
Volatility is likely to be low today as the London Stock Exchange will close at 12:30 p.m. The French CAC 40 market will also operate for half a day, while the German DAX remains closed. The US stock market closes at 6 p.m. (UK hourly).
EUR / USD – has been in an uptrend since the start of November and although it holds above the 50 day moving average at 1.1928, the positive movement is likely to continue. The 1.2300 area could act as resistance. A pullback could find support at 1.1800.
GBP / USD – Since the end of September it has been in an uptrend and if the positive move continues it could target 1.3608. A pullback could find support at 1.3230, the 50-day moving average, and a breakthrough in this metric should put 1.3000 on the radar.
EUR / GBP – has been in an uptrend since late November and although it holds above the 200 day moving average at 0.8986, the positive movement is likely to continue. 0.9291 could act as resistance. A break below 0.8986 could put 0.8864 on the radar.
USD / JPY – is still in its wider bearish trend and if the bearish move continues it could find support at 102.00. A rebound could meet support at the 50 day moving average at 104.34.
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