The European markets took a beating yesterday, as Britain came out with the news that it had identified a new form of the COVID-19 virus, which is believed to be spreading at a faster pace. Yesterday, positivity came back into the US equities at the end of their trading sessions. But that came after an initial sharp decline in the cash indices, which were driven by the decline in the European equities.
GBP Goes On A Roller-Coaster RIde
The European markets took a beating yesterday, as Britain came out with the news that it had identified a new form of the COVID-19 virus, which is believed to be spreading at a faster pace. Given that the news was already bad enough, many European nations decided to ban flights from and to the United Kingdom, including land travel. The land movement restriction was introduced by France, as most of the freight passes through them into UK through Dunkerque and Calais to the British port of Dover. The Eurotunnel also connects Britain to its neighbouring France, as holiday makers and travellers use this route for quick access. But all that came to a stop yesterday, causing chaos on land boarders and airports, on both sides.
All this news had initially had a negative effect on the British currency, which, at one point, fell against its US counterpart by about 300 pips. We saw GBP/USD sliding heavily during the first half of the European trading day, where the rate fell from around 1.3500 to 1.3200. But as the US session kicked off, the pound managed to get back into positive territory against most of its major counterparts (except the Scandinavian currencies), as reports started coming in late at night, that France and Britain are working hard to resolve the logistics issue. The plan is to allow trucks to cross the La Manche. The news gave GBP a boost, which attracted even more bulls into the game. Although the pound-bulls might try to dominate the field, this could be a temporary occurrence. We would strongly recommend to remain cautious, when trading the British pound all the way up until December 31st, or even going into the first weeks of January, as this period might prove to be an unstable one for that currency. This is because the situation with the mutated coronavirus and the Brexit negotiations may not get resolved by that time, which means, GBP could remain vulnerable to headlines, surrounding the above-mentioned issues.
GBP/CHF – Technical Outlook
Looking at the broader technical picture of GBP/CHF, we notice that it is currently trading between two of its short-term lines, an upside one, drawn from the low of December 11th and a downside one taken from the high of November 24th. From the very short-term perspective, given the yesterday’s sharp reversal to upside, there is a chance to see a continuation move higher today, hence our cautiously-positive approach for now.
A push above the 1.1909 barrier, marked by the low of December 18th, could invite a few more buyers into the game. We will then aim for yesterday’s high, at 1.1946, what could also place the pair above the 200 EMA on our 4-hour chart. If the buying continues, the next potential target might be at 1.1995, which is near the high of December 16th and an intraday swing high of December 18th. Slightly above it runs the previously mentioned downside line, which may provide a bit of resistance.
On the other hand, if the rate falls back below the 1.1862 territory, marked near yesterday’s intraday swing low, that may lead to further declines. GBP/CHF might travel to the 1.1820 obstacle, a break of which could open the way to the 1.1777 level, marked by yesterday’s intraday swing low. A bit below that level is the aforementioned upside line, which might give a hold-up for the pair.
US Equities Rebound Somewhat
Yesterday, positivity came back into the US equities at the end of their trading sessions. But that came after an initial sharp decline in the cash indices, which were driven by the decline in the European equities. The positivity was coming from the Congress, which at that time, was expected to vote on the $900bln aid package for the coronavirus-battered US economy. However, the US indices closed almost unchanged, with Nasdaq and the S&P 500 closing slightly in the red, and the DJIA end fractionally in the green.
It is expected that the eligible citizens will receive direct transfers of the funds into their bank accounts, or by cheque, in the matter of days. However, some could get the funds as early as 2021. That said, given that there were huge delays in distributing the funds to Americans from the first aid package earlier this year, major delays are expected this time as well. The expected pay-out to US citizens is expected to be as follows: every individual, who makes less than $75000 per annum including children, should receive $600 as a direct payment. So, a family of 3 people could get $1800. Also, an extra $300 per week would be paid for those, who are unemployed.
Certainly, there are critics of this aid package, as they say that more needs to be done, because people will quickly run out of these funds. That said, this package is still better than nothing, at this point in time, as people continue to get laid off, because of businesses being shut down.
USD/CAD – Technical Outlook
Overall, USD/CAD remains below its short-term tentative downside resistance line drawn from the high of November 13th. Yesterday, we saw the rate briefly visiting the area above that downside line, however, the bears were quick enough to bring the pair back below it. Today, USD/CAD is trying to get closer to that downside line once again, but if it continues to provide resistance, another slide of the rate could be possible.
As mentioned above, a small push higher might bring the pair to the aforementioned downside line, which if holds, may force the rate to drop. If so, USD/CAD could slide back to the 1.2847 obstacle, or even to the 1.2820 area, marked by yesterday’s intraday swing low. If the decline continues, the next possible area of support might be seen near the 1.2790 level, marked near the highs of December 11th, 14th and 16th.
Alternatively, if the pair is able to overcome the aforementioned downside line and move above the 1.2915 barrier, marked by an intraday swing low of December 2nd, this will also place the rate above the 200 EMA, which could be seen as a positive for more traders. USD/CAD may then drift to the 1.2958 hurdle, a break of which might set the stage for a push to the 1.3010 zone, or even the 1.3029 level, marked near the highs of November 30th and 25th.
EU Approves The Pfizer/BioNTech Vaccine
The Europen Commission yesterday approved the Pfizer/BioNTech coronavirus vaccine for use across the European Union. Initially, the evaluation date was set for December 29th, however, the European Commission came under pressure from many member states, which led to yesterday’s approval announcement. But the roll-out of the vaccine will be gradual, as it will be distributed to the ones, who need it the most. It is believed that the EU was offered to buy 400mln doses from Pfizer and BioNtech, but the EU only went for half of it, with an option to purchase another 100mln doses. That’s understandable, given the reports, which are floating around, stating that some patients, who already received the vaccine, have experienced some unpleasant side effects.
As For The Rest Of Today’s Events
Later on, from the US, we will get the country’s Q3 QoQ GDP number, which is expected to have improved drastically. If the previous reading is sat at -31.4%, this actual figure is forecasted to appear at +33.1%.
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