The US markets are returning today after a long weekend to celebrate Martin Luther King. The rest of the week is packed full of important events, most of all the inauguration of President-elect Joe Biden. The new administration is expected to start with the resigning of the United States into the Paris Climate Agreement. This is one of four areas that the new administration will focus on to reverse the previous ones policies. The focus will remain on Climate Change, Covid-19, the Economic Crisis and Racial Equity Crisis for the first 10 days. There are other areas that will also be of interest going forward but these are expected to be the main umbrella of issues in the week ahead. The US is effectively in holiday mode still with little in the line of economic data being released until Thursday. However, Wednesday will also see the Bank of Canada release its Rate Statement and Monetary Policy Report alongside its rate decision. On Thursday the BOJ and ECB will do the same. Friday will pencil in the release of Flash Manufacturing and Services PMI data for the US and Europe. By the end of the week, markets should have a clearer picture of the economic landscape going forward and this may prompt an increase in volatility into the FED rate decision next week. The markets are maintaining a risk on stance from yesterday’s price action, this morning. However, there are also risks as Germany is expected to announce tighter Covid-19 restrictions today. The meeting planned for next week between Chancellor Merkel and State Leaders has been brought forward to today. Talks are expected to centre on “issues like working from home, medical masks, public transport - not about the complete halt of public transport but about reducing contact in them”. The Japanese 225 has closed higher by 1.39% today. The Hang Seng is trading up 2.1% while the Shanghai Composite is trading lower by -0.9%. European Futures are trading higher at 0.5%. Gold is trading at 1837.00 and USDJPY is trading at 104.000.
ECOFIN Meetings are taking place in Brussels today. Eurozone ZEW Economic Sentiment is expected to fall to 54.1 from 54.4. BOE Member Haldane is due to speak at an online event hosted by the University of Oxford in the evening.
The GBPUSD pair has been hit by the nationwide Covid-19 lockdown in the UK and is currently trading at the 1.3605 level after it found resistance at 1.3700 last week. The pair has been moving higher in an uptrend since it located support at the 1.2676 level in September. The pair had moved back up through the 1.3266 level of support, which was the high for 2020 and pushed higher to the resistance around 1.3624, which will now be a key level in determining the future moves in the pair. The September high at 1.3480 may be used as support and price is consolidating the former resistance at 1.3540 as support. A break higher may seek to use these areas as support and may then seek to test the 1.3600 level and the 1.3624 level which is now being used as levels of interest. From the 1.3600 level resistance may be seen at 1.3620 which is followed by potential resistances at 1.3650, 1.3700 and 1.3750. Beyond these levels, the 1.3800 level comes into play.
Support may appear around 1.3540/1.3500 or 1.3400 followed by 1.3355. The 1.3450 area provided yesterday’s low. Below these levels, the 1.3300 area comes into play. A loss of this area may trigger selling into potential supports at 1.3270, 1.3200 and 1.3100. Price broke back up through the 1.3000 round number earlier this month and has found support at 1.3092 and 1.3118, straddling the key 1.3100 area. This zone along with the 1.3000 area may be crucial support going forward. A loss of this area may lead to tests on 1.2925 and 1.2900. The price may then test 1.2800 and 1.2780, with a move back down through the 1.2730 area opening the way to potential support at 1.2500 followed by 1.2487, with further support around 1.2255/1.2230. The pair rallied from the 1.2335 area, after breaking support at 1.2387. The retest higher back to 1.2385 may mean that price is now looking to find support with the 1.2250 level being used so far. The 1.2200 area may be used as support in conjunction with 1.2160. Price may also use the 1.2150 area and a break under this area may potentially open the way to 1.2100, followed by 1.2050 and 1.2000. The 1.1970 area was also used as support and resistance previously and a breakout below this level may find support around 1.1750/1.1700. With Brexit headlines returning, volatility may continue to be higher than usual for the pair.
UK 100 Index chart
The UK 100 Index has traded out of the falling wedge from the June high and is now consolidating its gains while maintaining its uptrend. The index was carried lower with other equities at the end of October but has rebounded from support at 5500.00 and then created a false breakdown with the break back inside the wedge. A move through resistance at 6000.00 and the falling trend line, confirmed the false breakdown and led to a breakout of the bullish pattern, leading to a test on the June highs. The market is now trading around the 6765.00 area. The 6820.00/6850.00 area may provide resistance followed by 6900.00 and 6960.00 as this month’s high. The 7000.00 area has been used as resistance and support previously and is followed by 7136.00. The previous high at 7733.00 may also be a potential source of resistance to any advance. Beyond this level, the 7800.00 area may become a target in the medium term.
The index is using 6720.00 as support followed by 6680.00. The latter level was used as resistance and formed the high for December but has been converted to support. The 6520.00 level has also been used as support. Further support may be seen at 6500.00 followed by 6470.00, 6430.00 and 6400.00. A move down through this support may unravel the current rally, breaking the sequence of higher lows. Support at 6370.00 is followed by the important 6315.00 level and the 6304.00/6300.00 area with further support at 6260.00/6250.00. There is also potential support forming at 6200.00, 6105.00 and 6000.00 which may be retested. The trend line is tracking below the 6000.00 area at present and for now at least bulls appear to be in control. Below this, the 5850.00 area may be used as support, along with 5770.00 which followed by 5700.00. The low of 5500.00 created a new lower low but price rallied from that support in what was a bullish move for risk assets. The 5700.00 area has potentially become a key support zone, with a higher low at 5660.00. The index created a prior higher low at 5575.00 which may also be used as support. A breakdown of this level may open the possibility of a move down to 5350.00 followed by 5210.00 and the 5000.00 area. A loss of this support zone may open the way to the low around 4800.00. Price may selloff for a test on the zone between 4500.00 and 4250.00 and there may be a considerable reaction if this zone is broken, opening the way for a move towards 4000.00.