Weekly Market Outlook: US employment and a new UK/EU relationship

January 04, 2021 09:30

The first full week of the new year sees traders focus on key economic announcements which includes the US FOMC Meeting Minutes release on Wednesday and US Non-Farm Payroll figures and employment report on Friday. Considering the US dollar was the weakest currency for the last half of 2020 the announcements will be widely watched and could cause significant moves in the US dollar. 

Traders will also be digesting the post-Brexit trade deal struck between EU and UK negotiators just before Christmas. Britain ended its 47-year membership with the now 27-member bloc with analysts mixed on the impact to the UK. The British pound was a strong performer to end 2020 but concerns remain regarding the new coronavirus strain that has caused an increase in lockdown restrictions, making it a currency to watch early on in the year. 

Global stock markets had a wild ride in 2020, largely due to the impact of the coronavirus pandemic. However, US indices recorded all-time highs last year and closed much higher than where they started so all eyes will be on whether or not it can continue this year as well. You can learn more about some of these themes in this selection of new education articles:

Weekly Forex Calendar

Source: Forex Calendar provided by Admiral Markets UK Ltd.

 

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Trader’s Radar - US Non-Farm Payrolls

This week, all eyes will be on Friday’s economic data releases from the Bureau of Labor Statistics at 1.30pm GMT which includes:

  • Average Hourly Earnings m/m
  • Non-Farm Employment Change
  • Unemployment Rate

The market isn’t expecting much growth but any bigger signs of weakness may affect the US dollar further. The government’s huge stimulus plan and a weakening economy helped the US dollar to be one of the weakest currencies of 2020, as shown by the one-year relative performance figures for the US dollar below:

Source: FinViz

 

However, in the long-term there could be further pain ahead for the US dollar if the US economy continues to struggle. Technically, the US dollar index - an index of the US dollar against a basket of other currencies - still has more room to roam towards the downside to complete the consolidation pattern shown by the two black horizontal support and resistance lines below:

Source: Admiral Markets MetaTrader 5, USDX, Monthly - Data range: from Oct 1, 2005 to Jan 3, 2021. Performed on Jan 3, 2021, at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

Historically, the 90.00 level has acted as a price level where significant turns have taken place. Apart from price breaking through the 90.00 price level in 2005 and 2014, the US dollar index has bounced off and changed trend in 2008, 2009 and 2017. 

Buyers will be looking at this level closely, which could change the fortunes of the US dollar this year. However, the market will need a trigger which could come from economic data announcements, new policies from when Joe Biden gets sworn in as president or a deterioration in sentiment on other currencies like the euro.

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Corporate trading updates and stock indices

With no major updates on the corporate calendar, all eyes will be on early year flows into global indices and their sectors. Most global stocks markets managed to rally higher last year when a coronavirus vaccine was announced. Many are forecasting that the trend could continue if the vaccine rollout is successful. 

However, the extent of the rally has differed among countries. US stock market indices performed the best in 2020, followed by Asia indices like Japan’s Nikke 225 index and then by European indices. This has created an interesting scenario for many investors as US markets look quite toppy while European indices are still undervalued. 

Therefore, keep a close eye on rotations across international markets. Individual sectors may also experience some large rotations as investors allocate more capital to infrastructure, renewables and ‘green-recovery’ stocks to try and capitalise on any of Joe Biden’s new policies.

The long-term monthly price chart of the S&P 500 stock market index shows a clear uptrend that is still intact:

Source: Admiral Markets MetaTrader 5, SP500, Monthly - Data range: from May 1, 2005, to Jan 3, 2021, performed on Jan 3, 2021, at 8:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

The long-term monthly price chart of the DAX 30 stock market index shows a lot of choppy price action in between 2005 and 2020. 

Price only just managed to pierce through its record high at the end of last year. Could it run and continue this year?

Source: Admiral Markets MetaTrader 5, DAX30, Monthly - Data range: from Jun 1, 2005, to Jan 3, 2021, performed on Jan 3, 2021, at 8:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

You can also learn more about specific stock plays that could be interesting in 2021 in the ‘Best Shares to Buy for 2021’ article. 

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