Weekly Market Outlook: Vaccine approval, Brexit negotiations and more
Three decisive news items are expected to direct the course of the market throughout this week, as we head towards the Christmas holidays:
- The FDA's approval to start the vaccination process in the US after the Pfizer vaccine was approved
- The continuation of post-Brexit trade negotiations between the UK and the European Union
- The meeting of the Federal Reserve
The Vaccination Process Commences in the US
Following the FDA's approval of the Pfizer vaccine on Sunday, the United States has followed in the footsteps of the UK and other countries in taking a major step forward in the ongoing fight against the coronavirus pandemic.
Few countries have been ravaged by the pandemic to the extent of the US, which last week set a record of 234,000 new recorded infections in 24 hours, surpassing a total of 16 million total recorded cases and 302,762 deaths since the pandemic began.
The vaccination rollout has been approved in principle as an emergency measure for people over 16 years of age with a total of 2.9 million doses ready for distribution.
Brexit Trade Negotiations to Continue
Last week was a critical week for trade negotiations between the EU and the UK. Sunday had been agreed by both sides as a deadline for reaching an agreement between London and Brussels.
But once again, as Europe waited in anticipation of a decisive announcement, an extension to the negotiations was announced in an attempt to reach an agreement. Boris Johnson and Ursula Von der Leyen agreed to the extension by telephone on Sunday afternoon, proving, if it was not already clear, that both parties view an agreement as vital, despite their respective positions seeming far apart from an outside perspective.
Ever since the UK's referendum on membership of the EU in June 2016, the story of Brexit seems to be one which is never ending and less than one month now remains until the transitional period between the two parties comes to an end.
Last week saw important steps taken, after the British Prime Minister announced the withdrawal of certain controversial clauses within the Internal Market Act, which were in direct contravention of the withdrawal agreement reached last January with the EU regarding the Irish border.
This new extension will give some breathing space to the financial markets which were rife with uncertainty last week. However, until an agreement is reached, this uncertainty will continue to grow as the chances of a no deal Brexit seem to grow by the day. Countries such as France, Belgium, the Netherlands and Denmark have made it clear that they would prefer no agreement rather than Europe granting too many concessions to the UK.
The Spotlight Shifts to the Federal Reserve
Last week the President of the European Central Bank, Christine Lagarde, took another step in her plan of doing "whatever it takes" by breathing fresh life into her monetary stimulus program. It is now the turn of the US Federal Reserve to take the reins and assess the possibility of introducing new measures with regards to monetary policy.
The latest employment data and the situation regarding the pandemic are not at all promising, as the Non-Farm Payroll data from November showed a weakening in the labour market, where unemployment continues to grow.
It will be important to see what decisions are made, as the $908 billion stimulus package designed to combat the effects of the pandemic remains stalled in negotiations.
As well as these three key points above, attention must be paid to other events in the economic calendar.
Source: Admiral Markets Forex Economic Calendar
The Market Situation
Last week the major global indices closed with slight weekly declines. The DAX30 and the SP500 dropped back to their first support level at their 18 session average.
It is important to look at the behaviour of both indices and see if they are able to bounce off this level and look for support to take a new upward momentum.
The loss of these levels could deepen the reversals after the November and early December rises that led to overbought levels in the Stochastic Indicator, so this distribution process could be positive. These reversals could be interpreted as possible entry points for a possible Christmas rally, provided they do not lose their main support levels (moving average of 200 sessions in red). Although for this to happen, the DAX30 will need to break out of its current green resistance level.
Source: Admiral Markets MetaTrader 5 - DAX30 Daily Chart. Date Range: September 9, 2019, to December 11, 2020. Date Captured: December 11, 2020. Past performance is not necessarily an indication of future performance.
Source: Admiral Markets MetaTrader 5 - SP500 Daily Chart. Date Range: September 9, 2019, to December 14, 2020. Date Captured: December 14, 2020. Past performance is not necessarily an indication of future performance.
On the other hand, the upward trajectory of oil prices following the announcement of successful vaccinations continues to reach levels not seen for the past 8 months. This momentum has been reinforced following OPEC's agreement to increase production by 500,000 barrels per day from January, as opposed to the initially planned 2 million.
Technically speaking, last week prices closed at $49.89 after rising by 1.92%, continuing November's trends where the price rose over 25%, finally surpassing the high zone of the strong side channel and its average of 200 sessions.
During the early hours of Monday, Brent is rising around 1%, thus surpassing the $50 level. It is important to see if it will be able to sustain this break over time and seek new highs. Should it fall back below its previous resistance level (green), the oil could re-enter the laterality whose main support would be the blue band.
Source: Admiral Markets MetaTrader 5 - Brent Daily Chart. Date Range: September 9, 2019, to December 14, 2020. Date Captured: December 14, 2020. Past performance is not necessarily an indication of future performance.
In 2015, the value of Brent fell by 35.12%, in 2016, it increased by 45.22%, in 2017, it increased by 18.66%, in 2018, it fell by 21.36% and in 2019, it increased by 25.20%. In five years, therefore, it had risen by 14.38%.
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