Weekly Market Outlook: Brexit, lockdowns and stimulus in focus

Dezember 21, 2020 12:30

The economic calendar is very quiet this week due to the holiday season. However, there are some big themes that will be on the mind of traders and investors considering how to close out their year-end books and start the new year. 

News from the UK government over the weekend of a new coronavirus mutation that is ‘out of control’ is likely to impact UK markets - and possibly European markets - heavily. Boris Johnson announced sweeping new lockdown restrictions and effectively cancelled Christmas for London and the South East. The fact that there is still no clarity regarding the outcome of UK and EU trade negotiations is likely to weigh on the British pound with Brexit less than two weeks away. 

US stock market indices recorded new all-time highs last week as traders focus on the potential of a breakthrough in stimulus talks. The positive tones have been felt in European markets but to a mixed degree with only the DAX 30 index pushing higher last week. You can learn more about these themes in this selection of recent education articles:

Weekly Forex Calendar

Source: Forex Calendar provided by Admiral Markets UK Ltd.

 

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Trader’s Radar - Brexit

With less than a week to go before the UK leaves the EU, all eyes will be on a potential breakthrough in trade negotiations. As it stands, the UK is set to leave the EU at the end of the year and revert to WTO trading tariffs. Sources have said that there is likely to be a decision on whether a deal can be reached or not before Christmas so it’s one to watch. 

While progress has been made on some of the big areas there remains disagreements on how long it will take to introduce new arrangements around fisheries. The UK has insisted its sovereign rights over its water should be respected from day one and that UK fleets have to keep a larger share of their catches. 

The EU has insisted that the transition period needs to be longer with guarantees on access to UK waters and how catches are distributed. While UK MPs have finished for the Christmas break, they may well be called back to ratify any possible deal. 

Source: Admiral Markets MetaTrader 5, GBPUSD, Monthly - Data range: from Nov 1, 2005 to Dec 20, 2020. Performed on Dec 20, 2020, at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

The British pound vs US dollar exchange rate is currently sitting at a major level of historical horizontal resistance at around 1.3500, as shown by the black horizontal line in the monthly chart above. This could be a make or break area for GBPUSD. 

If a deal is announced buyers are likely to be able to break through the 1.3500 level and head towards next resistance at around 1.4300. However, if it is a no-deal scenario the currency pair could reject the 1.3500 level and head back down to major support at the 1.2000 level. 

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Corporate trading updates and stock indices

With no major updates on the corporate calendar, all eyes will be on the potential for a stimulus deal to be announced from Congress. Weekend news announcements have been positive regarding the potential for a deal and traders left last week feeling optimistic. This is evident from the fact US indices like the S&P 500 and Nasdaq 100 stock market indices recorded new all-time high price levels.

However, traders will be interested in global stock markets as we enter the traditional Santa Claus rally period. You can learn more about it and the exact dates for the seasonal rally in the ‘What is the Santa Claus rally and how do you trade it?’ article. 

Source: Admiral Markets MetaTrader 5, SP500, Daily - Data range: from March 31, 2020, to Dec 20, 2020, performed on Dec 20, 2020, at 8:30 pm GMT. Please note: Past performance is not a reliable indicator of future results. 

 

Past five-year performance of the S&P 500 circa: 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80%, 2015 = -0.82%, 2014 = +12.32%

In the daily chart above of the S&P 500 stock market index, it shows that last week it recorded a new all-time high price level. The uptrend is still confirmed with the 50-period, 100-period and 200-period exponential moving averages all moving higher and separating away from each other. 

This could be particularly interesting as we head into the traditional end of year rally which you learn more about in the ‘What is the Santa Claus Rally and How Do You Trade It?’ article. 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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