Weekly Market Outlook: Optimism Strikes Back
Risk-on at the end of the year as the US and China reach a “Phase One” deal
Trade of the week:
GBPAUD Keeps Calm and Moves Up
Prime Minister Boris Johnson’s landslide victory may finally bring an end to the Brexit deadlock. In their biggest election win since Margaret Thatcher’s 1987 triumph, the Conservatives swept 365 of the 650 seats in Parliament and dealt a crushing blow to their Brexit opponents.
Now the UK government should be able to get its deal passed by January 31. We may expect upbeat comments from the BoE this week which could further lift the pound. The pair is climbing along with the moving averages towards 1.9700. The psychological level of 1.9000 will be a major support to maintain the rally.
Gold Hit by Optimism
Global sentiment improved after the US and China reached a Phase one deal on Friday. The US will suspend the upcoming round of tariffs on $160 billion of Chinese goods and reduce existing ones.
In exchange, China agreed to double its purchases of US goods and services with an additional $200 billion over the next two years. Markets welcomed the de-escalation and we would expect bullion to be under pressure as traders turned on the risk-seeking mode.
The metal met strong resistance at 1487 on the bearish trend line. A break below 1450 could trigger an extended sell-off.
USDJPY Awaits Bullish Breakout
Despite the Fed’s dovish stance to leave a rate hike off the table in 2020, the greenback held strong against the Japanese yen. Sentiment is turning around gradually as geopolitical tensions have seemingly eased off.
A breakthrough in the US-China talks and a post-election swift Brexit may start to weigh on safe-haven currencies like the yen. A bullish breakout above 109.70 could send the price to 110.50 while the downside risk would be a drop below 108.40.
AUDCAD Rises Back to September High
The Australian dollar has been the collateral damage of the 17-month long trade war between the US and China. As Australia’s largest trading partner absorbing nearly 30% of the country’s exports, China’s slowdown is compounding on its own domestic challenges such as muted inflation.
Needless to say that a truce between the two giants would provide much relief to the Aussie. The pair is testing the daily resistance level of 0.9140, and the bullish trend line around 0.9000 is the key support to monitor.