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Global Market Update
The View from Australia

Craig Killaby December 21, 2020

Data/Speakers

 

> NZ November Credit Card Spending : -5.6% v. -6.0% revised prev.

> EU December Consumer Confidence : -14 v. -18 exp.

 

Overnight Headlines (BBG)

> A fresh strain of COVID19 has caused chaos for UK supply chains, igniting a selloff in the GBP as countries around the world shut their borders to the UK ahead of Christmas

> The US looks poised to pass a fresh round of fiscal support, as the US$900bio bill is due to be voted on by Congress at some point today

> COVID19 cases in NSW dropped on Monday, with hopes that the short term lockdown imposed by the government will stop the spread of the virus outside the Northern Beaches ahead of Christmas

What you need to know

Fairly large moves in FX markets ahead of the Christmas holidays as cities around the world go into full lockdowns for Christmas, while a new strain of the virus in the UK sent investors flooding into havens. It was all about the headlines yesterday, and with the positive news surrounding the US stimulus package largely priced in there was little downside risk premiums priced in as the super-COVID strain in the UK saw the GBPUSD freefall in the afternoon of the Asian session. The new strain is said to be 70% more contagious than the original COVID strain and has seen world leaders take swift action with London in strict lockdown and European and North American countries taking a pause on incoming UK travellers. GBPUSD was down as much as 1.9% from the open Monday, with Brexit talks largely ignored as investors became weary of this second iteration of the virus.

Commodity based currency pairs performed poorly with the AUD breaking down to hit a recent low of 0.7462 before paring losses and sitting a touch below the 0.7600 handle as I write. There was a bounce in the USD on the flood into havens, although short lived with the DXY opening the session largely unchanged from yesterday. Cautious optimism was the theme in AU as NSW reported 15 new cases of COVID19, all of which have been traced and linked to the Avalon cluster. There are hopes that this cluster will be under control before Christmas, with the 11am AEDT press conference becoming very important. As expected it was a soft day for equity markets as the downside risks weighed on risk assets, as the ASX closed down 0.10% while the S&P500 down 0.3% as Tesla’s first day on the benchmark seeing the share price drop as much as 6%. In commodities, the price of Iron Ore continues to surge higher up 7.6% on the session as China’s demand forecasts increased while Brazil’s supply concerns deepened. Copper lagged on the day, down 2% while WTI crude also took a step backwards as travel concerns the catalyst seeing the commodity drop 2.8%.

The Day Ahead

 

Data

 

> AU November Prelim Retail Sales : 2.1% exp.

> EU December German GFK Consumer Climate : -8.7 exp.

> US Q3 Final GDP : 33.1% exp.

> US December CB Consumer Confidence : 97.1 exp.

> US December Richmond Manufacturing Index : 11 exp.

 

With nearly all the major currency pairs opening up largely unchanged on the session following the big moves, the session showed just how little negative news is priced into markets as investors were heavily focused on the vaccine euphoria and the positives. Today, the focus is still on the UK with both the super-COVID and Brexit in the headlines. While, in the US congressional leaders are expected to pass a round of fiscal support that may provide a nice risk-on boost towards the end of the year. 11am AEDT will be the key for NSW residents as the hopes of Christmas rest in the balance, while data from the ABS preliminary retail numbers should provide optimism that the recovery was underway before this outbreak took place.

 

Range for the day : 0.7540 – 0.7640

 

AUD/USD Technicals

 

Despite the knee jerk reaction lower in the pair, there are still plenty of reasons to remain bullish heading into the EOY. The YTD high of 0.7640 is still the major resistance level to watch on moves higher, while last night’s low of 0.7462 gives a target for those looking for an entry point. Support seen at 0.7535, while the 0.7600 level will be important in the early portion of today’s trading.

 

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