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EUR/USD and Gold Rally as Market Flips to the Risk-On Mode

EUR/USD and Gold Rally as Market Flips to the Risk-On Mode

High-risk assets benefit from recent US elections update and may rally further.

Gearing Up For COVID-19 Vaccine

While the entire world awaits the COVID-19 vaccine’s final trial’s results, investors consider buying battered stocks from the coronavirus that could benefit from the confidence boost when the vaccine becomes available.

With plenty of liquidity and more certainty, the market has flipped to the risk-on mode and the risk appetite may increase further if we get positive news about the coronavirus vaccine.

AstraZeneca expects that the vaccine will be available by the end of 2020 at the earliest, while the production has started already in Australia even before the last stage of approval. The company takes the gamble to start rolling out the vaccine as soon as it becomes approved. On the other hand, Pfizer could apply for the vaccine’s license at the start of next month.

Equities Benefit from Biden’s Optimism

Last week, most global stock markets closed in the green thanks to Biden's performance in the US elections that provided clarity for investors.

On Saturday, Joe Biden beat Trump and was announced the US President-elect. Markets cheered this news as the new administration will be more flexible to work swiftly on the long-awaited stimulus package.

Biden’s victory was priced in the markets and major US indices opened this week with upward gaps between 1.0% - 2.0%. Markets also considered a possible split of the US congress (a Democratic House with a Republican Senate) If this were confirmed, Biden will not be able to raise corporate taxes from 21% to 28% nor increase regulations.

Stock Market

Change %

S&P 500

+0.1%

Dow Jones

+0.02%

NASDQ

+0.1%

Japan 225

+0.7%

DAX 30

-0.1%

FTSE 100

+0.3%

CAC 40

-0.01%

EUR/USD and Main FX Markets

The market’s risk-on sentiment weighed on the greenback and pressed the US Dollar index on Monday to its lowest level in near ten weeks at 92.10. That said, the price outlook remains neutral while above 91.72.

The EUR/USD rebounded around 1.1600 last week and rallied eying a test of the high end of the current trading zone at 1.1909. Nonetheless, the pair’s outlook remains neutral while below 1.1909.

The GBP/USD investors are still waiting for EU-UK trade deal updates therefore, the pair consolidates in a narrow trading zone 1.2916- 1.3184. It is worth noting that any trade deal requires parliament approval from both sides hence a trade deal is expected by November 15.

Gold and Oil

The crude price benefited from lower US dollar prices and opened this week with an upward gap. The Brent Crude closed above $39.60 hinting at to rally towards 41.70 thus, a close above this level could send the price even higher towards 43.58.

The Gold price overtook the 50-day SMA last week and closed above $1,921 reflecting a shift in the bull's favor. The market could rally towards the August 18 high at $2,015 contingent on clearing the September 1 high at 1,992.

Looking Ahead

Markets expect the ECB president Lagarde’s speech at 10:25 AM (GMT), the BoE governor Bailey’s speech at 11:35 AM, the ECB Member Mersch’s speech at 1:00 then-Fed members Mester’s and Harker’s speeches at 7:30 PM, 8:20 PM respectively.

This information/research prepared by Mahmoud Alkudsi does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk. The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest. The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.