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EUR/USD Edges Higher as Risk on Sentiment Remains Intact

EUR/USD Edges Higher as Risk on Sentiment Remains Intact

Market mode goes upbeat on Asian positive data and Biden’s opinion about how to deal with the COVID-19 surging numbers.

Optimistic Outlook

The coronavirus vaccine’s optimism and an over 1$ Trillion stimulus package expectations have helped current risk-on sentiment to remain intact, despite concerns of a further contraction in Europe and the UK economies caused by the recently imposed partial lockdowns in France, Germany, and England. Additionally, American cases are still in an upward trend.

This could lead investors to favor risker assets such as equities and corporate bonds versus treasury bonds, especially if Republicans keep the Senate majority which means a lower possibility of tax and regulation increase.

Additionally, the market cheered the Asia-Pacific agreement signed on Sunday according to that deal China, Japan, and 13 Asian economies agreed to reduce future tariffs.

Equities Edge Higher

Asian equities traded higher on Monday on strong Japanese and Chinese data releases. The Japanese GDP (Q3) of 21.4% came in better than expected of 18.9%, while the Chinese industrial production of 6.9% came in better than expected of 6.5%.

The story in the US was not much different, as major stock markets opened with an upward gap on Monday driven by news that the US President-elect, Joe Biden, opposes a total lockdown and prefers “European style” lockdown targeting specific activities.

Stock Market

Change %

S&P 500

+1.3%

Dow Jones

+1.3%

NASDQ

+0.8%

Japan 225

+0.8%

DAX 30

+1.1%

FTSE 100

+0.8%

CAC 40

+1.3%

EUR/USD and Main FX Markets

The US Dollar index opened with a downward gap reflecting a stronger risk-on sentiment in the market. That said, the technical outlook of the market remains neutral while above 91.72.

The EUR/USD failed twice last week to close below the 50-day SMA nonetheless, the technical outlook remains unchanged while below 1.1909, a close above this level changes the pair’s outlook to positive.

The GBP/USD has benefited from a weaker US Dollar and opened with an upward gap at 1.3219. The market remains optimistic about the EU-UK trade negotiations on the back of the resignation of the UK PM top advisor Dominic Cummings who is known for his support to Brexit without a deal. The pair could be on its way to retest 1.3300, a close above that level may keep the market upbeat towards 1.3460.

Gold and Oil

The oil price stabilized on Monday below 43.58 on hopes that OPEC+ could extend current production cuts to compensate for concerns of weaker demand due to surging Coronavirus in the US and the recent lockdowns in Europe and the UK. The Brent Crude eyes a test of $43.58 a close above this level could send the price even higher towards 44.80.

The Gold remained above $1,860 and edged higher towards $1,921. Nonetheless, a close below $1,860 could change Gold’s technical outlook from neutral to negative.

Looking Ahead

Not much today on the economic calendar, EUR/USD traders will tune in the ECB President Lagarde’s speech at 2:00 PM (GMT) then the ECB member Mersch’s speech at 2:30 PM. Later on, the market will follow Fed members' speeches Clarida at 6:00 PM, and Daly’s at 7:45 PM.

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.