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Optimism still doing the rounds, German data in focus

Optimism still doing the rounds, German data in focus

For the third Monday in a row there was positive news with respect to a possible Covid-19 vaccine. 

AstraZeneca and Oxford University revealed that their drug is 70% effective. Traders were encouraged by the fact that progress is being made and the finer details of the update show the drug in an even more impressive light.

The headline figure of 70% effective is the average, and one of the regimens is 62% effective and the other is 90%. In terms of cost, the Astra-Oxford medication is reported to be a fraction of the price of Moderna’s and Pfizer-BioNTech’s possible vaccines. In addition to that, it can be stored at approximately -3 degrees, which makes it far easier to transport and more conducive to mass production. Sentiment was lifted on the back of the drug story, and broadly speaking the major indices in Europe gained ground in the day, but then tapered off towards the close and finished slightly in the red. The pharma sector is making strides to zone in on the virus but there is a view in the market that even if a vaccine gets approval from the regulators, it will take time to be rolled out on a grand scale. 

The S&P 500 finished higher last night as the optimism surrounding the coronavirus drug story aided sentiment. It was reported that President-elect, Joe Biden, wants to appoint former Fed chair Janet Yellen to the role of Treasury Secretary. Yellen’s leadership at the Fed greatly helped the US economy continue its recovery from the banking crisis. Yellen oversaw the raising of interest rates in the post credit-crisis era and it was carried out in a measured and well-signalled manner, so dealers would welcome that style of business.

Broadly speaking, stock markets in Asia are higher as the positive momentum from the US has spilled over to the Far East. The Nikkei 225 played catch-up as it was closed yesterday for a holiday. European markets are called higher.

Prime Minister Johnson confirmed yesterday that England’s lockdown will end early next month, but a new tougher three-tiered system will be introduced. Economic activity should pick up in certain parts of England but the new regionalised stricter system will last until spring.

The CMC GBP index hit its highest level in 11 weeks, as there is cautious optimism that some sort of a deal will be achieved between the UK and the EU. We are still hearing the same old lines that progress has been made but differences still exist. The language being used is on the positive side and judging by the markets, traders are behaving as if an agreement will be reached, although nothing is guaranteed.

Sticking with the currency theme, the US dollar saw a lot of volatility yesterday. The US Dollar Index fell to its lowest level since early September because for much of the session, traders were keen to drop assets that were considered to be lower risk, and hold riskier products like stocks There was a sharp change in sentiment on the bank of the US flash manufacturing and service PMI reports being announced. The manufacturing and services PMIs for November were 56.7 and 57.7 respectively – the fastest growth rates in six years and five years respectively. Although some areas of the US have introduced restrictions, they are not a tough as the lockdowns seen in certain European countries.

The flash readings of services and manufacturing PMI reports from France, Germany and the UK mostly showed a dip in economic activity, but all the updates came in better than expected, so there was a feeling that the tighter restrictions didn’t have that bad an impact on the economy. The French services sector suffered its largest contraction in six months. At the other end of the spectrum, the UK manufacturing reading expanded at its fastest rate in three months, despite the lockdown.

Gold fell to a four-month low because of the surge in the US dollar. The yellow metal is traded in dollars so a pricier dollar makes gold more expensive to purchase. A failure to retake the $1,848/50 area, could see metal fall back to $1,800. 

At 7am (UK time), the final reading of German GDP for the third quarter will be posted. The level is tipped to be unchanged from the preliminary reading of 8.2%. The second quarter reading came in at -9.8%. The French business climate report is tipped to cool to 91 in November from 93, and is posted at 7.45am (UK time). Germany’s IFO business sentiment index is anticipated to drop to 90.1 from 92.7 in November. The figure will be posted at 9am (UK time).

The UK CBI realised sales report for November will be revealed at 11am (UK time) and economists are predicting a reading of -35, down from -23 in October. The report is heavily influenced by high street activity so in light of England’s lockdown, it is not surprising that a decline in business is anticipated. The US Conference Board consumer confidence reading is tipped to be 98, down from 100.9 posted last month. It will be announced at 3pm.        

EUR/USD – has been in an uptrend since the start of the month and while it holds above the 50-day moving average at 1.1775, the positive move should continue. 1.2000 might act as resistance. A break below 1.1602 should pave the way for further losses.     

GBP/USD – in the past two months it has been in an uptrend and if the positive move continues, it could target 1.3515. A pullback might find support at 1.3106, and a break through that metric should put 1.3000 on the radar.   

EUR/GBP – the downtrend has been in place for two months and while it holds below the 0.9000 metric, the bearish move should remain intact. A break below 0.8864, should pave the way for 0.8800 to be tested. If 0.9000 is retaken, 0.9046, the 50-day moving average, should be brought into play.

USD/JPY – the broader bearish trend is still in place and a move through 103.08 should see it target 102.00. A rebound could see it target 105.57, the 100 day moving average.                                

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