3rd UK Lockdown ‘Pounds’ Sterling, OPEC and Georgia in Focus
The British pound was the weakest major overnight after UK’s Prime Minister, Boris Johnson, announced they are to head back into a full-scale lockdown. Expected to last into the middle of February this will be the third lockdown for the UK as new daily cases top 56,000. GBP/CHF and GBP/JPY were the weakest pairs falling -1.2% and -0.8% respectively.
US indices reversed sharply from their intraday record highs ahead of today’s Senate race in Georgia (overnight in Sydney). The S&P 500 (US500) and Nasdaq 100 (USTEC) fell -1.5% whilst the Dow Jones fell (US30) -1.3%, all of which produced bearish outside candles.
The outcome will likely have a direct impact on US indices and the US dollar. If Republicans retain the senate it will make things tricky for the Biden administration, and could weigh further on indices. Yet Democratic a win would see the Biden administration hold the House and the Senate (like Trump did in the first two years of his term) which could prove to be bullish for stocks and reverse yesterday’s losses.
OPEC talks are expected to roll over to a second day as an agreement on oil output levels remained in deadlock. Russia led the argument to raise output whilst Saudi Arabia called to keep them at lower levels. With countries such as UK entering another lockdown and others expected to follow, lockdown levels could be the deciding factor as to whether production remains low or not, to support prices. Both WTI (WTI) and Brent (BRENT) produced bearish outside candles on the daily chart at their highs.
In crypto, Bitcoin’s epic surge came to an abrupt halt and shakeout at record highs after futures hit 35k. As we warned in yesterday’s report “if previous tops are anything to go by, price action is unlikely to plateau at such high prices and instead we could see some wild whipsaws at the highs before any correction takes place”. Well, with yesterday’s candle range reaching 290% of its average daily range and producing its most volatile session since March, whipsaws around the highs are now expected and it appears much les appealing to bulls.
Today’s Calendar Events (Times are GMT+11 Sydney)
- No major economic news is released today’s Asian or European sessions.
- ISM manufacturing is the main event in today’s US session, which places US indices and US pairs in focus for news traders.
- Voting for the Senate in Georgia will be the main event for the US (see notes above).
Brent (BRENT): OPEC In Focus for Oil Prices Today
OPEC talks are expected to resume around 14:30 GMT (19:30 Sydney) which puts WTI and Brent crude into focus for headline traders.
Brent has been in an uptrend since its multi-year low in April (when WTI futures actually went into negative territory). Yet whilst the trend remains bullish on the daily chart, yesterday’s volatile and bearish outside candle suggests an interim top is in place. Also note yesterday’s highs respected the resistance zone made up of the March high and February low.
- The bias remains bearish below 53.31, although bears could consider fading into minor rallies beneath yesterday’s open price at 51.77.
- The next major support level is around the 49 lows which makes it a viable target for bears. If we see a bearish day as volatile as yesterday’s, it could hit target later today.
Gold (XAU/USD): Gold Bug Eye Record Highs
Overall, commodities remain in demand which has seen a rise in inflation expectations. Whether this will translate into actual inflation (and therefore higher central bank interest rates) remains to be seen, but many pundits expect pent-up demand to fuel a rise in inflation should lockdowns come to an end. And this is very supportive of gold prices.
Gold’s weekly chart may have produced a corrective low at 1764.50 in November and bullish momentum is now increasing. The daily chart gapped higher above a descending trendline as part of a bullish breakout. The session also closed with a bullish opening Marabuzo candle.
- Our bias for gold is now for a break above 1965 and for a re-test (and eventual break above) its record high.
- The bias remains bullish above yesterday’s low.
- Bulls can use the 50% line of the Marabuzo candle to aid with risk management or entry.
USD/CAD: Fakeout At the Lows?
USD/CAD broke to its lowest level since April 2018 overnight, yet bears failed to keep prices beneath key support by the session close. As it closed with a bullish outside / engulfing candle we suspect a fakeout (bear-trap) has occurred and prices are due to bounce higher.
- Prices on H4 are consolidating in a tight congestion pattern ahead of today’s meeting.
- Traders could use a breakout of the descending trendline to suggest a bullish breakout.
- If the trendline holds (or a bullish breakout reverts beneath it) then the bias could be switched to bullish, especially if oil prices rise.
- USD/CAD traders should keep an eye on the OPEC meeting, as weaker oil prices could see USD/CAD move higher.