US congress finally approved the COVID relief package worth US $892 billion, as part of a $2.3 spending bill for the remainder of the fiscal year through to September 2021. It is a far cry from the original $3 trillion package requested by Democrats, but it is a step in the right direction. Around $600 billion is earmarked as direct payments to most Americans, and it is the first such relief package to be approved by congress since April, which itself is due to expire this Saturday (the day after Boxing Day).
Stock market indices traded in relatively tight ranges, in stark contrast to Monday’s highly volatile session. They appear to be caught between a rock and a hard place; the virus has mutated as cases continue to rise, and pharmaceutical companies are now rushing to test their new vaccines on the new strain of the virus. Meanwhile the slightly underwhelming relief package has already been priced in. This likely means that markets are vulnerable to COVID headlines over the Christmas break and early January, which is a period when volatility tends to be supressed.
The USD regained its safe-haven status and rallied against all major currencies. The New Zealand Dollar was the largest mover, falling -0.9% and in line with AUD, CAD and broader commodity markets.
Today’s Calendar Events (Times are GMT+11 Sydney)
- No major economic data is scheduled for today.
WTI (WTI): Is Something ‘Going Down’ with Oil Prices?
Commodities were broadly lower overnight as concerns over the new strain of virus brings concerns of lower demand if lockdowns are to be reimplemented or extended across the globe.
WTI is on track for a bearish 2-bar reversal on the weekly charts, and resistance has been found at the 200-week eMA. If is closes beneath 41.20 tomorrow it will be the first bearish week for WTI in 8-weeks. On that metric alone, we could be due a correction.
We can see prices are coiling up on the 4-hour chart, which means a burst of volatility could be near. Given bearish momentum took prices into the coiling formation then the bias is for a bearish breakout of the bullish trendline.
- Next major support for WTI is around 45. Bears could enter short a break of the trendline or wait for the 4-hour chart to close beneath it on rising volatility.
- If bullish momentum returns above the trendline then the bearish bias becomes invalidated.
- A stronger USD and / or negative vaccine headlines are potential catalysts for lower oil prices.
NZD/CHF: Potential Head and Shoulders Top
NZD is the weakest major this past week, trading -1.25% lower against the greenback. Given the strong bullish trends commodity currencies such as NZD/USD and AUD/USD have made this year, they are more vulnerable to a correction if risk-off sentiment arrives. Especially as we approach the end of the year and traders remove risk from the table.
Technically we like NZD/CHF for potential shorts if risk-off erupts. A potential head and shoulders (H&S) top has formed on the daily chart and prices are resting on 0.6230, a pivotal support level going forward. Given a large bullish candle in November saw a quick rally from 0.6100 to 0.6230, we suspect a break beneath 0.6230 could also provoke a volatile (and bearish) response).
- A break beneath 0.6230 confirms the H&S top and brings 0.6100 support into focus.
- The bias remains bearish beneath ‘RS’ but we would prefer to wait for a break of support before assuming further downside.
- Keep an eye on overall sentiment of indices, commodities and USD, as true risk-off should see indices and commodities lower and USD higher.
Bitcoin (BTCUSD): Bull Flag Eyes Up Record Highs
Price action on the daily chart for bitcoin suggests we could be in for a little more chop before breaking to new highs. But that doesn’t mean it won’t try and at least retest recent highs. The trend is clearly within a well-established uptrend and support has been found at 22k. Given a small bull-flag has appeared on the hourly chart we are now looking for another burst higher towards the record high.
- A break above the recent cycle high confirms a breakout from the bull-flag.
- The flag projects an initial target around the record highs.
- A break beneath 23k most likely invalidates the bull-flag bias.