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Market Wrap – November 2020

   

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Now that the dust has settled on the U.S. Presidential election and all of the fanfare and media coverage that comes with that, financial markets have focussed again on the coronavirus pandemic and vaccine hopes.  COVID-19 continues to makes it way through the United States and Europe, with cases in the former having now exceeded 13 million.  Numerous companies have reported test results from their COVID-19 vaccine testing and this has raised hopes that a vaccine is not far away and that the world can put 2020 well and truly behind it.  This has also raised risk appetite and increased bullishness in financial markets sending equity indices to record highs. 

EURUSD

During the month of November, the EURUSD has spent most of its time continuing to trade in a range between support at 1.17 and resistance at 1.19.  To close out the month, it was pushing up higher and applying more pressure on the resistance level at 1.19 just pushing through.  Any recent attempts to move through this level have been rejected swiftly so it will be interesting to see how well it can maintain the break or whether it is sold off again.  A few weeks ago, the EURUSD surged higher from below the other current key level of 1.17, before running into the resistance at 1.19.  Throughout October, the EURUSD rested on support at the 1.17 level as it reinforced itself as a key level, continuing to prop up the EURUSD and keep it within the range between it and the other key level at 1.19.  The EURUSD has spent the best part of the last three months trading between these two key levels with the 1.19 level providing stiff resistance.  If it was to fall through 1.17, the next obvious support level is around the 1.16 low which has propped it up on two occasions now in the last month or so.  

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European Central Bank (ECB) President Christine Lagarde gave some clues earlier in the month about what steps the central bank will take next, while suggesting a COVID-19 vaccine won’t have an immediate impact on economic recovery.  “While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved,” Lagarde said at the ECB Forum.  “So the recovery may not be linear, but rather unsteady, stop-start and contingent on the pace of vaccine rollout,” she said.  ECB Governing Council Member Klaas Knot said: “Having a vaccine is absolutely good news but the materialization of the economic impact of the good news may take some time and will not happen overnight,” on CNBC.  The ECB has recently hinted at further monetary stimulus soon.  Ms Lagarde suggested the central bank is likely to adjust its asset purchase program and cut borrowing costs for banks further.  

GBPUSD

The GBPUSD in November continued to apply pressure on resistance at 1.3250 before finishing higher at a three-month high.  It had previously made a run at the 1.3250 level reaching a then two month high, before it was sold off and this move was on the back of a healthy surge back above the key 1.30 level after the GBPUSD traded around this level for several weeks with an increase in volatility.  If it can maintain a break above the 1.3250 level it may threaten the nine-month high near 1.35 that it reached at the end of August.  It may also enjoy some support from 1.3250 to assist any movement higher.  The 1.30 level has played a significant role in the price action of the GBPUSD in the last four months and continues to do so.  In the last few month or so the GBPUSD has rallied well from a two-month low around 1.2650 back up to 1.30 which has resisted prices strongly, before the recent moves higher to 1.3250.  Around the lows, the GBPUSD also received support from another key level at 1.2650.  In early September, the GBPUSD fell sharply from the nine-month high near 1.35, pushing down through 1.30 which had previously supported price for a few weeks.  

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In unfortunate timing for the United Kingdom, the Brexit trade negotiations have been halted at a critical stage because a European official involved in negotiations has tested positive for the coronavirus.  The United Kingdom left the European Union on 31st January 2020 and a transition period was put in place until the end of this year, when the Europe rules apply to trade.  COVID-19 put a halt to any negotiations earlier in the year so has significantly impacted progress throughout 2020.  Many believe that hundreds of thousands of jobs are vulnerable if Brexit talks are not productive.  Currently, if both sides cannot reach an agreement, there will be trade tariffs imposed and other obstacles to trade between the United Kingdom and the European Union, although it is expected to hurt the UK more.  EU negotiator Michel Barnier said that in agreement with the UK, “we have decided to suspend the negotiations at our level for a short period,” due to the positive coronavirus case, however smaller negotiations will continue.  

AUDUSD

Like the GBPUSD, the AUDUSD has experienced a reasonably strong move throughout November, pushing through to multi-month highs.  In the last few weeks, the AUDUSD has rested on and enjoyed support from the key 0.7250 level having surged higher in the week prior through the key level.  Prior to the surge it had fallen sharply back down through support at the key 0.7050 level down to a three-month low below 0.70, before rallying strongly.  Having resisted prices so strongly, it was no surprise that the 0.7250 level stepped in and offered support once it was broken through so strongly.  If it can remain well supported by the key 0.7250 level, it may very well threaten the two year high above 0.74 set in August.  Generally in the last month, the AUDUSD has spent most of its time trading between two key levels, meeting resistance at 0.7250 and being supported at 0.7050, after having fallen sharply through the 0.7250 level down to a then two month low below the key 0.7050 level in late September.  

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Australians are being urged by the Reserve Bank of Australia (RBA) to increase its appetite for risk, on the basis that they believe the coronavirus pandemic has left the country too risk averse.  Speaking at a dinner in Sydney, RBA Governor Philip Lowe says that it could take longer for Australia to recover from its recession without an acceleration in activity.  Dr Lowe added that for some time "people will be more cautious in their borrowing and spending decisions", and that it was important that households and businesses guard against becoming too risk averse.  "Over the past decade or so, there have been signs that our economy was becoming less dynamic," Dr Lowe said.  "An increase in risk aversion would reinforce this trend."  Commenting on Australian equities hitting an eight month high, Dr Lowe said, "Some people will no doubt move out along the risk spectrum — as they do so, the additional investment risks will need to be understood and managed."  

US30

The US30 index has enjoyed a strong November, pushing through a series of key levels to an all time high.  In the last two weeks it has enjoyed strong support from the key 29000 level allowing it to challenge the all time high.  Two weeks ago, the US30 index made its first run towards 30000 and in doing so, smashed through resistance at 29000, which has applied downward pressure on the index for some time.  In that initial surge higher, it also pushed strongly through 27000 and 28000 which has played a significant role in the price action of the US30 in the last few months.  Having supported prices for the last two weeks, the 29000 will be expected to continue to prop up the index.  Prior to the surge, it had enjoyed strong support from 26000 which its most recent fall from the resistance at 29000, which allowed the index some support to rally back higher again.  The fall has followed a strong period which saw the US30 index rally very well moving from a six-week low to back above the key 28000 level and towards 29000, which offered stiff resistance again.  The 29000 level also provided resistance to the US30 index in early September, when it was approaching its all-time high set earlier in the year, and now it has finally broken through with an increase in volatility.

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Earlier in the month, the U.S. Federal Reserve (Fed) kept interest rates near zero and made comments about the U.S. economy still falling short of its pre-coronavirus levels.  The decision to keep its benchmark interest rate anchored in a range between 0%-0.25% was widely expected, and this is where rates have sat since their emergency rate cut seven months ago in the early days of the coronavirus pandemic.  Fed Chairman Jerome Powell believes the central bank still has plenty it can do to help the economic recovery.   “Is monetary policy out of power or out of ammunition? The answer to that is no, I don’t think that,” Mr Powell said during his post-meeting news conference. “I think that we’re strongly committed to using these powerful tools that we have to support the economy during this difficult time for as long as needed and no one should have any doubt about that.”  As always, analysts digest the post meeting statement from the central bank to identify where slight changes are made.  “Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year,” the statement said. 

Gold

Throughout November, XAUUSD has eventually drifted lower to a four-month low at $1800 after having traded around the key $1900 level for some time.  In the last week, XAUUSD fell strongly after attempting to remain within touch of $1900.  During November, it made repeated attempts to rally to $1900 and even pushed to a six-week high above $1960 before falling even more sharply returning all gains in falling to a five-week low around $1850.  After that, it made the recent run towards $1900 before being sold off again.  The $1900 level has played a significant role for the last three months and for the last almost two months, the XAUUSD has spent most of its time trading back and forth around this level, before the recent drop.  The $1900 level will be expected to continue to provide some resistance to gold, as it seems to content to trade not far away from it.  In early August, XAUUSD fell sharply from its all-time high around $2075 however it was stopped well by the support around the $1900 level which has been able to buffer the fall and allow it to consolidate in the time since, even allowing it to rally back above $2000 before returning to support.

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Risk appetite has been boosted in financial markets around the world in the last few weeks, as the large pharmaceutical corporation Pfizer has announced promising results for its COVID-19 vaccine.   With the progressive updates on positive vaccine developments, this will take the shine off gold as its main attraction is as a haven asset, therefore many analysts are predicting its large upwards moves are finished for the foreseeable future.  Pfizer said it was set to apply for emergency U.S. authorization after results from its vaccine trial showed a 95% success rate with two months of safety data.  With this vaccine potentially not far away, and with others in the pipeline, this sets a bearish tone for gold as the world looks towards economic recovery, however the reality is that more stimulus is needed around the world and not everything is going back to normal overnight.

UK Oil

UK Oil has experienced a very strong November moving through to eight-month highs near $49.  In the last week or so of the month, UK Oil surged higher from support at the key $43 level moving to the new high, and in the few days before the recent surge, it eased back to this level and enjoyed some support.  In the two weeks prior, UK Oil surged from its lowest level in five months below $36.50 back up to the key $43 level which has again provided stiff resistance before it was able to break through to above $45 before falling back sharply to $43.  Leading up to the strong surge, UK Oil fell away strongly from the key level of $43 which now continues to play a role and in recent time, has provided resistance, and more recently, support.  For the last two months or so, this level has been providing stiff resistance and constant downward pressure on prices.  During this time, UK Oil has made repeated attempts to break through the long-time key level of $43 so it is quite significant that it has now broken through this level and received support, and then continued on much higher. 

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There are expectations that the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers, a group known as OPEC+, might extend a deal to restrain output.  The latest vaccine testing report was from AstraZeneca who has stated that interim analysis showed its vaccine has an average effectiveness of 70% with one dosing regimen showing effectiveness of 90%.  This follows on from other reports of late-stage trial data from Moderna and Pfizer-BioNTech that their own vaccines were around 95% effective.  The vaccination process is set to commence before the end of this year, with European and US officials pushing to approve them, now that there are three vaccines showing 90+% effectiveness.  Pfizer said it was set to apply for emergency U.S. authorization after results from its vaccine trial showed a 95% success rate with two months of safety data.  With this vaccine potentially not far away, and with others in the pipeline, financial markets appear to be clinging to the hope of vaccine success and roll-out of a COVID-19 vaccine.

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Disclaimer:

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.

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