Primus Weekly - 14th December

Hi Everyone,

It was a big week on European data front last week as both the European Central Bank and European Council met. A number of important decisions and announcements were made that will shape Europe’s recovery in 2021.

First and foremost, the ECB announced another EUR 500 billion of stimulus, bringing the total amount to EUR 1.85 trillion. Also, the asset purchases programme will be extended until 2022 and deposit rate was unchanged at -0.5%. These extra measures are coming at the back of second wave of coronavirus spread in Europe, causing a number of member states to implement lockdown measures and restrictions on movement. European services PMI has been contracting after peaking in July 2020 at 54.7, and has been negative since September 2020, dropping to 41.7 in November. Shrinking economic activity is a concern for the member states’ governments as most countries are faced with high unemployment rate and low productivity, on top of aging populations. Euro Area has also been struggling with anemic inflation of -0.3% in September 2020. This means that ultra-low, or rather negative, interest rates are here to stay until we see economic activity and inflation picking up. The ECB has also indicated that TLTRO (Targeted Longer-Term Refinancing Operations) programme, offering cheap loans to European banks that have seen their balance sheets deteriorating in 2020, will be extended until 2022.

European Council meeting ended with mixed emotions. Poland and Hungary’s attempt to block 2021-2027 Multiannual Financial Framework and the EU budget, was dodged by introducing a supplementary declaration that addresses concerns of the former mentioned member states. EUR 1.3 trillion budget had been vetoed by Poland and Hungary on the premise of proposed framework infringing sovereignty of the member states. The veto had also blocked the implementation of EUR 750 billion coronavirus recovery fund which is critical to give the pandemic-battered economy the needed boost. European economy is expected to contract 7% this year, and recover 3.8% in 2021.

The markets have lost some of their optimism during last week as coronavirus cases are spiking across Europe and the US. Also, the latest announcements from Pfizer and BioNTech (AstraZeneca) have been sobering – most countries will not get the doses they need to vaccinate the entire population in 2020. Moreover, developed countries able to pay the bill are scheduled to get the batches shipped during the month of December, while the emerging world needs to wait until 2021. This puts additional pressure to the officials who decide which segments of population should be prioritized in terms of administering the vaccine. The U.K. and U.S. have indicated that front-line workers, along with people in high-risk groups, would be among the first to be vaccinated. Also, government officials and state heads ought to be vaccinated within the next month. The next step is convincing people to get injected- only around 63% of Americans would be willing to get vaccinated, based on WSJ. The number of sceptics is high, despite the fact that side effects of available vaccines have been muted. We are yet to see what approach is taken by governments and private companies, such as airline companies who have been among the loudest, advocating the vaccine.

Equity markets closed lower last week with S&P500 was down 1% and 2%. Gold ended flat at 1,837.81 and US dollar, measured by DXY, was also flat, closing 90.73.

Have a great trading week ahead!

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In The Spotlight

DateCurrencyEventPrevious Consensus 
TuesdayGBP3M Unemployment Rate4.8%5.1%
WednesdayGBPCPI(YoY)0.7%0.6%
WednesdayEURGerman Markit PMI Composite51.750.7
WednesdayEUREuropean Area Markit PMI Composite45.346.2
WednesdayUSDRetail Sales(MoM)0.3%-0.4%
WednesdayUSDFed Interest Rate Decision and Monetary Policy Statement0.25%0.25%
ThursdayCHFSNB Interest Rate Decision and Monetary Policy Statement-0.75%-0.75%
FridayJPYBOJ Interest Rate Decision and Monetary Policy Statement-0.1%-0.1%

*In USD millions

Impact

  • US Retail Sales

US economy, being very consumer driven, is heavily impacted by retail sales and consumer sentiment. Up to 70% of the GDP is related to consumer spending, meaning all data points related to retail are heavily scrutinized, and have the potential to move markets. Increased retail sales are considered bullish for USD, whereas lower or below expectations read is generally considered bearish.

  • Euro Area Markit PMI Composite

Purchasing Managers’ Index measures the sentiment for business activity in the Euro Area. This is survey based and considered as leading indicator. Higher than expected print is generally bullish for EUR, while lower than expected is bearish.

Market Sentiment

The pair is attempting to climb higher once again, trading near 1.21474 levels and being supported by 8-day Moving Average. Moving Averages are stacked, supporting short-term and long-term bullish trend. RSI of 68.6 is currently neutral, while Stochastic of 82.5 signals overbought levels. DMI+ is currently at 22.1 and DMI- of 11.3, giving weak signal quality. ADX of 28.7 signals some energy in the bullish momentum. Resistance level is previous swing high of 1.21769, while support is near 8-day Moving Average of 1.21020.

Support: 1.21769
Resistance: 1.21020

The pair been trending higher since early November, when short-term and long-term Moving Averages stacked in a bullish fashion. The price has found support in 8-day MA, collapsing last Friday temporarily but has recovered since. RSI of 57.4 and Stochastic of 35.7 are both neutral. ADX of 21.3, DMI- of 22.4 and DMI+ of 21.3 give a weak signal.

Support: 1.34444

Resistance: 1.34468

USDJPY continues to consolidate and trade near 8-, 21- and 34-day Moving Average. MA-s are stacked in a bearish fashion. The price has found resistance near 34-day MA of 104.50. RSI of 43.1 and Stochastic of 58.5 are both neutral. DMI- of 38.4 dominates DMI+ of 33.1, while ADX od 12.9 gives no signal.

Support: 103.75

Resistance: 104.50

Gold has recovered from early December lows and now has been consolidating, trading near 8-day, 21-day and 34-day Moving Averages. 8-day MA is starting to offer a resistance, forcing the price lower, while MA-s are stacked in a bearish fashion both short-term and long-term. RSI of 43.9 and Stochastic of 67.6 are both neutral. DMI- of 25.9 dominates DMI+ of 18.1, ADX of 22.9 signals a weak trend

Support: 1840.00

Resistance: 1810.00

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital.

Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital.

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Risk Warning: Trading on margin products involves a high level of risk , which may result in the loss of all invested capital.

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