Primus Weekly - 4th January

Hi Everyone,

Happy New Year! The topics of 2020 continue this year – a number of developed and developing countries continue to report new daily highs of coronavirus cases, the control of U.S. Senate is determined in Georgia this week and Brexit agreement still leaves a number of issues open.

Brexit agreement, signed on Christmas Eve between the leaders of the EU and the U.K., has seemingly closed a chapter in the relationship of the two. GBPUSD has marched to levels of 1.3681 – last seen in April 2018. A number of issues leave the Pound vulnerable though. Firstly, the U.K. government has projected that the projected GDP will be 4.9% lower after 15 years, compared with staying in the single bloc. And that’s even with the free trade agreements in place. Moreover, the EU is the single most important trade partner for the United Kingdom. 43% of exports (GBP 294 billion in 2019) and 52% of imports (GBP 374 billion) from the EU will be subject to documentation and paperwork after June 2021. It should be noted that Brexit takes effect in parallel with China becoming the EU’s most important trading partner with around US$ 590 billion worth of goods exchanged between January to October 2020, as per Rosenberg Research. The services industry got a little focus in the Brexit agreement, despite its heavy weight in the U.K.’s GDP. A whole 40% of the GDP consists of services and with London losing its importance as financial capital, this is expected to shrink in the coming years.

The final two seats for the U.S. Senate race are determined this week in Georgia. Both Republicans as well as Democrats are pouring unparalleled sums of money into their campaigns, making these among the most expensive Senate races in history, as per WSJ. Democrats have reportedly been invested by campaigns and outside groups with beyond US$ 500 million, while four outside groups associated with Republican Majority leader Mitch McConnell alone have spent US$ 138 million in the races. The incoming Senate has currently 48 seats for Democrats and 50 for Republicans. Democrats would need both seats to take control – with Vice President Kamala Harris being Democrat, she would be able to break ties for any legislation. Assuming Democrats get those two seats, which seems increasingly possible looking at the early-voting electorate, President-elect Biden would be able to implement his plan. We are likely to see further stimulus in the form of fiscal spending with a focus on infrastructure and green energy but also higher tax on capital. His economic policies are expected to increase fiscal deficit and government debt but also create jobs and promote economic expansion that would bring in more tax revenue. US dollar is likely to weaken in such expansionary fiscal environment that is supported by monetary easing by the Fed.

The markets have been extremely bullish at the back of a number of fundamentals – S&P500 has reached another all-time-high of 3,756.08. The same goes for Nasdaq100 that closed 12,888.28 on Friday. Gold is currently near 2-month high of 1,927.33 while EURUSD trades near 1.22688 and GBPUSD is near 2.5-year highs of 1.36926

Have a great trading week ahead!

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In The Spotlight

DateCurrencyEventPrevious Consensus 
MondayCNYCaixin Manufacturing PMI54.954.9
TuesdayEURGerman Markit Manufacturing PMI58.658.6
TuesdayEURItaly Markit Manufacturing PMI51.553.6
TuesdayEURFrench Markit Manufacturing PMI51.151.1
TuesdayEURGerman Retail Sales (YoY)8.20%3.90%
TuesdayUSDISM Manufacturing PMI57.556.5
WednesdayEURGerman Harmonized CPI (YoY)-0.7%-0.6
WednesdayUSDADP Employment Change0.31*0.16*
WednesdayUSDFOMC Minutes
ThursdayEUREuro Area Retail Sales (YoY)4.3%1.2%
ThursdayEUREuro Area CPI (YoY)-0.3%-0.2%
ThursdayUSDInitial Jobless Claims0.79 *
ThursdayUSDISM Services PMI55.954.5
FridayUSDNonfarm Payrolls0.25 *0.10 *

*In USD millions

  • Euro Area Consumer Price Index

Inflation measures the rise in consumer prices in an economy over a certain period of time. Higher inflation means that consumer

prices have grown compared to the previous period. Higher than expected rate may be both positive or negative for EUR as the

market does not like inflation expectations too far off from consensus. Euro Area has been struggling with deflationary environment, therefore a slightly higher than expected inflation can be bullish for EUR, indicating an increased consumer activity. Generally, both high and negative inflation are bearish for currency, while positive and low inflation, in line with expectations, is bullish.

  • US Nonfarm Payrolls

Nonfarm Payrolls measure the quantum of new jobs created during previous month, in all non-agricultural businesses. Higher than expected print is generally bullish for USD, while lower than expected is bearish.

Market Sentiment

  • EURUSD

EURUSD has been testing upper Bollinger Band resistance, trading currently near 1.22670. The price has found support near 8-day Moving Average. Moving Averages are stacked in a bullish fashion with plenty of room inbetween, signaling a bullish momentum. RSI is currently 63.9 and neutral but rising. Slow Stochastic is 78.9 and neutral. ADX of 29.6 is flat, indicating there is energy left in the trend but DMI+ of 21.2 and DMI- of 12.2 give a weak signal value.

Support: 1.22255

Resistance: 1.23075

The pair is showing very bullish price action, trading near 2.5-year highs of 1.36930. Short- and long-term Moving Averages are stacked in a bullish manner, indicating that the price is likely to march higher. RSI of 64.6 is currently neutral, while Slow Stochastic of 88.7 is overbought and rising rapidly. ADX of 14.5 is trending lower, giving a weak signal value, while DMI+ is 26.3 and DMI- is 19.0

Support: 1.36166
Resistance: 1.37054

The pair is testing lower Bollinger Band support near 102.90. The price is in a clear bearish trend as short- and long-term Moving Averages are stacked. RSI of 35.4 is neutral while Slow Stochastic of 26.5 are both neutral but trending lower. ADX of 15.0 gives a weak signal quality. DMI- of 22.9 dominates DMI+ of 13.1

Support: 102.35
Resistance: 103.27

The pair has recovered to levels last seen in November, trading near 1,927.92. Short-term and long-term Moving Averages support bullish price action, albeit are not stacked in a rainbow fashion. RSI is 66.6, still neutral but rising, while Stochastic of 81.6 is signaling overbought levels . DMI+ of 30.4 and DMI- of 15.0 indicate a bullish trend, while ADX of 16.4 does not signal much energy in that trend.

Support: 1,894.34
Resistance: 1,931.25

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.

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