A week with Christmas is usually a period of calm in the financial markets as a result of less investor activity. Will it be the same this year?
In Europe, investors may follow the talks on the European Union's trade agreement with the United Kingdom. There seems to have been recent progress on the agreement, which may have resulted in a strengthening of the GBP, which could also benefit from the weakness of the USD. At the end of the week, the GBP/USD exchange rate rose above 1.3600, a level that could have been a target for traders to conclude an agreement between the UK and the EU.
Currently, the GBP/USD pair is retreating from this level, which is also a potential resistance. It seems that solutions to individual issues of the agreement may come up this weekend or early next week. Therefore, it is worthwhile to watch out for possible price gaps after the weekend. The currency options market seems to indicate that the volatility at the beginning of next week may be relatively high but lower than last week when the market opened with more than 100 pips gap.
In the United States, not only is the number of new COVID-19 cases, hospitalized people and fatalities increasing, but American politicians are still unable to agree on a fiscal package and are once again threatened by the government shutdown. This means that if the new budget is not adopted, when the money for the current administration runs out, most of the budget workers will go on compulsory leave.
Congress must therefore vote quickly on the 2021 budget to avoid a long-term government shutdown. Approval of both the budget and the $900 billion stimulus package would probably meet with great optimism on the part of investors in the coming days, which could keep up the good mood on the stock exchanges at the end of the year, but could also affect the dollar in terms of its weakening. Otherwise, there could be quite a lot of nervousness in the financial markets.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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