ECB to Begin Aggressive Tightening, Favoring Euro Bulls

Euro makes gains as covid vaccine progress improves sentiment across the continent

Dec 3 • Morning Roll Call • 2251 Views • Comments Off on Euro makes gains as covid vaccine progress improves sentiment across the continent

The euro recorded steady gains versus the majority of its peers during Wednesday’s trading sessions after the U.K. govt announced it would be the first European nation to distribute the Pfizer Covid vaccine to a selected cohort of its most at-risk population.

Germany, France and other leading E.U. countries announced they would carefully monitor the U.K.’s efforts and shortly follow with an inoculation roll-out if the U.K. initiative proved conclusive.

The vaccine-related announcements, broadcast early morning, caused confidence in the euro to rise. However, European equity markets experienced mixed results with the UK FTSE ending the day up 0.89% as Germany’s DAX closed out down -0.62%.

As the F.X. markets ended the day EUR/USD traded up 0.34%, trading close to the first level of resistance (R1) and at 1.211. The most-traded major FX pair is up 3.44% monthly and 8.44% year to date, representing the steepest rise witnessed in several years.

Other euro cross currency pairs also registered gains on the day; EUR/JPY was up 0.51% at 126.47, also trading close to R1 as the day closed out.

If traders refer to a 4hr chart for both currency pairs, they can visualise technical analysis displaying strong trends which began the week commencing November 22nd.

The exception to this pattern appears to be with EUR/CHF, down 0.19% on the day. The Swiss franc is still gaining bids as a safe-haven investment, despite the risk-on appetite prevalent over recent weeks, the overall positive sentiment is due to the U.S. presidential outcome and positive vaccine news.

The Swiss franc (CHF) continued to register further gains versus the U.S. dollar, USD/CHF ended the day down -0.56% having breached the first level of support S1.

The pair is trading down -1.76% monthly and -7.90% year to date. The currency pair is now trading at a level last seen in January 2015, indicating the contrast between U.S. dollar appetite and the safe-haven currency.

This U.S. dollar collapse has evolved despite both countries’ central banks operating NIRP or ZIRP protocols (negative or zero interest rate policies) over recent years.

The levels of USA fiscal and monetary stimuli have severely impacted the value of the U.S. dollar throughout 2020. And that impact became enhanced during Wednesday’s session as a further govt stimulus plan became closer to activation. Disappointing job numbers from the ADP private jobs survey also dampened dollar appetite; the metric missed the Reuters forecast of 404K jobs created for November coming in at 307K.

During his first testimony since the USA election, Federal Reserve Chair Jerome Powell indicated there was no animosity between his central bank and Treasury Secretary Steven Mnuchin over the emergency lending programmes. The U.S. House also cleared legislation that would apply restrictions on Chinese companies listed on U.S. exchanges.

The positive stimulus news caused the SPX to print yet another record high; the index closed the day out at 3,674 up 0.34%. The NASDAQ index failed to print another record high, closing the day just short of the recent top but up 0.24%.

Gold (XAU/USD) experienced another positive day’s trading, closing the day out at 1,829 per ounce, up 0.90%. The precious metal has registered substantial gains during 2020, up 19.71% year to date. The security is still in recovery mode, having slumped during November by -4.7%. Buyers have bought what they perceive as the dip despite the risk-on environment in evidence over recent weeks.

Major calendar events to diarise for Thursday, December 3rd

From early morning IHS publish their latest Markit PMIs for Europe. These metrics have proven to be less significant over recent weeks as covid, stimulus and vaccine news dominates the fundamental analysis.

However, analysts and traders will focus on manufacturing PMIs for Germany and service PMIs across the rest of the area for evidence that a reliable post lockdown recovery is emerging. At 1:30 pm U.K. time the BLS will publish the latest weekly unemployment claims from the USA. The recent four-weekly average has come in at around 748K. And Thursday’s figure is forecast to come in above the average at 778.5K. Despite the trillions of stimulus, and the USA adopting a haphazard laissez-faire policy towards lockdown, the grassroots Main Street economy hasn’t recovered. There are an estimated 25 million American adults of working age currently in receipt of out of work benefits.

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