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Markets are Frothy

Here's an interesting juxtaposition. There are currently just over 25 Million Currently Infected Patients of Covid-19, with 2.4 million deaths*. However,

The point is, main street continues to grapple with the Coronavirus. However, if you were looking at the financial markets, you would've thought we were in one of the largest economic expansions in history.

Warren Buffet's favourite indicator is signalling mania

So much so, Warren Buffet's favourite indicator is flashing signs of mania. Currently, the U.S equity market cap is more than double the GDP of the United States. The last time this happened was during the bubble of the 2000s.

That is a long, convoluted, and somewhat poor segue to the main point of this article. A lot has happened in the past couple of days, with many asset classes at significant highs during one of the worst pandemics in history – here's an article to summarize them.

Pound Has Broken 1.39 Against The U.S Dollar

GBP/USD breaks 1.39, eyeing up 1.40 and beyond

As vaccinations pick up in the United Kingdom, alongside lockdown restrictions starting to show results in lower cases and deaths, investors have been flocking the pound as optimism for the United Kingdom's economy. It is important to note that 1.45 was the bid before Brexit was announced in 2015, making it a ripe target for bulls to take.

United Kingdom's decision not to join the European Union's vaccine effort has helped them attain a high vaccination distribution rate
Cases are way down from all-time highs

Vaccines have played a considerable part in the strengthening in confidence in the United Kingdom, helped by the fact that they did not join the European Union's vaccine effort. This enabled them to approve and administer vaccines at a faster rate than their European counterparts.

Brent Crude is at $63 a barrel

Nearing the same time last year, we had an unprecedented event occur – traders saw the price of WTI Crude Oil on their terminals go negative. A year of supply cuts, recovering demand, and recently a rise in tensions in the middle east has pushed the black Gold back to pre-pandemic levels.

Bitcoin flirting with $50,000

Bitcoin's volatility is less than it was in 2017, making its insane rise in value less intimidating

After an influx of institutional attention dawning upon the digital currency, including the likes from Mastercard, JP Morgan, Morgan Stanley, and of course, Tesla, Bitcoin has reunited with bulls taking the price up to just under $50,000 per Bitcoin. To note, Around the end of November last year, we saw Bitcoin at around $20,000.

Stocks are at all-time highs

S&P 500 at all time highs

The S&P 500 has closed at an all-time high, touching 3,950 in futures trading. The index is up 7% year to date. If we lived in an ordinary world, all-time highs in the equity markets would be the headline of the day.

However, it seems like stocks are too boring nowadays, and everyone wants to know which altcoin is next to return 1000x. However, many companies in the index are producing blowout or at least better than expected earnings. Considering the macro-environment we are currently living in, is quite an achievement.

Gold doing its job as a safe-haven asset

I had concerns about the notion that investors were considering Gold's valuation – not something you want to be talked about in a safe-haven asset. I believe a safe-haven asset should be there to ballast your portfolio in times of risk-off periods, meaning investors should be able to flock to it / rely on it to hold their portfolio in steady shape.

Gold's steady decline eases my concerns, with Gold trading at around $1,816 an ounce, way off its $2,000 highs. We can see a continuation of the trend should see prices around the $1,700 - $1,750 level.

Markets are frothy – stay safe, and trade safe.

*For you tinfoil hats-wearers out there, I will entertain you by including the fact that there are up to 650,000 deaths due to the flu each year. Take that what you will

GBP/USD Breaks 1.38

The Pound against the U.S. Dollar broke 1.38, a critical psychological support/resistance level that gives bulls confidence to attack the 1.40 level.

GBP/USD Trading Comfortably Above 1.38

GBP/USD Looking For Positive Vaccine Results

The recent tailwind in the Pound has mainly come from the number of initial doses the U.K. has distributed amongst its citizens. More than 10 million people in the U.K. have received at least one dose of the Coronavirus vaccine, prioritizing the elderly and frontline workers.

However, initial optimism will not last long. Further pushes higher in the pair will long-lasting positive effects from the vaccinations and the lockdowns, with a Reuters poll finding that many analysts believe it'll take more than two years for Britain's economy to recover to its pre-Coronavirus levels.

James Smith at ING stated that "While we expect strict lockdowns to trigger a 3% fall in U.K. GDP in the first quarter, the more optimistic outlook for vaccinations means a sustained recovery could start in the spring". Furthermore, Mimi Rushton, co-head of global F.X. sales at Barclays, stated that "The reative outperformance of the U.K. in rolling out the vaccination program has definitely helped buoy expectations for an accelerated recovery."

Analysts will be looking at GDP figures coming out later this Friday, with analysts predicting a 0.5% in GDP Growth.

GBP/USD Strengthened By Broad U.S Dollar Weakness

However, the strength of the pair also comes from the recent weakness of the U.S. Dollar. As risk-on takes over in many asset markets, the continuation of the Federal Reserves' $120 Billion scheme and inflation concerns continue, long term tailwinds continue to pressure the U.S. Dollar. However, many analysts are reconsidering their predictions of a weaker dollar on the possibility of a better than expected U.S. recovery and the Fed backpedaling on their extraordinary measures.

George Saravelos, head of currency research at Deutsche Bank in London, stated that "Having been vocal dollar bears last year we argue it is time for a consolidation in the dollar lower trend and would take profit on [negative dollar bets against the euro]."

GBP/USD ripe for 1.45

1.45 is a very specific target for GBP/USD. However, it’s a significant target as that’s where the Pound was before the Brexit referendum. Now the Brexit deal is done, what will push it back to that level again?

GBP/USD - 1.45?

GBP/USD catalyst halfway there

It is clear that the damage that the Coronavirus has done continues to weigh on the pound. With lockdowns in the UK holding through Christmas and New Years, and continuing into the new year, optimism in the UK economy is at an all-time low.

UK Covid cases dropped by 25%

However, with daily Coronavirus cases dropping 25% from the last week, there is some signs of the UK pulling out of their current situation. With that said, hospital beds are still near the brink of overcapacity, alongside deaths continuing to record over a thousand deaths a day.

GBP/USD now focused on the UK economy

Another factor weighing on the cable is the forward-looking guidance the Bank of England gives on interest rates. Specifically, whether they will bring the rate into negative territory.

However, after Governor Bailey’s speech earlier this week, the market has pushed back on hopes that the current interest rate of 0.1% going into negative territory. However, analysts predict a rate cut from 0.1% as soon as next month. Goldman Sachs strategists predict that there could be a rate move to 0% soon, placing those odds at 4 to 1.

Valentin Marinov, head of Group-of-10 FX research and strategy at Credit Agricole SA stated that “The pound is regaining ground as rates markets are pairing back rate cut bets ahead of the February policy meeting..”. However, he also added that “any rebounds in the GBP represent a selling opportunity at current levels.”

The catalyst for the Pound is relatively clear: A dire Coronavirus situation getting much, much better alongside interest rates holding steady.

What are your predictions for the pound?

Week ahead - Retail Sales, Speeches and CPI's

Hello! I hope you guys had a good Christmas and a Happy New Year, refreshed for the trading year. Before your week ahead, here is what you may have missed over the break.

Many consider the attack on the Capitol as an attack on democracy.

Let's hope this year we can go past the Coronavirus and onto more positive things. Here is your week ahead.

Monday, 11th January – Australia's Retail Sales

Australia has been able to recover from their second spike of the Coronavirus well. However, they had not entirely eradicated community transmission amid an outbreak in Sydney's northern beaches just before Christmas last year.  After a two-week lockdown for New South Wales, citizens anxiously wait on whether they will be released from lockdown. With Australia taking part in one of the longest lockdowns of any nation, many employed citizens during the lockdown have amassed an increase in savings, which "saw a large rise, up 21% as retail stores experienced a full month of trade" in the last quarter. Analysts predict an increase in Retail sales this week ahead.

Monday, 11th January – Bank of England's Governor Bailey speech

The United Kingdom has not been able to keep a cap on the Coronavirus. Deaths are set to overwhelm the NHS's hospital beds if the rate of cases continues to rise. At this point, Prime Minister Boris Johnson is betting on the rollout of the vaccine will help dampen the spread of community transmission. Governor Bailey is set to touch on the continued spread and its effect on monetary policy.

Wednesday 13th January and Friday 15th January – United States CPI and Retail Sales MoM

A buzzword that I have heard recently – the "reflation" trade. Many analysts predict a strong bounce back in the American economy, enabling the Federal Reserve to kick its foot off the gas a little bit, as the consumer starts to become the backbone of the United States economy once again.  The Coronavirus in the United States is in dire shape, with cases touching 300,000 per day, with deaths at 373,000. Analysts predict CPI year over year to stay the same at 1.6%. However, they also expect CPI Month over Month to drop slightly to 0.1%, from 0.2%.  Furthermore, Retail Sales is set to rise from -1.1% to -0.2% this week ahead.

Thursday, 14th January – Federal Reserve's Jerome Powell Speech

With his last speech three weeks citing market-moving comments, it is a reminder that Powell's words still weight it. His market-moving comments about inflation, stating that "you have to be honest with yourself about inflation these days. There are significant disinflationary pressures around the world.." have analysts' eyes on his speech coming later this week ahead.

It is good to be back. Stay safe, and trade safely.

UK Approves Pfizer's Vaccine

Is this the beginning of the end? The UK announced yesterday that they have provisionally approved Pfizer’s Coronavirus vaccine. This makes the UK the first country to approve a vaccine, which they state will be available to individual members of the public by next week.

Vaccine rollout next year

Simon Steve, Chief Executive of the NHS, stated that the bulk of the vaccinations would occur between January and April next year. The Medicines and Healthcare Regulatory Agency (MHRA),  the governing body for the UK which is responsible for ensuring medicines and vaccines are acceptably safe, stated that they volowed “an extremely thorough and scientifically rigorous review of all the evidence” and that “the public can be absolutely confident that the standards we have worked to, are equivalent to those around the world.”

The UK framework allows vaccines to be approved while reviewing the data given to them on a rolling basis, which is why it was approved earlier in the UK. This is compared to the United States, which requires a public review and full scrutinization of all the data available.  The British Government has secured 357 Million allocations of seven separate vaccines.

Vaccine pushing markets higher

The S&P 500 and the NASDAQ were able to squeeze their way to new all-time highs. However, the real winner was oil – reaching $48.40c for a barrel of Brent Crude. It’s edging to break the strong psychological barrier of $50.

S&P 500 and NASDAQ edging higher

Oil needs the Vaccine

The Vaccine has provided a needed boost to the Black Gold. With OPEC+ coming close to a deal, we may see oil breach that $50 mark if OPEC decides to continue the supply cuts.

John Kilduff, a partner at Again Capital LLC, stated that “it looks like there is headway being made, which the [oil] market is looking for.” With the said, US Oil Inventories this week fell lower than what analysts were expecting, with a drop of 754,000, well shy of market estimates of 2.3 Million.

Brent Crude looking for a break of that $50

GBP/USD was surprisingly stable, maintaining that 1.337 level. However, EUR/USD blew past that 1.20 mark, currently sitting at 1.21.

Are you going to take the Vaccine when it's available?

GBP/USD – the pair for the global economy?

Two main fundamental factors depressed the GBPUSD for the past couple of years—Brexit, and now recently, the Coronavirus.

The trade is relatively simple – once there is a vaccine for the Coronavirus, alongside certainty on Brexit talks, a good case can be made for the pair to reach its Pre Brexit/Pre Coronavirus levels around 1.45

Pound needs to meet two catalysts to hit 1.45

1.45 for the Pound against the U.S Dollar?

Let's go over the technical first. A Fibonacci drawn from 1.34 to 1.15, from the 2019 high to the 2020 low, can see the level of 1.45, hitting perfectly with the 161.8% retracement level, which was the level before the Brexit referendum results were announced in 2016. Alongside predicted further weakness in the US dollar, as vaccine hopes rise, the pound may rally on relatively less stimulus to its US counterpart.

We can also see some consolidation zones and congestion around 1.32 and 1.38, where bulls and bears fight it for a higher or lower move. However, movements to the upsides past these zones paired with positive fundamental news may see price levels freely hit strong Fib levels. A robust full recovery, with pre-Coronavirus level economic activity alongside a positive post Brexit environment, and we can see levels hit 1.50 – 1.55.

Brexit – time is running out, risky for the Pound

It has almost been five years since the Brexit referendum took place—a quick refresher on why Brexit occurred. There were talks amongst the public that they were getting the short end of the stick regarding the European Union and that the majority of the citizens in the UK wanted to leave. The Prime Minister at the time, David Cameron, disagreed with the notion that the UK public wanted to leave. Therefore, he initiated a referendum to show that the UK did not want to leave the European Union. It turns out he was wrong, and they did want to leave. David Cameron retired soon after.

Five years later, and we're edging closer to a deal. Brussels and the UK have started in-depth negotiations again after the Coronavirus ravaged the world. A "deadline" has been set for 31st December, where Britain will "leave" the EU regardless of whether a deal has been met. However, "deadline" is in quotations as both have agreed to extend deadlines that have passed many times before.

An EU official has stated that "its getting terribly late and may be too late already" and that "they [the EU and the UK] haven't quite reached where they had hoped to be." If a "no deal" Brexit occurs on 31st December, shock waves will be sent not only in the financial markets but also supply chains all across Europe and the UK. There is currently free trade and free transport out of the UK and into Europe and vice versa. However, a no-deal Brexit would mean that on the 31st December, the EU will treat the UK like any other country.

A no-deal Brexit should see the pound drop to a similar magnitude of that in 2016. However, if the optimistic scenario occurs and a vaccine comes alongside positive Brexit negotiations, we should see the pound rally against the US Dollar.

Pound Struggling to lift itself past 1.30

The Pound against the US Dollar is currently one of the most exciting pairs to be keeping an eye on, as it is essentially fighting between a rock and a hard place. Currently ranging just under 1.30, both nations have events coming up that will significantly shift the currency pair in either direction.

Pound against the US Dollar near that iconic 1.30 area

In the UK, we have Brexit negotiations affecting the Pound side of the equation. After the 30th of September passed, the UK is trying to buy time due to the worsening of the Coronavirus in Britain. There is pressure mounting onto Prime Minister Boris Johnson to ensure a deal goes through to avoid a compounding economic and human loss that a no-deal Brexit and terrible Coronavirus conditions bring to the UK.

Pound heavily dependent on Brexit results

According to a CNN Business analysis based on Citi and the Institute for Fiscal Studies forecasts, a no-deal Brexit could cost the UK economy $25 billion next year. Laurence Boone, Chief Economist at the Organization for Economic Cooperation and Development, stated that "The Combination of Covid-19 and the exit from the EU single market makes the UK outlook exceptionally uncertain" and that "actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the United Kingdom's economic trajectory for years to come."

Pound needs to worry about the US elections

The election is heating up with current polls across the Ditch, showing Biden taking a double-digit lead over Trump, with Joe Biden polling at 54%, and Trump polling at 43%. Biden seems to have the advantage over Black, Latinos, Whites with a college degree, and young voters. Conversely, Trump's strongest group continues to be White Evangelical Christians, rural voters, and whites without college degrees.

However, for both, the Coronavirus continues to run rampant. Unfortunately, investors and traders assume that America has given up on the Coronavirus and is learning to live with the virus. They can't get a second wave since they have not finished their first yet. Therefore, a second partial lockdown in the UK in response to the second wave has weighed on the Pound stronger than the US's long first wave.

As for the pair, a Biden Victoria plus positive Brexit talks should push the Pound higher, and the US dollar strengthens, moving past that strong 1.30 mark. However, a Trump win and further deterioration of Brexit talks should see the Pound weaken, and the US dollar strengthens.

Cable volatile on UK GDP results and Brexit

The cable experienced wild swings as Brexit, and its economy weighed slammed traders and investors into a volatile session.

GBP/USD experiencing wild swings

GBP/USD fluctuated from the lower bound of 1.28 to the upper bound of 1.29 in a matter of hours as the market took in information regarding Brexit and the UK's GDP figures.

The Internal Market Bill passed by the UK government to override a specific part of the EU withdrawal agreement has come back to light. The European Union has now filed legal proceedings after the UK decided not to withdraw the Internal Market Bill, on the basis that the legislation breaches international law. This is after the deadline to withdraw the bill on Wednesday passed.

Cable swinging on Brexit woes

The UK government has admitted that it knew the law would breach international law in a "very specific and limited way." The UK intends to use this legislation as a game theory hedge if the UK and the EU go through a no-deal Brexit. The original Brexit negotiations had a deadline for the October 15th. However, fundamental differences in key Brexit points remain balanced, alongside the Internal Market Bill not being withdrawn, which may risk a default no-deal Brexit if the deadline is not extended.

Cable struggling on the weakness of the UK economy

Alongside further Brexit woes, official figures showed that the UK's GDP contracted 19.8% in the second quarter. A deep contraction, however, better than the market estimate of 20.4%. The Chief Economist at the Bank of England, Andy Haldane, mentioned that the "contagious pessimism" in the UK was weighing down the economic recovery. Furthermore, with the resurgence of the Coronavirus in the UK, forcing Prime Minister Boris Johnson to enact restrictions on citizens, Haldane expects unemployment to rise to around 7.5%. It is important to note that figure is on the lower bound of the central banks' estimate. It considers the government's new job support scheme, which splits the loss of wages evenly between the worker, employer, and government.

Expect more volatility, especially in the cable, as we approach elections and debates in the United States. Trade safe!

Will GBPUSD shoot past 1.35?

The pound against the US Dollar has returned 11.4% since its March lows. As well all know, a lot has happened since March. But what has not come to fruition is the Brexit talks. As the transition deadline for the UK to leave the EU approaches, Brexit talks have suddenly come back into the spotlight. However, Prime Minister Boris Johnson has thrown a wrench in the Brexit negotiations, threatening to break international law by passing local legislation to override certain parts of the Brexit deal.

GBP/USD

The pound has been extremely volatile to these negotiations and developments with the Coronavirus. Yesterday, the Bank of England held interest rates at 0.1%, alongside stating that they explored how negative rates might be implemented. The pound dropped 0.6% against the US dollar, touching 1.28663. Petr Krapta, currency strategist at ING, stated that “they were exploring how negative bank rates could be implemented effectively, should the outlook for inflation and output warrant it at some point.

JP Morgan analysts weren’t too excited by the BoE’s announcement, stating that “there was little to be gained from taking action today” and that “should it need to react at a later date, the Bank will benefit from a little extra firepower left at its disposal having not wasted it today”

What will push the pound past 1.35

Brexit – or what doesn’t happen with Brexit. Currently, the EU has given the government until the end of the month to scrap the law they had proposed, or face legal action. Furthermore, they have till December to exit the EU properly as their transition period ends. These two factors have pushed the price of betting against the pound has skyrocketed. Therefore, being bullish on the pound has become cheap. Positive sentiment regarding a softer Brexit and progress on negotiations should push the pound higher.

Second factor: Of course, the Coronavirus. If the pandemic levels off, and economic damage is not as bad as it seems, the BoE may not implement negative rates and may push the pound higher.

Currently, the markets have not priced in the effect of negative rates. However, that may change as we get closer to crucial Brexit deadlines.

Pound sells off on Brexit woes

The pound is down 2% against the U.S dollar in the past couple of days, on growing prospects that the United Kingdom will leave the European Union without a trade agreement.

Brexit talks are set to continue this week, with UK's Prime Minister Boris Johnson playing hardball with European Officials. He has imposed a October 15 deadline, to which he plans to quit Brexit talks if no deal is reached.

The pounds have mostly forgotten Brexit, with the Coronavirus pandemic guiding everyone's attention away from the non-completion of Brexit.

Seema Shah, Portfolio manager at Principal Global Investors, stated that headlines over the weekend were a "timely reminder that, while the markets have been distracted by the UK's struggle to rejuvenate the economy, Brexit negotiations have quietly been going nowhere."

The main issues include competition, fisheries, and solving disputes.

UK government undermining Brexit, pushing pound lower

Further downwards pressure came from the revelation of the UK government planning to release legislation that would override critical parts of the withdrawal agreement – notably the deal that would undermine the agreement that Boris Johnson signed last year to avoid a return to a hard border.

The pound has been rallying since its March lows, up 14.13%. However, it has underperformed compared to its peers. For example, the Australian dollar has rallied 31% since its March lows.

The main issue for the pound comes from its appreciation, not discounting Brexit talks. As headlines start to creep up about Brexit near Boris' October 15 date, the pound's volatility will increase. Petr Krapta, a currency strategist at ING bank, stated that "the Brexit head is back on and sterling is, in our view, unprepared." This comes at a time when the UK's grip on the Coronavirus continues to slip, with daily cases spiking, recording the highest number of daily Coronavirus cases since May.