Trading Currencies: The Last Bit of 2020 Still Delivering for Risk

Almost nothing can stop ‘risk’ FX – GBP, AUD, EUR and NZD are finishing the year in incredibly strong up channels.

The GBP is the most interesting here considering the probability of a Brexit Free Trade Agreement (FTA) with the EU is, in the words of Prime Minster Boris Johnson, ‘below 20%’. With Brexit finally happening on 31 January 2020, time is gradually running out. As of Monday, the GBP is now in a net long scenario as seen here.

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Is USD’s downtrend going to stop anytime soon?

What is also interesting as we finish 2020 is the USD’s downward trajectory remains unabated.

After Biden named his US Cabinet members, investors tend to see more stability in US economy and its policy. In fact, the USD downtrend is actually accelerating as the forecasted stimulus hopes of Biden Administration and a Federal Reserve that is posed to do more start to become fact.

US House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin are inching closer to their COVID relief bill. The market is becoming more confident the bill will pass now that Senate leader Mitch McConnell, Senate Democratic Leader Larry Schumer and House Minority Leader Kevin McCarthy formed a bipartisan group and released a proposal for $748bn aid package excluding the two most contentious and partisan issues. This bill is seen as a ‘bridging’ proposal before a large and more board agreement is created under the new administration.

This proposed stimulus support is a huge USD negative as no other G10 currency can compete with the sheer size of the packages being put forward. This has seen G10 pairs explode higher with the GBP/USD up to $1.3445, a break above $1.349 would be a new yearly high for 2020. EUR/USD at $1.2168 continues to show that even in the face of COVID crisis across the Atlantic, risk sees 2021 in a positive light. This position was enhanced by the FDA announcing that the Moderna’s COVID vaccine is safe and effective in people ages 18 and older, clearing the way for emergency authorisation the same as the Pfizer vaccine.

The AUD may push even higher

Finally, there is the AUD/USD which is continuing to chase new 2 ½ year highs as export prices reach 7-year highs and the RBA holds the line on new packages.

Recently, the relationship between Australia and China continues to worsen. Australia will challenge China at the World Trade Organization over its barley tariffs. Despite this uncertainty, AUD/USD keeps its bullish trend.

At $0.7572 there is every chance the pair would test the level of $0.76 and would put the medium-term resistance at $0.79.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.