World News – UK – EURUSD, GBPUSD and USDCAD are prone to volatility and anticipation

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Historically, December is known as the month of material risk appetite. After April and November, this is the month that traditionally represents the best performance for the S&P 500 benchmark. This seems like a slight expectation right now if the US benchmark index and its peers hit record highs, but those assumptions would result in significant surprises. If one continues to focus on the SPX, the level of activity continues to virtually grind to a halt, with the average true range of 20 days (a measure of realized volatility) dropping to lows more associated with seasonal lulls, while short-term trading ranges (5th Days in) The following table shows levels of activity that are more in line with activity that corresponds to actual holiday trade. We are still a few weeks away from a real outflow of liquidity and there are many fundamental uncertainties to consider. I will treat this situation as the opposite of calm and at least remain vigilant at the activity level.

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When looking for a fundamental solution (or direct catalyst) to a systemic shift in speculative appetite, it is important to keep an eye on the most universal sparks. In their current form, the tributaries must be closely monitored for growth forecasts. On one hand, we have growing pressures of coronavirus cases to recur around the world. The appetite for lockdown has been far more restrained this time around than it was before, when the US was at the forefront on cases and deaths. This is a serious problem for the growing economic impact (not to mention the number of people) and raising the expectation of a vaccine. The vaccination distribution is a promise to those who are not optimistic, but the short-term consequences are difficult to ignore. For those concerned about short-term pressures, the stop gap is an incentive. With this in mind, news from the previous session that US Treasury Secretary Steve Mnuchin presented the House Speaker with a $ 918 billion stimulus package has raised expectations. However, that craze was later dashed when it was found that a one-time stimulus check of $ 600 would come at the expense of a dramatic drop in unemployment benefits. This is not a good sign of a deal.

Looking ahead to Wednesday’s trading session, there are some high profile events and even several central bank updates on the agenda. I will certainly take stock of the Bank of England’s financial stability report, but the focus remains on critical deadlines for trade discussions. In the meantime, the Brazilian central bank is expected to keep its key rate at 2. 00 percent to increase the relative carry trade position. Again, despite the decline in USDBRL, this is also drawing less of my attention. My focus will be on the Bank of Canada’s (BOC) interest rate decision. The central bank is expected to keep its key rate unchanged in the basement of 0. 25 percent, while the economic stimulus plan is expected to result in bond purchases of around 4 billion. CAD per week will hold its course. However, the USDCAD’s progress, pulling the pair towards its historical range mean, could lead the group to threaten action if it sees any risk to trade-related growth.

Another dimension for USDCAD for me is that the situation is very similar to that in EURUSD. The reference currency pair has stalled in its progressive rise in the middle of its own historical range around 1. 2150. However, this group is expected to step up their efforts to avoid further problems. Several European countries have temporarily shut down to curb the recurrence of coronavirus cases, which is a clear economic barrier. In the meantime, the EU is still trying to create a massive fiscal stimulus through its upcoming budget as Poland and Hungary block their necessary unanimous approval. The region seems to need this incentive and may need to impress.

Speaking of anticipation, the pound is still high on my list of potential volatility and an undefined timeline to get that relief. Unlike the ECB’s interest rate decision, which has a clear date, there is no definitive time frame for confirming trading conditions between the UK and the European Union. We learned in the previous session that Prime Minister Boris Johnson will be traveling to Brussels to meet on 1. January 2021 to meet personally with his European counterparts to clarify the trade relations. It was suggested that if a clear agreement were not reached this week, they would keep talking into the new year – which many believe is essential to getting the necessary measures passed before the end of the year. It should be noted that persistent discord is more likely to advance with language, while a breakthrough is explicitly stated as such. The latter scenario remains less likely; But when there is a significant spark of volatility, it appears to take that form.

If we go through Wednesday’s session with no satisfaction on a trading course – it will likely be a late night for GBPUSD watchers – the two-day European Commission meeting on Thursday and Friday will be a next level of vigilant observation for forex traders. The scenario analysis should take into account what can happen to the cable if we see a final no-deal outcome for sterling pairs. My survey (specifically for GBPUSD) suggests that traders expect a major plunge to be ahead. I think this may be more discounted than many explain. Meanwhile, developments like the UK Trade Secretary’s remarks that he would lift retaliatory tariffs on the Airbus Boeing indicate that the country is trying to make friends with the world’s largest economy in preparation for it, outside of legal and political clout To be Europe.

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