- GBP/USD has hit new highs amid vaccine optimism and US political certainty.
- Crunch time for Brexit and several data points are of interest.
- Mid-November's daily chart is painting a bullish picture.
- The FX Poll is pointing to long term gains for cable.
Light at the end of two tunnels – a call in the US elections and a breakthrough in developing a coronavirus vaccine boosted cable. There is still no white smoke in Brexit talks, which will likely take center stage in the upcoming week.
This week in GBP/USD: Sleepy Joe and the vaccine wake markets
Democratic candidate Joe Biden has been elected the 46th President of the United States. The media called the race on Saturday, and while President Donald Trump and most Republican Senators refused to concede, markets see it as a done deal. The slow-motion count of the remaining votes has not altered the result so far.
Markets had mostly priced in the outcome, but the safe-haven dollar continued descending.
Yet the US elections are not over when it comes to the Senate – two runoff races in Georgia may hand Democrats control of the upper chamber. The neverending campaign may be holding Republicans from distancing themselves with Trump and his supporters.
Politics on the other side of the pond were busy as well. EU and UK negotiations failed to yield a deal ahead of the self-imposed November 15 deadline, sending the pound down. Fisheries and a "level-playing field" remain the top issues. The House of Lords temporarily delayed approval of the controversial Internal Markets Bill. The IMB risks the Good Friday peace agreement in Ireland, which has already angered the incoming Biden administration.
Markets received a shot in the arm from a breakthrough in developing a COVID-19 vaccine. Pfizer and BioNTech reported preliminary results of 90% efficacy, raising hopes for a return to normal. Moreover, the firms applied the mRNA approach, which is also used by rival projects such as those from AstraZeneca, Moderna, and Johnson&Johnson. These pharmaceuticals are also in advanced Phase 3 trials.
The market reaction was a whipsaw – the safe-haven dollar initially tumbled down, yet the rush into stocks sent investors away from bonds. In turn, the leap in US Treasury yields made the greenback more attractive.
The dollar later received a boost from fresh haven flows amid rising US covid cases. The world's largest economy hit record daily cases as well as hospitalizations. In the UK, the infections curve has flattened while mortalities are on the rise.
Covid mortalities in the US, the EU and the UK
Britain's Unemployment Rate rose to 4.8% in September, as expected, while wage growth extended its recovery. Encouragingly, jobless claims fell by nearly 30,000 in October. The economy rebounded by 15.5% in the third quarter, marginally below forecasts and after collapsing by around 20% in the second quarter. Investors are focused on the impact of the current nationwide lockdown on the economy.
Andrew Bailey, Governor of the Bank of England, provided sterling with some support by saying he "does not have a date in mind" about negative rates. After previously giving the impression that taking borrowing costs below zero is almost imminent, such a move seems off the agenda for now.
In the US, weekly unemployment applications continued descending, hitting 709,000 in the week ending November 6. The recovery's pace has moderated, as Jerome Powell, Chairman of the Federal Reserve said.
UK events: Brexit in the spotlight
Deal or no deal? Brexit talks may be reaching another make or break moment with several diplomats seeing equal possibilities of an accord or a breakdown of negotiations in the upcoming week. Headlines may trigger choppy reactions, yet it is essential to remember that there is only one deadline – December 31, when the transition period ends. Any collapse of talks now could be followed by fresh deliberations shortly thereafter.
Will the covid curve begin bending lower and not only flatten? Monday's coronavirus figures tend to be depressed, and investors will likely wait to see if Tuesday's publication shows a significant fall. The current shuttering is due to expire on December 2, yet policy hinges on the course of the virus.
BOE Governor Bailey and a couple of his colleagues will have opportunities to rock markets in speeches scheduled during the week. They will be watching inflation statistics for October, which will likely remain subdued. The headline Consumer Price Index stood at 0.5% in September, far from the 2% objective.
Retail sales figures for October are eyed late in the week. The consumer's comeback has been impressive, with year over year impressive at 4.7% in September.
Here is the list of UK events from the FXStreet calendar:
US events: Severity of the virus, retail sales
New York has taken steps to stop the virus's spread – trying to halt the increase before it is out of control. However, covid is ravaging the Midwest, with patients unable to find help in hospitals in their states – nor neighboring ones.
Will governors impose more restrictions or lockdowns? Even without top-down instructions, consumers may shy away from going out and about. President Trump is unlikely to push states to act in his last two months in office and as he prepares for his next moves.
Georgia is set to certify its results after a manual recount – which is unlikely to flip Biden's victory in the Peach State. Finalizing the outcome will officially set off the final battle for the Senate, where razor-thin margins could make the difference between Republican and Democratic control of the upper house. Opinion polls from both runoffs may have an impact on markets.
Investors would prefer a marginal majority for Dems, allowing them to provide more generous stimulus – yet with diminished chances of passing business-unfriendly tax hikes. In the meantime, Biden continues working on his new administration. Nominations for critical economic posts such as Treasury Secretary are eyed.
Retail sales figures for October stand out in the economic calendar. Consumption is central to the American economy, and it is has staged a V-shaped recovery, unlike the broader economy. After jumps of over 1% in September, moderate increases of 0.5% are projected in the headline statistic and the Control Group – aka "core of the core."
Several housing figures such as Housing Starts, Building Permits, and Existing Home Sales are likely to show robust sector activity. Weekly jobless claims are for the week ending November 13, which is when Nonfarm Payrolls surveys are held – meaning they could have an outsized impact on markets.
Here the upcoming top US events this week:
GBP/USD technical analysis
Pound/dollar continues benefiting from upside momentum on the daily chart and trades well above the 50-day, 100-day and 200-day Simple Moving Averages. The Relative Strength Index has retreated from the 70 level, thus allowing cable more room to rise before it enters overbought conditions.
All in all, bulls are in control.
October's peak of 1.3180 is the first hurdle for bulls. Further up, 1.3270 held GBP/USD down in mid-August. It is followed by 1.3310, the November high,m and then by 1.34.
Support awaits at 1.31, which cushioned the pair in mid-November. Another round number, 1.30, is the next line to watch, after working in both directions in recent months. Further down, 1.2960 is another noteworthy line, where the 50-day and 100-day SMAs are converging on. The next significant cushion is only at 1.2850, a triple bottom in October and November. The next lines to watch are 1.28 and 1.2710.
While a Brexit deal may wait for another week or two, the two sides are narrowing their gaps and the pound has room to rise amid the UK's coronavirus edge.
The FXStreet Forecast Poll is showing that experts project limited moves in the short or medium terms, but a bright future in the long term. Despite the high volatility in in the past week, average targets are little changed.
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