A brief pause

It’s been a bit of a muted session so far on Wednesday, with small losses earlier being erased as we see some consolidation after the vaccine frenzy.

It’s been a frantic few weeks, with the hype around the election barely easing off before vaccine euphoria took over. Perhaps we’re now seeing a little fatigue kicking in ahead of what is likely to be a lively end to the year.

More vaccine news, the first rollout, the winter Covid surge, central bank bazookas, Brexit and the presidential transition. There’s no shortage of risk events in the final six weeks of 2020. An eventful end to a year most will be happy to see the back of.

The presidential transition is typically a procedural event but this time around it’s going to be anything but. Trump is not leaving the White House without a fight, nor is he likely to accept the role of lame-duck President. If he’s going to leave, he’s not going to go quietly so at the very least, we can expect it to be a very eventful transition.

With so much positivity priced into these markets, the risks are suddenly tilted a little to the downside in the short-term. Don’t get me wrong, there’s still plenty of good news that can come between now and year-end; Covid cases falling as lockdowns ease the spread, more vaccine news, a Brexit deal, more easing from central banks. There’s a good chance we end the year on a high.

But in the immediate future, a lot of good news has been priced in very quickly and there may be a small void over the next couple of weeks that allows for a bit of a corrective move. And with Covid cases surging around the world, this could be the catalyst if lockdowns don’t quickly bring the numbers back under control. This lockdown is very different to the last and that may have a significant impact on the success of it.

A Brexit deal is one thing that could come in the interim, with reports suggesting an agreement could even be reached early next week. It’s inconceivable to think that talks could break down at this late stage so it may be more a feeling of relief than euphoria after four and a half years of agonizing over the UK’s exit from the EU. It’s also very UK-centric so any reaction will only be evident in the pound and other UK instruments, perhaps a little in the euro. The major risk here is to the downside if talks for some ridiculous reason collapse.

The economic calendar is unlikely to be the source of excitement today, or for much of the remainder of the week in fairness. Data is mostly tier two or three and, barring a couple of releases such as UK retail sales, US jobless claims and Aussie employment, it’s a little thin. All the more reason why the winter Covid surge will likely remain front and centre.

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam