US Close – Stimulus talks to resume, Risk roars back, Oil turns positive, Gold off lows, Bitcoin back at $18K

Congress may have come to their senses after elevated jobless claims and countless small businesses that include gyms, hotels, restaurants and leisure and hospitality companies voiced that they won’t be able to survive the next round of lockdowns.

The Dow and S&P 500 turned positive after reports that Senate Minority Leader Chuck Schumer announced that Congress was going to restart stimulus negotiations. Everything rallied on the restart of stimulus negotiations. US stocks rallied, the dollar gave up most of its gains, while oil prices turned positive and gold pared losses. Asia should have a strong open as the prospects of seeing fresh stimulus before Biden’s inauguration have dramatically improved. A lot will need to go right, but the economic pain of many small businesses across several industries should keep Congress motivated in getting a deal done. Republicans and Democrats could compromise and reach a deal around $1 trillion, but they will also need to get President Trump’s approval.

Oil

WTI crude rallied alongside every risky asset on the news that Congress will resume talks for a new COVID relief bill. The stimulus trade appears to be back because the writing is on the wall that COVID shutdowns across the US will cripple many businesses. A COVID-19 stimulus bill before Biden takes office will prevent the dollar from rallying and that should be positive for oil prices.

Any stimulus deal done before the holidays will help keep crude prices stay near the upper boundaries of its recent trading range. While falling demand is bearish for oil prices, that has mostly been priced in and should not drive significant weakness as the US announce more lockdowns over the next couple of weeks.

Gold

Gold pared losses following Schumer’s stimulus restart announcement. If stimulus negotiations continue to head in the right direction, gold should start to rally again. Gold was expected to have a rough couple of weeks, as vaccine developments sucked the life out safe-haven inflows. Every bit of additional stimulus from here on out will be a bullish catalyst for gold. Too much of the US economy is vulnerable and that will keep the stimulus flow well into first half of next year. Even if the world sees a drastic improvement with the fight against COVID, the inflation trade won’t be far behind. Gold could see steady inflows to close out that week.

Bitcoin

Bitcoin is also a fan of the stimulus trade and rallied back above the $18,000 level. Crypto haters are gonna hate, but institutional traders don’t care and are still maintaing their bullish bets. Bitcoin’s rally towards $20,000 is completely different than last time and could have its catalyst if Congress discussions lead to a breakthrough over the next week.

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.

Ed Moya

Ed Moya

Senior Market Analyst - The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geopolitical events and monetary policies around the world. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC and Bloomberg, and is often quoted in leading publications including the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University.
Ed Moya