GBP/NZD, GBP/AUD, Brexit, Stimulus, Covid – Talking Points
- Tech stocks drag US equities lower following antitrust headlines
- British Pound hit on Brexit blunder after leaders fail to make headway
- Brexit and US stimulus talks remain market focal points in days ahead
U.S. markets closed in the red after a positive start to the trading session as investors grew less optimistic over ongoing fiscal stimulus discussions on Capitol Hill. Adding to the equity market’s selling was an announcement that Facebook is the subject of a U.S. government antitrust suit. The tech-heavy Nasdaq index led bearish action, with the Nasdaq 100 index closing 2.15% lower, followed by the Dow Jones, S&P 500, and Russell 2000 at -0.35%, -0.79%, and -0.82%, respectively.
Ongoing stimulus talks on Capitol Hill appear to have reached yet another sticking point as lawmakers are forced to vote on a one-week stopgap funding measure to delay a government shutdown on Friday. The measure, once signed by the president, will set a new shutdown deadline of December 18. Lawmakers are hoping to attach a stimulus package to the larger spending measure which is viewed as critical amid a sharp rise in Covid cases across the country.
Meanwhile, Brexit headlines dragged the British Pound lower as a last-ditch effort dinner between UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen ended with no apparent progress. Officials cite that large gaps remain between the two sides. However, Ursula von der Leyen suggested the negotiation teams should immediately reconvene to hammer out the obstacles by the end of the weekend before a decision is made.
Dow Jones, Nasdaq 100, GBP/NZD, GBP/AUD 30-Min Chart
Chart created with TradingView
Thursday’s Asia-Pacific Outlook
Thursday’s Asia-Pacific trading session will likely have a cautious tone as traders digest recent headlines that developed overnight. The New Zealand Dollar is making progress against the Sterling following the most recent Brexit news. GBP/NZD will likely see a dose of volatility later today with the United Kingdom set to release GDP data. The Pound may see volatility against the Euro around the ECB interest rate decision where ECB President Lagarde is expected to expand the Pandemic Emergency Purchase Program.
Despite ongoing Brexit headlines, traders are keeping their eyes on the broader Covid theme, along with U.S. stimulus talks. Vaccine headlines appear largely priced into markets with Pfizer’s vaccine now expected to gain approval in the United States following positive data points. The United Kingdom, and more recently Canada, also approved the drug. The focal point will likely aim on how quickly widespread distribution will take, and what toll Covid can extract before that time.
Still, Australia and New Zealand are seeing a much-improved situation compared to the United Kingdom and the United States. Given the sensitivity to market sentiment in both the Australian and New Zealand Dollars, a Covid-induced pullback in global risk appetite could see an outsized reaction versus Brexit headlines in GBP/AUD and GBP/NZD respectively. The United States hit yet another Covid milestone with hospitalizations hitting new record highs.
U.S. Covid Statistics
Source: The Covid Tracking Project
Sterling bulls were advancing against the Kiwi earlier in the session, but Brexit news reversed the British Pound’s fortune. Currently, GBP/NZD faces technical resistance from July and September swing lows along with the downward-sloping 20-day Simple Moving Average. The path higher appears unlikely in the medium-term with the overall trend favoring the downside. Asymmetrical risk factors on the Pound and Kiwi may leave price action near current levels in the short term.
GBP/NZD Daily Chart
Chart created with TradingView
GBP/AUD price action is moderating following Brexit-induced Sterling weakness. The Pound’s path against the Australian Dollar appears skewed for further downside on a technical basis, with both the shorter-term 20-day Simple Moving Average and longer-term 200-day indicating downside momentum. Furthermore, recently confirmed trendline resistance from the 2020 swing high will likely look to pressure upside movement.
GBP/AUD Daily Chart
Chart created by TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwateron Twitter