Market Watch. COVID-19: The third wave of panic

Financial and commodity markets analytics

Market Watch review. 21.12.2020

In today's release, we’ll cover the following topics:

  • A new strain of the virus in Britain. 
  • The collapse in oil prices. 
  • Financial aid in the USA. 
  • Weakening of the AUD / USD pair. 

Over the weekend, it was reported that a new strain of the virus was discovered in Britain, which was announced by the Minister of Health. He confirmed that the situation has gotten out of control, in connection with which the country has significantly tightened quarantine restrictions, and a number of European countries have already closed flights with foggy Albion. All this, as well as the lack of clear progress in the Brexit negotiations, has increased the demand for defensive assets.

GBP remains one of the outsiders. By the middle of the European trading session, the pair fell by more than 240 points, while the risk of further weakening remains quite high against the background of the general increase in demand for USD. Let me remind you that the American currency serves as a protective asset, which is currently in demand. And given the fact that the Christmas holidays begin at the end of this week, the number of diseases can increase dramatically - this is extremely negative for this currency pair.

I would also like to draw attention to another risk-sensitive asset - oil. Even before the opening of trading in the US, the American WTI crude oil fell by more than $2. This may be due to obvious profit-taking. After all, 10 out of 13 trading days in December, the price of oil was growing and, as a result, reached its maximum levels since March of this year. This is why the emergence of a bearish fundamental exerts such a strong pressure.
Moving to the American trading session, let's switch from bad news to good news. The US Congress agreed on a $900 billion economic support plan. We are talking about direct payments to Americans in the amount of $600 and an increase in unemployment benefits by $300, as well as a huge number of business incentives. All this supports the stock market, keeping it from developing a more powerful wave of decline.

The approval of the next financial aid package by the US government is putting pressure on the USD, holding back from more powerful growth, which is due to an increase in interest in defensive assets because of the emergence of a new strain of coronavirus in Britain. As a result, the AUD/USD currency pair continues to lose positions, thereby indicating that investors are running away from risk.

Closely monitor the news background and be prepared for all the surprises of the market.