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14 September 2020

Markets upbeat on vaccine, Japan selects new PM, Brexit saga moves to parliament

Upbeat mood: The University of Oxford and AstraZeneca will restart their COVID-19 immunization Phase 3 trial in the UK. Pfizer, a larger pharma firm, said that a coronavirus vaccine could be given to Americans before year-end.

S&P 500 futures are on the rise while the dollar is losing ground against most currencies. Gold has been trading in a range around $1,950.

Japan: Cabinet Secretary Yoshihide Suga will likely be elected by the ruling LDP Party to succeed outgoing Prime Minister Shinzo Abe. He is seen as a continuation candidate. The yen is marginally higher amid broad dollar weakness.

GBP/USD is licking its wounds around 1.28, hit by the escalation in the EU-UK relations. The House of Commons will debate the controversial Internal Market Bill on Monday, which breaks international law and angered the bloc. Brussels announced that if the bill is not rescinded by the end of the month, it would slap sanctions.

EUR/USD is on the rise despite rising COVID-19 cases in the old continent. Several members of the European Central Bank reiterated their stance that the euro’s value impacts inflation but that the ECB does not target it.

Oil prices have stabilized after the fall. OPEC and non-OPEC members will convene later in the week to discuss extending production cuts. Compliance has been relatively high yet fears of falling demand persist. Hurricanes are brewing in the Gulf of Mexico and could boost crude prices.

S&P 500 Index: Downside risks pertaining to the winter flu season

The S&P 500 Index fell 2.5% over the holiday-shortened week and is now defending a fall beneath a level seen as pointing to a bearish trend forming in the benchmarks, its 50-day trading average at 3,321.58. Implications of the clash between the flu season and COVID-19 are starkly bearish for the US economy and stock market, FXStreet’s Ross J. Burland reports.

“S&P 500 is already crossing below its uptrend and a drop of another just 3% would equate to a 10% decline from the peak which is commonly viewed by market technicians as an official correction.”

“While below the 50% mean reversion of the recent drop, the structure there to watch for is between 3200 and 3280. Meanwhile, the price has already fallen to test below the 61.8% of the mid-July rally as well as the prior Sep low 3336. A failure of a restest of between there or 3348, the 61.8% and a 38.2% Fib retracement of the latest downside move, 3355, open immediate risk to the 78.6% Fib that meets the 3280 targets.”

GBP/USD Price Analysis: Recapturing of 50-HMA critical for further recovery

On its road to recovery from near seven-week lows this Monday, GBP/USD cut through the horizontal 21-Simple Moving Average on the hourly chart (HMA) at 1.2804.

A firm break above the latter opened doors for additional upside, although the price is likely to face stiff resistance at the downward-sloping 50-HMA of $1.2845.

Acceptance above the 50-HMA barrier is important in order to extend the recovery from multi-week troughs of 1.2763.

The hourly Relative Strength Index (RSI) turns flat despite holding above the midline, suggesting that the bulls could struggle to take on the upside.

Also, it’s worth noting that the cable traders could turn cautious ahead of the critical parliamentary debate on the UK’s Internal Market Bill scheduled later today.

Further north, Friday’s high of 1.2866 could challenge the bulls’ commitment en route the test of the bearish 100-HMA at 1.2922.

To the downside, the 21-HMA resistance now support could limit the pullbacks. A break below which could prompt a sell-off towards the seven-week lows.

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