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Markets Bounce Back

The stock markets bounced on spending measures to combat Omicron disruptions

The markets need certainty and stability, and that can only come from positive data and government level interventions. Today’s news has all been about the rising levels of infections but also that the governments are starting to step up with new spending plans.

Avoiding a double-dip recession is a priority alongside making sure citizens are as safe as realistically can be.

Omicron spreading like wildfire has prompted the US and UK governments to start up new fiscal spending measures and the stock markets are happy about this. At the end of last week, the Build Back Better plans were put on ice as Senator Manchin said no. The potential loss of over $1trln new dollars to the US economy may have been the straw that broke the markets back. But today investors are revaluating Omicron's risk and hope US President Joe Biden may yet revive his $2 trillion spending plan with a vote in January.

The good news is that an $800bln US defence spending plan was passed last week and today United States Secretary of State Antony Blinken announced that Washington is providing an additional $580 million to international organizations in support of their response to the COVID-19 pandemic. The UK’s response to the spike in infections and the loss of business to the hospitality and entertainment industries has been to announce that the Treasury will allocate £1 billion to support British businesses impacted by the increase in COVID-19 infections. The program will include grants made available to around 200,000 firms in the weeks to come, as well as funds for local authorities and a sick pay rebate scheme.

With governments stepping in with some new cash the markets around the world have all ended in the green at the London close. The biggest mover was Italian 40 up by more than 2% even though Italy has recorded the most daily cases of COVID in over a year. The UK FTSE100 rose 0.94% and the US Dow Jones Industrial Average is up 1.42%, closely followed higher by the German DAX which is up 1.36% today.

Technology and retail shares led gains on strong corporate results, with Apple, Microsoft, Alphabet, Tesla, Facebook and Amazon all trading higher today. The Nasdaq had gapped up higher at the US open but then closed that gap within the first hour of trading. The proceeding price action has now cleared that opening range and we’re seeing yesterday’s range now fully reversed and the price is trading in the middle of Friday's range. If the Nasdaq cold clear 16,000 this week the Santa Rally may be back on.

The forex heatmap has shifted back to being risk-on with commodity pairs doing better than the safe-havens of the yen and Swiss franc. The pound is also doing well following the UK Treasury announcement.

The US dollar index is rising once again and is currently above the $96.50 level. $97 would appear to be the next logical level to trade to as the daily 20,50 and 200-period EMAs are all showing rising momentum. A full breakout of this bull flag pattern leads us to then start attacking for $100.00.

The dollar rising is being pushed higher by Eurozone consumer morale data which came in at a 9-month low today. The consumer confidence indicator in the Euro Area fell by 1.5 points from a month earlier to -8.3 in December of 2021, worse than market expectations of -8.

The ActivTrader sentiment indicator shows that traders are still more bullish on the euro than the US dollar despite the interest rate differentials, the divergence of monetary policy and the differences in disruptions between key European countries and the US states.

The EURUSD chart is inverse to the US dollar chart, so a bear flag is being carved out. The measured move of the potential breakout plus the impulsive move lower which makes up the pole takes us through the 1.1000 level and nearer to the 1.0800 prices.

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