Risk keeps slightly more on the defensive once again
If there's anything to take away from trading yesterday, is that don't get too stuck into the moves we're seeing in the market this week.
The dollar looked poised for a major comeback yesterday only for that to fizzle for the most part in US trading, as equities also bounced off the lows into the closing stages.
I'm not a big fan of Christmas week trading into the new year and this time around is no different. While there may be scope to get back into the saddle on any major pullbacks similar to the ones yesterday, the potential choppiness is still a risk to consider.
I highlighted yesterday that there is perhaps scope for the dollar and risk to retrace after the monstrous moves since November and the same applies today.
Europe will be engulfed with the negative virus rhetoric and Brexit concerns while US will be leaning more towards stimulus getting approved and dip buying where fit.
The big picture narrative though remains largely the same, that we are still working towards some transition from the virus crisis peaking (now with some hiccups due to the latest strain and what not) and vaccine optimism growing.
On the latter, it is not without its complications either. While the market may see scope for optimism, the reality of the situation could differ a lot from what investors would expect as we head into the new year.
Politicians and lawmakers are there to put up a facade that "the battle is already won" but the fact is we may see tighter restrictions be prolonged across the globe all the way through to Q3 or even Q4 2021 unless vaccine rollouts increase dramatically.
That may perhaps leave some scope for optimism to be tempered with but I would still argue on a multi-year trajectory, the narrative remains the same - only difference may be some alterations to the bits and pieces in the timeline for now.
Back to the dollar today, it is once again outperforming - similar to yesterday - as we get into European trading. EUR/USD is back down to 1.2220 and testing its 100-hour moving average while AUD/USD is testing its 200-hour moving average near 0.7555.
In essence, there is still an element of push and pull going on and it isn't really helped by the lighter trading conditions this week as well as renewed concerns on the virus front; but I would argue that there is no major change to the overall picture yet.
