Good evening team,
Just a quick update on what has happened throughout the day.
Crazy scenes in the US this morning yet markets have maintained their peaks shrugging off the conflict. Congress confirmed Joe Biden’s election victory shortly after the riots. With the Democrats now looking to take control of all areas, we need to understand what policy changes will come into play in the new year.
Firstly, Joe Biden is set to be sworn in during the peak of the Covid-19 outbreak, therefore it is likely we will see further lockdowns across the US. This may result in a short term risk off scenario in the coming weeks. Secondly, Biden has suggested they will look to increase taxes for high earners and corporations, however not for smaller businesses with less than 50 employees. There is a possibility of a rotation out of major cap stocks that have dominated the market throughout 2020 and Covid-19 (Apple, Tesla, Netflix, Google etc) and into smaller companies. Biden is also planning for a clean energy revolution, therefore keep an eye on the renewable energy space, oil companies may take a hit. Tax hikes will impact the market at some stage, again this may result in a short term risk off scenario.
Thirdly, we can expect even further stimulus and money printing throughout 2021. The Republicans are no longer able to block any further stimulus packages. Fundamentally, the vast money printing paints a very bearish picture for the USD. Traders have anticipated a Joe Biden victory for a while, therefore the outcome may already be priced into the USD. This could be a buy the rumour sell the fact scenario.
Tonight we are turning our attention to the NZDJPY. We see a possible risk off playing coming this evening, meaning weaker commodity related currencies, and strength back into the USD and JPY.
NZDJPY – Monthly Charts
The monthly charts are painting a pretty bullish picture as there has been a bull flag breakout, however on the shorter term we see an opportunity for a retracement trade.
NZDJPY – 1 Hour Charts
The RSI is signalling a bearish divergence meaning buyers are running out of steam, we are also seeing a lot of congestion at the peak of 75.20.
Trade Setup: SELL Market Execution, current price 75.20, stop loss 75.60 and take profit 74.60-74.30.
Stop loss: 40 pips
Take profit: 60-90 pips
Move SL to open once we see a break below 74.90.