Written by: Craig Erlam | OANDA
Weekend Risk Heightened
It's been a relatively flat European session so far and US futures are pointing to a similar start on Wall Street as negotiations on both sides of the Atlantic go into a critical weekend.
Both negotiations are being fiercely fought right up to the wire but I remain confident that both will be done. It seems the first to be ticked off will be a stimulus deal and spending bill in Washington, with both sides appearing very close to agreement after months of wrangling. It may just turn out to be a bridge to another package in the new year but that's better than the alternative and sees the country through to the new administration, providing critical support in the interim.
Senate Majority Leader Mitch McConnell reportedly warned lawmakers that a weekend vote may be necessary. At the very least, work will likely carry on into the next couple of days. Combined with the European Parliament's insistence on a deadline for Brexit talks of Sunday, there's an unusual amount of weekend risk in the markets which may weigh on sentiment as the day progresses.
Of course, deadlines have come and gone in both cases - granted, far more on the Brexit side - and I'm not sure anyone will be entirely surprised to see talks still ongoing on Monday or even right up until the new year.
That would be a massive gamble on the UK's side as the process would then become far trickier with the EP refusing to ratify it by the end of the year and rush any agreement through. There are other undesirable options, such as the EU provisionally applying any agreement until the EP votes on it in the new year and given how these negotiations have gone since day one, a part of me would be surprised if this doesn't happen.
If the UK believes the EU would accept this in order to avoid a no-deal, temporarily or permanently, it may well gamble on this to buy a little extra time if it doesn't believe the EU is being flexible enough. Where there's a will there's a way and one thing is clear, there is a will. Unfortunately, just not a will to get this wrapped up in good time.
Weekend nerves are once again creeping in for the pound. which is off almost half of one percent against the dollar, euro and swissy. That's nothing compared to what we'll see if talks collapse over the weekend and we may see it move more in this direction ahead of the close.
Oil eases but another run at resistance may be on the cards
Oil prices are pulling back a little today as Brent and WTI bear down on major resistance levels. WTI is closing in on $49-50 after a remarkable run since early November, during which it rallied more than 40%. A US stimulus package and Brexit deal could give crude prices one final bump at which point a lot of good news is priced in, while near-term downside risks seem underpriced. We could see a lot of profit taking in the short-term as crude closes in on that resistance zone.
Gold eyeing $1,900 after Fed bounce
Gold is having a breather after enjoying another very good week. The yellow metal was not deterred by the Fed's upbeat economic assessment, or its reluctance to increase asset purchases. Instead, traders focused on the marginal easing as Powell committed to continuing currency purchases for longer, in keeping with previous comments on interest rates. The central bank seems committed, in theory, to keep rates lower for longer than it would in the past and that applies to purchases as well. That could continue to support the yellow metal, especially given the direction of travel for the dollar.
Bitcoin just getting started
Bitcoin showing a little fatigue after the midweek charge through $20,000 which opened the floodgates as traders looked to capitalize on the almost inevitable surge that followed. This is bitcoin doing what bitcoin does and as ever, it carried the rest of the crypto space along with it. I don't think it's done yet and while the rest of the markets may settle into holiday mode now, this may only just be getting started. Strap yourselves in, it's going to be a wild end to the year.
Related: Stimulus Deal Making Time is Upon Us