As far as the British pound is concerned, we would need to see it clear the 1.30 level on a daily close to even remotely look close to getting long at this point. 

The British pound initially had a push to the upside on Tuesday but gave back gains underneath the 1.28 level. At that point, the market then fell significantly to reach the 1.26 handle as the Bank of England suggested that it was not going to bring down its balance sheet anytime soon. This has had a massive effect on the British pound itself as we have seen a collapse of 400 points in the last three days.

Furthermore, the United States continues to see interest rates climb, and of course, the Federal Reserve is looking very likely to see plenty of reasons to raise interest rates as inflation is getting out of control. Because of this, I think it is probably only a matter of time before we see the US dollar overtake the British pound even more aggressively, as hard as that may be to believe. At this point, the market seems to be pricing in something akin to Armageddon, and it’s accelerating.

I think we are going to go looking to reach the 1.25 level underneath, which is a large, round, psychologically significant figure and an area where a certain amount of profit-taking will probably come into the picture. I do think that given enough time we will see a huge standoff and perhaps even a major bounce. However, those bounces will more than likely offer selling opportunities at the first signs of exhaustion. As far as the British pound is concerned, we would need to see it clear the 1.30 level on a daily close to even remotely look close to getting long at this point. The 50-day EMA is at the 1.3131 level and dropping, and I think would cause a bit of resistance as well if we get that high.

If we do break down below the 1.25 level, it is very likely that we will see a massive selloff at that point as well, perhaps accelerating to the downside. If that were to happen, you would probably see the US dollar attacking almost everything in the markets, and it would be a foregone conclusion that the British pound would not be any different. This would be a major “risk-off” type of situation, which we are rapidly approaching and is looking more and more likely.

Stocks, US dollar fall in ancitipation of a Democratic victory.

According to recently released electoral data, the Democratic Party will likely grab the two Georgia Senate seats that were in dispute, giving the party a trifecta for the first time since 2009. This would allow President-Elect Joe Biden to govern with no opposition, though Trump’s claims of fraud will be dealt with in Congress today.

As of this writing and with 98 percent reporting, Democratic Candidate Raphael Warnock leads the race against his Republican counterpart, Kelly Loeffler, with 50.6 percent of the vote, while his colleague Jon Ossoff currently has an advantage against his Republican opponent David Perdue with 50.1 percent.

“We were told that we couldn’t win this election. But tonight, we proved that with hope, hard work and the people by our side, anything is possible,” said Warnock during a Livestream message. “I am going to the Senate to work for all of Georgia, no matter who you cast your vote for in this election.”

Warnock would be the first Black Georgian Senator, though many are concerned over his record of anti-Semitism and domestic abuse. Ossoff would be the youngest member elected to the post.

Now eyes are on Congress, which is set to meet today to certify the electoral college results. Trump has called on Vice President Mike Pence to reject the certification of certain electors. The certification could take hours, since some Senators and Representatives are planning to contest the result of certain states, such as Pennsylvania, Wisconsin, and Georgia, following evidence of election fraud.

Analysts claim that Trump’s attempt to overturn the election results will likely fail, since he would need support from the majority of Congress, which at this point seems unlikely. Senate Majority Leader Mitch McConnell has expressed his disagreement with the president on some key issues, also calling Senators to disregard Trump’s requests. So far, eleven Republican Senators have joined Trump in his claims, as well as more than 100 House Republicans.

Besides all this political drama, the United States keeps struggling against the spread of COVID-19, which has infected around 21,579,641 Americans and killed 365,664, making the U.S. the most affected country in the world. The U.S. is currently amid a vaccination campaign, which has been heavily criticized given that it has been slow.

Economic Calendar

This week will see a few important data regarding the current state of the US economy.

On Monday, Markit Economics published the Manufacturing PMI, which signaled an expansion of the sector in December with a reading of 57.1, higher than November’s 56.5. This is the highest figure since September 2014 and is part of an eight-month gaining streak.

“Amid a significant deterioration in vendor performance, cost burdens and selling prices soared, as firms sought to partially pass on higher input prices,” reported IHS Markit.

The Institute for Supply Management (ISM) confirmed this data on Tuesday, reporting that the Manufacturing PMI stood at 60.7, higher than expectations of 56.6 and the previous month’s 57.5. “Output expectations moderated slightly, however, as the post-election spike eased and virus cases surged once again,” IHS Markit added.

Dollar Sinks on Prospect of Democratic Trifecta

The markets don’t seem happy with the idea of a Democrat-controlled Senate, and this is being reflected by the recent performance of the US dollar. Also because of this reason, stock markets have been volatile recently.

It seems that the main cause behind this pessimism is the fact that a Democrat trifecta would make additional fiscal stimulus measures more likely, which is in general bad news for the dollar’s performance.

“A Democratic-led government is expected to add more stimulus to help mitigate the virus crisis and…that means that there’s going to be a weaker dollar,” commented an analyst at BNP Paribas.

Rising taxes and further regulations are also among the possible measures that are concerning the markets.

So far this week, the US dollar has dropped by 0.69 percent against a bundle of its main competitors, continuing a two-week losing streak.

US Economy Seems Solid

Since our last report, economic data have remained unchanged.

The quarterly gross domestic product figure stands at 33.4 percent, higher than expected. Inflation data has also surpassed expectations, signaling an improvement in the monetary realm, while unemployment levels stood at 6.7 percent, lower than expected.

Upcoming Events

• Today, the Federal Open Market Committee will release the minutes of its last meeting.

• On Thursday, the US Department of Labor will publish initial and continuous jobless claims data.

• Also on Thursday, the Institute for Supply Management is releasing the Service PMI for December.