Two trades to watch; Gold rises in risk off trade, RR under pressure as UK isolated
Fiona Cincotta December 21, 2020 9:19 AM
Gold presses higher amid fears over a new covid strain & after US Congress agree a covid rescue package. Rolls Royce hit by UK travel ban
• A growing number of countries are shutting their borders to the UK after the discovery of a new strain of covid which is 70% more infectious.
• Brexit talks continue missing another deadline
• US negotiators agree to $900 billion covid rescue package to be voted on later today.
Gold flirts with $1900
• Gold is picking up in the early European session, having pierced $1900 overnight on the US stimulus $900 billion agreement which supports the non- yielding precious metal.
• Risk off trading also underpins the yellow metal as covid developments, tighter lockdown restrictions and Brexit nerves allow Gold bugs to shrug off a stronger US Dollar.
Gold had been trading in a descending channel dating back to early August. Late last week the precious metal broke above the upper band of the descending channel. It also pushed above its 50 day moving average at $1870, which even resisted a pullback on Friday
Today gold is building on those gains as it looks to attack its 100 sma at $1904 prior to resistance at $1917 (high 4th Nov). A daily close over this level could see gold make an attempt on 1965 (November’s high).
On the downside, a break below $1870 50 sma could see a test of $1855 the upper band of the descending channel prior to 19816 200 sma & horizontal support.
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Rolls Royce share price falls on covid travel chaos
Rolls Royce trades sharply lower on Monday as investors react to news over the new strain of covid and as miore countries shut borders to UK.
RR has been one of the hardest hit stocks from the covid crisis given that its largest revenue stream is dependent on planes flying. The latest travel restrictions being placed on the UK to stem the spread of the new covid mutation means that the civil aviation business will remain under intense pressure, increasing cash burn.
This latest development comes after vaccine optimism had been driving the stock high. Questions are now being raised as to whether the vaccines will be effective against the new strain.
RR closed on Friday at 113.5p, down from a December high of 135p. Today the stock has gapped lower on the open and trades -7% at 106p at the time of writing.
The stock has been trading in an ascending channel since early October, today’s fall has seen the share price break through the lower band of the channel in a bearish move. The RSI is also in bearish territory trending lower, but not yet in oversold territory suggesting move downside could be on the cards.
The share price found support at 50 day moving average around 95p earlier today. A break though this level is needed for the door to open to 100 sma at 85p and 65p November low.
Should the 50 day sma hold the price could rebound and test support turned resistance of the lower channel band at 108p. A move back into the channel could see the price aim back toward 121p November high and 155p upper channel.
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