Daily Market Report - 12nd Oct 2020

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EURUSD

The EUR/USD pair continued advancing on Friday, to close a second consecutive week with solid gains in the 1.1820 price zone. Risk appetite led the way, based on fresh hopes for some US fiscal stimulus. According to White House advisor Larry Kudlow, US President Donald Trump proposed a $1.8 trillion stimulus package that includes checks to individuals and an extension of the Paycheck Protection Program. The dollar sold-off in the absence of relevant macroeconomic data.

Headlines published over the weekend, however, may pour some cold water on the market’s upbeat mood, as House Speaker Nancy Pelosi and US Treasury Secretary Steven Mnuchin talked over the weekend, but were unable to clinch a deal, despite Trump’s optimism. The calendar has little to offer this Monday, as US markets will remain closed due to a local holiday. As for the EU, the only relevant event will be a speech from ECB’s President Christine Lagarde.

The EUR/USD pair seems poised to extend its advance according to the daily chart, given that technical indicators have crossed their midlines to the upside, maintaining their upward slopes. The pair has also managed to advance above a directionless 20 DMA, while the larger moving averages maintain their bullish slopes below it. In the shorter-term, and according to the 4-hour chart, the pair is also set to extend its gains. It settled well above all of its moving averages, while technical indicators remain well above their midlines, although they have lost their bullish strength. Further gains are to be expected on a break above 1.1870, the immediate resistance level.

Support levels: 1.1800 1.1755 1.1710

Resistance levels: 1.1870 1.1920 1.1960 

USDJPY

The USD/JPY pair retreated on Friday, to close the week with modest gains around 105.60. The Japanese currency appreciated despite the ruling risk-on mood, as investors got rid of the greenback. US Treasury yields held near multi-week highs, while US indexes posted gains amid renewed hopes for a US coronavirus aid package, which somehow limited the sump in USD/JPY.

In the data front, Japan published Labor Cash Earnings, which declined 1.3% YoY in August, beating expectations. Overall Household Spending in the same period contracted 6.9%. At the beginning of the week, the country will publish the August Producer Price Index and Machinery Orders for the same month. Finally, Japan will release the preliminary estimate of Machine Tool Orders for September.

The daily chart for the USD/JPY pair shows that it holds above its 20 DMA but below the larger ones, all of them with modest bearish slopes. Technical indicators, in the meantime, turned lower, the Momentum holding within positive levels yet the RSI already below its midline, skewing the risk to the downside. In the shorter-term and according to the 4-hour chart, the pair is bearish, with technical indicators heading south within negative levels and the pair developing below a now flat 20 SMA.

Support levels: 105.40 105.00 104.65

Resistance levels: 105.80 106.25 106.60 

GBPUSD

The GBP/USD pair surged last week to a 4-week high of 1.3048, closing on Friday a handful of pips below this last. The Sterling run on the broad dollar’s weakness and despite no progress has been made in Brexit talks. UK PM Boris Johnson’s spokesman said last Friday that "progress has been made this week in some areas, however, differences still remain on important issues." Over the weekend, Johnson spoke with French President Macron, asking for intensive talks to “bridge significant gaps” remaining.

UK data published by the end of the week was mixed, as Industrial Production in August contracted by 6.4% YoY while Manufacturing Production in the same period fell 8.4%. The monthly GDP was up 2.1%, missing expectations of 4.6%. On a positive note, the NIESR GDP estimate for the three months to September came in at 15.2%, much better than the 8.7% expected. This Monday BOE’s Governor Bailey is set to offer a speech, although unrelated to monetary policy.

The GBP/USD pair has room to extend its advance from a technical point of view. The daily chart shows that technical indicators maintain their bullish slopes within positive levels, while the pair settled above all of its moving averages. The 4-hour chart also supports a continued advance, as the pair settled above its 200 SMA for the first time in over a month, while technical indicators keep heading north near overbought levels.

Support levels: 1.3005 1.2960 1.2920

Resistance levels: 1.3060 1.3110 1.3170

AUDUSD

The Aussie benefited from risk appetite on Friday, with AUD/USD ending a second consecutive week with gains at 0.7240. Hopes for a US coronavirus stimulus package boosted equities, which in turn, underpinned the commodity-linked currency. Soaring gold prices provided additional support, as the bright metal closed the week around $1,930 a troy ounce, a level last seen on September 21.

Australian data released at the end of the week was upbeat, as Home Loans were up 13.6% in August, while Investment Lending for Hokes was up 9.2% in the same month. The country won’t release macroeconomic data this Monday.

The AUD/USD pair is offering a bullish stance in its daily chart, as technical indicators are crossing their midlines into positive territory, while the pair settled above all of its moving averages, although the 20 DMA maintains a bearish slope. In the 4-hour chart, the bullish potential is stronger, as the pair settled above all of its moving averages, while technical indicators stand within overbought readings, barely losing its strength upwards.

Support levels: 0.7210 0.7170 0.7130

Resistance levels: 0.7250 0.7290 0.7330

GOLD

Gold had a sharp increase on Friday as the risk appetite improved among the markets. The USD index DXY kept its down foot testing 93.00 levels while the US indexes improved. Also, 10-year yields kept its decline by 0.779%. Trump’s return to the White Office was the main driver behind the improved risk appetite along with positive developments regarding the stimulus package. After Trump declared the end of the negotiations the president shifted his tone to more supportive about a possible agreement. However, as the Democrats kept pushing for a bigger deal the discussions are in a deadlock and most likely to resolve after the elections. Speaking about the upcoming elections in the US, Democrat candidate Biden is keeping his lead due to the latest polls. On the other hand, due to possible delays for votes sent by the post office, a clear result might be challenging which might create uncertainty and trigger risk-off.

This week, Brexit will be in focus alongside Lagarde’s speech on Monday as it will have possible effects on the USD. On Tuesday, Chinese trade balance data set with the US inflation readings will take the stage. On Thursday, Chinese inflation figures will be followed by the markets with weekly initial jobless claims data in the US will be followed. Finally, on Friday, the US Retail Sales with Michigan Consumer Sentiment Index (Oct) PREL data sets will be followed.

Gold rallied on Friday with the improved risk appetite on Friday testing its highest level in three weeks.      

If Gold tests $1,950, the targets upside can be followed at $1,980, $2,000 and $2,040 levels. Below the $1,950 the supports can be followed at $1,920, $1,900 and $1,825 (2011 August close) levels.

Support Levels: $1,920 $1,900 $1,825

Resistance Levels: $1,980 $2,000 $2,040

SILVER

Silver rallied alongside Gold and followed the same template seen recently outperforming the yellow metal during a risk-on trading session. Gold to Silver ratio sank through 76.70 levels reflecting the better performance from Silver. The focus on the markets became the stimulus talks as any development regarding the debates is shifting the market sentiment. The USD index DXY retraced to 93.00 levels with the improved risk appetite and precious metals lifted to their highest levels in the last three weeks.   

Below the $22.90 level ($11.63-$29.86 38.20%), the supports can be followed at $20.75 ($11.63-$29.86 50.00%) and $18.42 ($11.63-$29.86 61.80%). Over the $22.90 level, the targets up can be followed at $25.21 ($11.63-$29.86 23.60%), $26.00 (August-September support), $27.00 and $28.00 levels.

Support Levels: $22.90 $20.75 $18.42

Resistance Levels: $25.21 $26.00 $27.00

CRUDE WTI

WTI had a negative day despite the decline seen in the USD on a global scale. Reuters reported on Friday that Norwegian oil producers have reached an agreement with labour union officials to end the strike that was causing the country's oil output to decline by nearly 25%. This headline caused the WTI to come under a renewed bearish pressure in the late American session as supply worries were over. On the other hand, the weekly data published by Baker Hughes Energy Services showed that the number of active oil rigs in the US increased by 4 to 193. However, the decline seen in WTI was limited with the news regarding the Hurricane Delta. According to Reuters, 92% of the Gulf's oil output, or around 1.67 million barrels per day, are now shut due to the Hurricane Delta.       

If WTI manages to hold over $40.56 ($65.62-$0.00 61.80%) level, the targets upside can be followed at $41.00, $46.57 (March decline start) and $50.00 levels. Below $40.00, the supports can be followed at $39.00 and $32.81 ($65.62-$0.00 50.00%) and $31.00 levels.

Support Levels: $39.00 $32.81 $31.00 

Resistance Levels: $41.00 $46.57 $50.00

DOW JONES

At the moment, the risk appetite is solely driven by the developments regarding the stimulus talks. After Trump absurdly tweeted last week that he ordered negotiations to stop, the president made an impressive turnaround and tweeted some supportive messages about a possible deal. Trump also tweeted a supportive message about Powell’s comments which highlighted the need for a big aid package. Wall Street Journal reported that Treasury Secretary Mnuchin is ready to offer a $1.8 trillion USD aid package while Democrats are pushing for a whopping $2.4 trillion. On the other hand, Trump’s short visit to hospital caused by his positive test result sparked volatility last week.     

The US inflation readings will take the stage on Tuesday while on Thursday, weekly initial jobless claims data in the US will be followed. Finally, on Friday, the US Retail Sales with Michigan Consumer Sentiment Index (Oct) PREL data sets will be followed in the US.

From the technical point of view, over the physiological 28,000 level, 28,400 with 29,000 and 29,500 can be followed as next resistance while below 27,770 level the supports can be seen at 27,400, with 27,000 and 26,757 (24,680-27,400 23.60%) levels.

Support Levels: 27,700 27,400 27,000

Resistance Levels: 28,400 29,000 29,500

MACROECONOMIC EVENTS

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