Despite being a partial holiday in the US on Monday, stock markets were open and had another strong session, with the US indices seeing good gains of anywhere between 1.1%(DJI) and 2.8% (Nasdaq). The rally was driven by ongoing expectations of a coronavirus relief package, underpinning the positive risk outlook, and also by a strong move higher in Amazon (+6%), Apple (+7%) and other technology stocks ahead of the upcoming Q3 earnings season. The S&P put on 1.8% and is now around just 1% below its all-time high of September 2nd.
The FX markets were pretty much sideways, with the DXY flat on the day. The US$ did try and make some minor gains following the weekend news that the PBOC had cut the RRR but any directional movement pretty much dissipated as the session wore on and most pairs are within touching distance of Monday’s levels. The short term momentum indicators are mostly pretty flat, although I suspect that as long as there is hope of a breakthrough in finding a Covid vaccine, underpinning positive risk-sentiment, the US$ will remain under pressure as safe-haven demand diminishes. We are in sight of the election though, and with Trump behind in the polls we should expect an increase in volatility as money managers readjust positions ahead of the possibility of a Biden administration. Also note that, in the UK, Brexit negotiations will continue as the mid-Oct deadline looms; while the resurgence of the coronavirus infections in the UK and the return to restrictions will also be a major focus. Although the headlines seem negative, Sterling did manage to trade up to a 1 month high on Monday, and the charts do look constructive for further gains in the sessions ahead.
In the commodities sector, oil settled about 3% lower (WTI; 39.55pb) on Monday as force majeure at Libya’s largest oilfield was lifted, allowing for expectations of an increase in output to 355,000 barrels per day, and came on top of the end of the Norwegian strike which had been affecting production in the North Sea, as well as US production returning to normal after Hurricane Delta. Gold and Silver did give up some of Friday’s gains but mostly tracked sideways.
Tuesday will begin with the NZ September Electronic Card Retail Sales (exp +0.5%yy), Food Price Index (exp 0.0%mm) and House Price Index, to be followed by the China Trade Balance (exp $59.98bio, Exports +10%, Imports +0.2%), also for September. Europe and the US will both be busy, featuring the UK Unemployment figures (exp Headline rate: 4.3%, Claimant Count +80K) and the German CPI (CPI, exp -0.2%mm, -0.2%yy; HICP, exp -0.4%yy), both for September, along with the October German/EU ZEW Economic Sentiment Survey (Germany: Current -60; Prior -66.2, Sentiment 74; Prior 77.4. EU Sentiment 70.5; Prior 73.9), and which will come ahead of the US CPI (exp 0.2%mm, +1.4%yy), also for September. Have a good day.
Economic data highlights will include:
Tue: NZ Food Price Index, REINZ House Price Index, Electronic Card Retail Sales, China Trade Balance, UK Unemployment, German CPI, German/EU ZEW Economic Sentiment Survey, US CPI, Monthly Budget Statement, API Weekly Crude Oil Stock Inventory
Market moves, in brief:
FX: DXY 93.05 (-0.02%)
Bonds: US10Y; 0.775% (-0.63%), German 10Y; -0.542% (-2.71%), UK 10Y; 0.272% (-2.33%), Australian 10Y; 0.812% (-2.05%), NZ 10Y; 0.582% (+4.75 %), China 10Y; 3.18% (-0.38%)
Stock Indices: DJI; +1.02%, S+P; +1.77%, NASDAQ; +2.8%, EUStoxx50; +0.76%, FTSE100; -0.25%, Shanghai Composite; +2.64%, ASX200SPI: +1.10%
Metals: Gold $1923 oz (-0.37%), Silver $25.15 oz (-0.06%), Copper $3.0655 lb (-0.55%), Iron Ore $122.10 per tonne (NYMEX) (-1.00%),
Oil: WTI $39.55 pb (-2.48%)
Trend Table: October 13, 2020
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|1 Hour||Turning Neutral||Oversold – Turning higher?||Bearish Divergence||Turning Neutral||Turning Lower?||Turning Lower?|
|4 Hour||Turning Neutral||Turning Lower?||Turning Higher||Turning Lower||Possible Topping Formation||Turning Neutral|
|1 Day||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral – Turning Lower?||Turning Neutral||Neutral|
|1 Week||Possible Topping Formation||Turning Neutral||Turning Neutral||Possible Basing Formation||Possible Topping Formation||Possible Topping Formation|
|1 Hour||Turning Neutral||Up – Overbought||Up – Overbought||Turning Lower?||Neutral – Turning Lower?||Possible Basing Formation|
|4 Hour||Turning Neutral||Up||Up – Bearish Divergence||Turning Neutral||Turning Neutral||Turning Lower|
|1 Day||Neutral – Turning Lower?||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral|
|1 Week||Possible Basing Formation||Up – Overbought||Turning Neutral||Turning Lower||Turning Lower||Neutral|
|1 Hour||Possible Basing Formation||Turning Lower?||Turning Higher||Neutral – Turning Lower?||Turning Neutral||Neutral – Turning Higher?|
|4 Hour||Turning Lower?||Neutral – Turning Lower?||Neutral||Neutral – Turning Lower?||Turning Neutral||Turning Lower?|
|1 Day||Turning Higher?||Turning Neutral||Turning Neutral||Turning Neutral||Neutral||Neutral – Turning Higher?|
|1 Week||Turning Neutral||Turning Neutral||Turning Neutral||Possible Topping Formation||Turning Neutral||Turning Neutral|
Despite the dubious headlines coming out of the UK with regard to Brexit/Covid, Sterling looks rather positive on the 4 hour charts. As long as it remains above 1.3000, then it can make headway beyond the Fibo resistance at 1.3075 (50% pivot of 1.3481/1.2675) and the Monday, 1 month high (1.3082), towards the 61.8% Fibo level at 1.3180 (61.8%) and eventually to 1.3295 (76.4%). A dip below 1.3000 would then open the way to the rising trend support, currently at 1.2920. I would look to buy it again around here, but a close below 1.2900 would negate the current constructive outlook so keep a SL, either tight below 1.300 for current long positions, or below 1.2900 for long Sterling trades bought in the 1.2920/40 area.
As we pointed out in the weekend video, https://orchardforex.com/11-oct-weekly-forex-forecast-12-19-oct-eurusd-gbpusd-audusd-asx-gold-calendar/ the ASX is looking quite positive. The daily ASX SPI chart, below seems to hint that we may be about to conclude the 4 month sideways consolidation as we attempt to take out the resistance, seen right at current levels. A word of caution though, as the weekly chart (below) shows the 100 WMA sitting right ahead at 6180, and we need to close above this in order to gain confidence of a larger move higher. Above 6200 though would suggest to me that we may possibly be carving out a bull flag, which could eventually allow a return to the all-time high at above 7100. That is a long way off right now, but with the US indices heading back towards their own all-time high ahead of a likely improved Q3 reporting season – this may be enough to underpin the ASX for some decent medium/longer term gains of its own.
On the other hand, if 6150/80 proves insurmountable then we should expect a move back towards 6000 and further choppy, sideways trade. Worth keeping an eye on.