In thin, holiday conditions, the US$ continued to come under downside pressure on Friday, with the US$ index (DXY) back below 92.00, and seeming as though it is breaking significant long term support, while the stock markets look like ending the month (Monday) at record highs despite the pandemic which is still at highly elevated levels in parts of Europe and the US.
The S&P 500 finished the week with an all-time high closing level after rallying 11% through November, although volume on Friday was only 60% of the daily average over the past year, with the markets closing early because of the holiday. The DJI rose 0.13%, while the Nasdaq rallied by 0.8%, also making a new all-time high close, and led by the major FAANG stocks.
In the FX markets conditions were mixed, but the US$ was generally weighed down by expectations of large-scale stimulus from the incoming Biden administration, flooding the markets with liquidity in order to combat the pandemic. Most of the major currencies made small gains against the dollar, although Sterling bucked the trend and headed back down to 1.3300 into the Friday close, weighed by the lack of any breakthrough in the Brexit negotiations, with time now clearly running out to avoid a “no-deal” divorce by December 31st. EU chief Brexit negotiation Michel Barnier is in the UK over the weekend to continue the trade talks but noted on Friday that “the same significant divergences persist”.
The commodities markets saw Gold and Silver break important support, to end the session down by 1.3% & 2.75% respectively. Gold traders seem to have been caught quite long, buying it as a safe-haven because of the ongoing concerns over the pandemic, although it has never got close to returning to its August highs and with positive vaccine stories in the news, those longs seem to be increasingly squeezed out of their holdings. Oil performed better, in rising by 1.25% on Friday amid reports that OPEC+ will hold informal online talks over the weekend, ahead of the coming week’s formal meeting, at which members will discuss whether or not to push back the planned production increase from January 1st by a couple of months or more. Note that while the precious metals were lower, both Copper (+2.85%) and Iron Ore (+1.26%) had a strong end to the week, suggesting that economic demand continues to pick up, which will not hurt the Aud$ in particular.
It is going to be a busy week ahead as we at last approach the end of 2020 – and hoping for a better 2021! Before then, we have the end-of-month trade for November on Monday and there will be many asset managers looking to lock in profits following the big stock market bull run that we have seen this month. Monday will also feature Mfg/Non-Mfg PMIs from China, the Preliminary German November CPI figures and some regional US Fed activity data, (Chicago, Dallas). Tuesday will also be a busy day, with the main focus being on the global manufacturing PMIs but also including the last RBA Meeting until February, although there is no change in policy expected after the moves that occurred in November. Later on, the ECB Preliminary November CPI will be released ahead of a big US session that will include the ISM Mfg PMI/Prices Paid figures and Fed Chair Powell testifying to Congress. Wednesday will kick off with the Australian Q3 GDP, which will be important, along with a speech from the RBA Governor Lowe, when he testifies before the Australian Parliament’s House of Representatives Standing Committee on Economics. Later in the day, the ECB Non-Monetary Policy Meeting will take place, along with the release of the EU PPI/Unemployment figures for October, while from the US we will have the November ADP Jobs data to come ahead of Friday’s US official Jobs numbers. Thursday will look to the Services/Composite PMIs for guidance while, apart from the Australian Retail Sales for October, there is nothing on the calendar at all until the release of the US official employment data for November with expectations currently of; Headline rate (6.8%)/NFP (+520K), Average Hourly Earnings (+0.1%), Average Weekly Hours (34.8). Have a good week.
Economic data highlights will include:
Mon: NZ Business Confidence, Activity Outlook, Australian TD Inflation, Private Sector Credit, Company Gross Operating Profits, China Mfg/Non-Mfg PMIs, Japan Retail Trade, Preliminary Industrial Production, Construction Orders, Housing Starts, EU Eurogroup Meeting, UK Consumer Credit, Speech; BOE’s Tenreyro, German CPI/HICP, US Chicago Purchasing Managers Index, Dallas Fed Mfg Business Climate, Pending Home Sales
Tue: Global Mfg/Services/Composite PMIs (Australia, China, Japan, EU, UK, US), Australian Building Permits, RBA Interest Rate Decision/Statement, RBA Commodity Index, EU EcoFin Meeting, German Unemployment, EU CPI, US ISM Mfg PMI/Prices Paid, Fed Chair Powell Testifies to Congress, Global Dairy Trade Index, API Weekly Crude Oil Stock Inventory
Wed: NZ Terms of Trade, Australian Q3 GDP, Speech; RBA Governor Lowe, Japan Consumer Confidence, German Retail Sales, ECB Non-Monetary Policy Meeting, EU PPI, Unemployment, US ADP Jobs data, EIA Weekly Crude Stocks Change, Speech; Fed’s Williams
Thur: Australian AIG Performance of Construction Index, Global Services/Composite PMIs (Australia, China, Japan, EU, UK, US) , NZ Commodity Prices , Australian Home Loans/Investment Lending for Homes, EU Retail Sales, US Weekly Jobless Claims, ISM Services/Prices Paid,
Fri: Australian Retail Sales, German Factory Orders, US Unemployment/NFP.
Market moves, in brief:
FX: DXY 91.80 (-0.20%)
Bonds: US10Y; 0.841% (-4.29%), German 10Y; -0.588% (-3.56%), UK 10Y; 0.281% (-13.80%), Australian 10Y; 0.910% (-3.59%), NZ 10Y; 0.897% (-7.91 %), China 10Y; 3.311% (+0.03%)
Stock Indices: DJI; +0.13%, S+P; +0.25%, NASDAQ; xxxx%, EUStoxx50; xxxx%, FTSE100; xxxx%, Shanghai Composite; +1.14%, ASX200SPI: +0.14%
Metals: Gold $1787 oz (-1.30%), Silver $22.70 oz (-2.73%), Copper $3.404 lb (+2.86%), Iron Ore $127.25 per tonne (NYMEX) (+2.29%),
Oil: WTI $45.55 pb (+1.26%)
Trend Table: November 28, 2020
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In the trend table below, when looking at the charts for a particular FX pair, index or commodity, we are we searching for 2 or 3 consecutive boxes of the same colour which might indicate a trend – and a possible trading opportunity. Consecutive (1 & 4 hour, 4 hour/daily, daily/weekly) green boxes indicate a possible short/medium/long term uptrend; red, a possible downtrend, while blue signifies a neutral bias (range trade possibility). The boxes on the trend table merely replicate the look of the charts for the specific time-frame in MT4/5. Assets with a mixture of colours are pretty much ignored as choppy conditions seem likely to prevail.
For instance, if we see consecutive green boxes in the 1 hour and 4 hour time-frames for the FX pair “EURUSD”, that would signify the chance of a move higher in that pair over the next 24 hours. If the dailies were also green that would add to the bullish conviction from a slightly longer term perspective, and if the weeklies are also green then it would give added credence to the longer term bullish view, albeit that it might take longer for the trend to play out, so patience will almost certainly be required. The opposite would be true of red boxes, which could signify downward momentum. The strength of any possible trend depends on the time-frame, with the longer term (daily, weekly charts) obviously having a greater overall weighting than the short-term charts.
In the near term though, the 1 and 4 hour charts are what are likely to combine to indicate the possibility of a trading idea for the next few, possibly up to 24, hours.
Note that a longer term bullish view (green daily/weekly boxes) does not discount the possibility of near term dips (i.e. Red 1 & 4 hour boxes), which may indicate near term weakness and suggesting that we should be looking to buy dips for a longer term rally – and vice versa if the near term boxes are green and the longer term; red.
|1 Hour||Turning Higher||Up – Overbought||Turning Lower||Neutral – Turning Lower?||Turning Neutral||Turning Neutral|
|4 Hour||Turning Higher?||Neutral – Turning Lower?||Neutral – Turning Lower?||Turning Lower?||Neutral – Turning Higher?||Turning Neutral|
|1 Day||Turning Higher?||Turning Neutral||Possible Topping Formation||Neutral||Neutral – Turning Higher?||Turning Higher|
|1 Week||Turning Neutral||Turning Neutral||Neutral – Turning Higher?||Turning Higher?||Neutral – Turning Higher?||Turning Higher|
|1 Hour||Neutral – Turning Lower?||Neutral||Turning Neutral||Turning Lower||Turning Lower||Neutral – Turning Higher?|
|4 Hour||Neutral – Turning Higher?||Turning Neutral||Turning Neutral||Turning Lower?||Neutral – Turning Lower?||Turning Lower|
|1 Day||Neutral – Turning Lower?||Neutral – Turning Higher?||Possible Topping Formation||Down||Neutral – Turning Lower?||Turning Higher|
|1 Week||Possible Basing Formation||Up – Overbought||Up||Down||Down||Neutral|
|1 Hour||Neutral – Turning Higher?||Up||Down||Turning Neutral||Turning Neutral||Turning Neutral|
|4 Hour||Turning Neutral||Neutral – Turning Higher?||Turning Lower||Turning Neutral||Turning Neutral||Turning Neutral|
|1 Day||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Turning Lower?|
|1 Week||Neutral – Turning Lower?||Neutral – Turning Lower?||Turning Neutral||Turning Neutral||Turning Neutral||Turning Lower?|