20200918 Interest rate steady still, equity market remains volatile

(Source: KVB PRIME)

The US equity market behaved in an unpredictable, roller-coaster-type fashion yesterday; the S&P 500 closed down by 0.84% at 3357.01, the NASDAQ closed down 1.48% at 11080.95 and Dow Jones fell by 0.47% to 27901.98.

The European market was much the same as the DAX closed down by 0.36% at 13208.12 and FTSE fall 0.47%at 6049.92.

Meanwhile, the Chinese market reconsolidated - the Shanghai Stock index dropped 0.41%, while the SZSE Component index and GEM index both declined by 0.038% and 0.1%, respectively.

Crude oil forward contracts

WTI fell from $40.2 to$40 early yesterday –though after slightly recovering during the European session, the Joint Ministerial Monitoring Committee (JMMC) online meeting delivered positive fundamentals for the oil price, resulting in a surge back to $41.2. WTI ultimately closed up at $40.94, representing a 4.57% rise in total.

On the other hand, Brent oil closed down by 2.32% at $43.27 per barrel.

Precious metal forward contracts

The gold price dropped upon opening, from $1955 to $1940 before hitting a bottom of $1932 during the US session. Gold eventually closed down by 0.77% at $1943.95 per ounce.

Silver, however, saw a 0.32% decrease to$27.05 per ounce.

Currency pairs

·        USDX down to 92.89(-0.290%)

·        EUR/USD up to1.18424 (0.233%)

·        GBP/USD up to1.29679 (0.019%)

·        AUD/USD up to 0.73074 (0.071%)

·        NZD/USD up to 0.67447 (0.238%)

·        USD/CAD down to 1.31589 (-0.121%)

·        USD/JPY down to 104.74(-0.173%)

Global Fundamentals

United States

The number of new applications for unemployment benefits this week was reportedly 0.86 million - slightly worse than the expected 0.85 million, but an improvement on the previous week’s figure of 0.88 million.

The Federal Reserve also announced that it is planning to extend the restriction of re-purchase bonds and shares until the end of the year.

Europe

The Bank of England (BoE) has revealed it will maintain both its 0.1% interest rate -as well as its Asset Purchasing Facility (APF) at £75bn- which met market predictions.

The BoE also stated that if inflation target was not on par with expectations, it would not apply a tighter monetary policy.

Representatives from the bank noted they also discussed the efficiency and effectiveness of negative interest rates and potential methods of applying them.

Additionally, the Vice President of the European Central Bank (ECB)Luis de Guindos opined that inflation is the fundamental lynch pin of economy recovery, rather than the Euro price.

Japan

The Bank of Japan (BoJ) announced that it will maintain current interest rates and continue its flexible monetary policy to support business finance and aid the sustainability of the financial markets whilst Japan continues its recovery from the coronavirus lockdowns.

International

The World Trade Organization (WTO) released its latest World Trade Outlook Indicator, which came in at 95.6 – below the standing rate of 100 – showing that global trade activity is still performing below expectations.

Crude oil

According to operator reports, the Bureau of Safety and Environmental Enforcement (BSEE) estimates that approximately 30.69% of the current oil production (and 24.73% of the natural gas production)in the Gulf of Mexico has been shut-in.

Working gas storage in the contiguous United States was 3,614 billion cubic feet (about 102.34 billion cubic meters) for the week ending 11^th September, a net increase of 89 billion cubic feet - or 2.5% from the previous week - the US Energy Information Administration (EIA) said in a report released on Thursday.

The total working gas storage also increased by 17.4% from this time last year, or 13.2% above the five-year average, according to the EIA's Weekly Natural Gas Storage Report.

Today’s major asset analysis

EUR/USD and GBP/USD

Even just by participating in the reconsolidation phase, we could have made a  60-pip profit yesterday. Our strategy for the pound could also have captured 60 pips.

The GBP is close to our key resistance at 1.303, which lead to a further drop of around 42 pips. It does not seem wise to participate in the short-term reconsolidation of the Euro, though we will still hold on to our mid-to-long-term strategy predictions for the GBP and EUR for now.

Equally, we should also note that yesterday’s US M1 money supply was seen to be shrinking, while the M2 supply was pumped.This indicates that the market’s leverage is going wild and the overall level of risk is rising.

If there are any risk events within the US market, we will need to adjust our predictions for both the EUR and GBP.

[EUR/USD, four-hour chart] (Source: KVB PRIME)

[GBP/USD, four-hour chart] (Source: KVB PRIME)

AUD/USD

Our short-term estimates predicted the 12 pips drawback but the movement didn’t follow afterwards.Tonight’s fundamentals will likely weaken the USD, so we expect AUD/USD will draw back to 0.7305 and rise another 30 pips.

Participation would likely bring a number of risks; the AUD price is still relatively too high and we hold negative expectations for its trajectory over the coming sessions.

[AUD/USD, four-hour chart] (Source: KVB PRIME)

[AUD/USD, daily chart] (Source: KVB PRIME)

Gold

The price of gold followed our predictions and fell without drawing back to 1960. Today, during the Asian session, the price looks set to continue consolidating towards 1960 and potentially follow up with another $5 rise.

There is small and medium capital participation around $1932. We still didn’t expect gold to rise, but with tonight’s fundamentals, traders will need to be more careful when opening positions: if the price broke our weekly average, we could potentially capture a $7-$9 profit margin. 

[XAU/USD, four-hour chart] (Source: KVB PRIME)

USDX

With strict risk control,a $0.2 profit margin could be on the cards today. Currently, the US equity markets not looking optimistic, but it seems likely the price will climb back to around $93 in the near term. 

Tonight’s trade balance data will also put more pressure on the USDX, potentially dragging it back to $92.7. 

[USDX, four-hour chart] (Source: KVB PRIME)