Democrats reject latest stimulus package offer, Brexit trade agreement deadline nears

(Source: KVB PRIME)

Lastweek’s equity market

US President Donald Trump left hospital in good spirits following his COVID-19 diagnosis,while investors looked to Hurricane Delta and the upcoming election for impetus .

The US equity market performed strongly overall; the Dow Jones opened at 27828.42, hitting a weekly high of 28676.29 and a bottom of 27728.03, closing at 28589.07.

Meanwhile, the NASA DAQ opened at 11345.24, saw a weekly high of 11727.6 and bottom of 11256.26 before closing at 11725.85

The S&P 500 opened at 3408.63, rose to a weekly high of 3482.34 and bottomed out at 3354.54, closing at 3477.13.

The whole market dropped on Tuesday 6^th October following President Trump’s announcement that he would been ding all stimulus plan discussions. After that, the market rebounded, presumably due to a renewed focus on the upcoming US election.

Despite ongoing preparation for a second spike of the virus, the European market behaved similarly to the US but lacked the support from fundamentals. We should also be aware that has been an over-supply of liquidity on the market recently.

Last week, China’s stock markets were closed due to a long national holiday. The Chinese market opened high and strong as all the reports show increased consumption across the economy during the holiday.

Oil forwards contracts

Due to supply cut from the Middle East and the recent hurricane in North America impeding supply there, the oil price has climbed.

WTI crude oil opened at $39.22 and moved past $40.6 to hit a high of $41.2, which was close to the highs seen in September.Brent crude oil, meanwhile, opened at $39.27 and rose to $42.85 before refreshing new highs at $43.34.

The economy has been recovering, however it did not meet expectations and oil consumption data is unlikely to be as optimistic as the initial market predictions.

On the other hand, many Mexican oil fields are not ready to resume operation and so the oil price could keep reconsolidating upwards this week.

Last Friday’s currency pairs

·        USDX down to92.98 (-0.577%)

·        EUR/USD up to1.18286 (0.570%)

·        GBP/USD up to1.30456 (0.865%)

·        AUD/USD up to0.72407 (1.006%)

·        NZD/USD up to0.66709 (1.292%)

·        USD/CAD down to1.31099 (-0.634%)

·        USD/JPY down to105.586 (-0.389%)

Global fundamentals

United States

US President Donald Trump raised his offer of a new stimulus package to$1.8 trn following his decision to halt negotiations with Democratic Party officials, however House Speaker Nancy Pelosi declined the offer.

Additionally, the previously scheduled debate between the President and election opponent Joe Biden on 15^th October has been cancelled due to disputes over the format of the event.

The US Treasury Department announced on Thursday that the administration had blacklisted 18 Iranian banks that have so far escaped some US restrictions; the sanctions were implemented using powers designed to punish entities associated with terrorism, ballistic-missile development and human-rights abuses.

The Iranian financial sector was also designated as off-limits under an executive order that President Trump initially signed in January.

Japan

At present, Japan has no plans to issue central bank digital currencies but nevertheless must increase its rate of research on the possibility, the government’s top spokesman said on Friday.

Major central banks across the world are looking into the idea of issuing digital currencies amid the popularity of Bitcoin and other crypto-currencies.

Crude oil

The Environmental Protection Agency (EPA) stated 91.72% of oil fields in Mexico will be shut down due to the recent storm.

Production will be cut by 1.7 million barrels per day and nature gas production will be reduced by 62.43% as a result of the weather conditions.

This week’s key fundamentals

Dovish denotes negative expectations,Hawkish denotes positive expectations

Tuesday

·        China:September trade account in CNY/USD(Dovish)

·        Europe: German September CPI (Dovish), UK September employment rate and unemployment benefits application figures(Dovish),Europe’s October ZEW economic sentiment; ECB President Lagarde’s speech to IMF; BoE Governor Bailey’s speech

·        US:September CPI(Hawkish)

Wednesday

·        Europe:August IPI(Dovish); ECB President Lagarde’s speech

·        US:September PPI (Hawkish)

Thursday:

·        Europe: OPEC and JTC meeting; Brexit trade deal discussion deadline (Dovish)

·        US:API weekly report(Hawkish), weekly initial jobless claims data; October IPI from NY Fed (Hawkish) ;September import price index(Dovish);EIA weekly report; Dallas Fed’s Kaplan’s speech

·        Australia:September employment rate(Dovish); RBA Governor Philip Lowe’s speech

Friday

·        Europe:August current accounts, September PI(Dovish); ECB President Lagarde’s speech

·        US: September monthly CPI(Hawkish);September IPI (Hawkish); August commercial inventory rate; University of Michigan consumer confidence index(Hawkish)

Today’s major asset analysis

EUR/USD and GBP/USD

The euro has been out of our short-term expectation range: the price broke 38.2% and later 50% of the retracement value from the trend seen on 27th August; 61.8% can now be expected around 1.1865.

However,there need not be any alteration to the mid and long term expectations due to a lack of fundamental support. Should the price touch 1.1865, the next 2-3 days’ trend is crucial–if the price keep climbing then the drop that follows will likely be sharp.

The EUR’s price has climbed back slowly and the drop speed should be slow as well. Regarding the mid to long term trajectory, the resistance after 1.1865 looks to be 1.19;the monthly support is our first target and a further support can be found at 1.168.

The GDP is similar, but the pound is weaker than the EUR and the current price is close to its monthly support. If the price breaks the support associated with weak fundamentals –i.e. no agreement with the EU or other trading partners and a weak economy recovery – the price is expected to drop further.

In terms of the resistance, 1.309 remains valid, while 1.29 and 1.28 are both key support levels. 

[EUR/USD,dailychart] (Source: KVB PRIME)

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

AUD/USD

AUD is behaving in a similar manner to the GBP. Due to COVID-19, the State of Victoria is still under restrictions and most international trading remains pending.

Property prices are also climbing due to over-supplied liquidity, which indicates unsustainable levels of consumption. Key industries such as migration, farming and energy are being dragged down.

Furthermore, the AUD price is lacking fundamental support and most of the price momentum is coming from the USD. Intraday, the key support is at 0.715, while the resistance is around 0.72611.

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

Gold

Gold enjoyed another rise last week; on 8th October, the price was pushed up by capital movement. The previous metal has largely shown to not be directly linked with ‘risk sentiment’so much as‘capital sentiment’.

When compared with the USDX’s price movement, the gold price itself only contributed 35.68% of the momentum last week, suggesting gold (as a speculative product) is no longer the only objective on the market. Less capital was contributed than was invested in July.

The upwards resistance is at 1940 and a key support is at 1910 with another around 1900. As for the true value, the price could correct down to near 1700 in the very-long term.

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

USD Index

The USD index is driven hard by two of its major components, the euro and pound. The USDX does not look too optimistic in the short term; this Thursday, after the deadline for a Brexit agreement has passed, the EUR and GBP prices might begin to differ more noticeably.

The USDX could drop in the face of a stronger EUR but the severity would likely be mitigated due to the weak GBP.

Currently, the USDX is close to 93, which is a key support as we analysed last week. Consequently, in the mid-to-long term, USDX looks set to perform stronger with a new resistance at 93.65. 

[USDX, daily chart] (Source: KVB PRIME)