“Ready and willing” not aggreement on Brexits expolded

Global equity market

(Source: KVB PRIME)

After performing strongly on Monday, the US equity market reconsolidated on Tuesday. The S&P 500 fluctuated down 0.63% to 3511.93, while the NASDAQ decreased slightly (by 0.04%)to 12083.17 and the Dow Jones saw a decrease of 0.55% to 28619.81.

The European market was also relatively weak – the DAX 30 closed down by 0.91% at 13018.99 and the FTSE dropped 0.53% to 5939.71.

The Chinese stock market also saw some reconsolidation: the Shanghai Stock index increased almost 0.04%, the SZSE Component index increased 0.66% and the GEM index went up 0.26%.

Crude oil forward contracts

Due to the continuing slow recovery of Mexican oil production, WTI oil increased 1.7% to $40.40 per barrel.

The Brent oil price also went up 1.5% to $42.45 per barrel.

Precious metal forward contracts

Gold dropped another 1.676% yesterday, breaking through the key support level of $1890.

Sliver went down in a similar manner, breaking through the $24 per ounce threshold, marking a 4.22% drop.

Currency pairs

·            USDX up to 93.51 (0.054%)

·            EUR/USD down to 1.17433 (-0.586%)

·            GBP/USD up to 1.29334 (0.991%)

·            AUD/USD down to 0.71568 (-0.703%)

·            NZD/USD down to 0.66479 (-0.014%)

·            USD/CAD up to 1.31352 (0.206%)

·            USD/JPY up to 105.47 (0.161%)

Global Fundamentals

United States

US Senate Majority Leader Mitch McConnell said on Tuesday that the next coronavirus relief bill will be worth around $500 bn, with President Donald Trump tweeting‘go big or go home’in reference to the stimulus debate.

However, House Speaker Nancy Pelosi rejected the Trump administration’s most generous offer to date as ‘one step forward, two steps back’.¹

The US’ September CPI was announced as 0.2%, lower than last month’s figure of 0.4%. The Federal Reserve stated family spending is likely to be 3.4%, beating the previous month’s 3%.

State Fed representatives continued to express concern that the coronavirus will further slow down the country’s economic recovery.²

UK

Two days before the deadline, UK Prime Minister Boris Johnson's spokesman James Slack the PM is‘ready and willing’ to accept a Brexit without a trade agreement³, which caused the GBP price drop.

The EU and UK have ostensibly been unsuccessful on solving fundamental issues like fishing rights and cooperation support plans.

Bank of England (BoE) Governor Andrew Bailey has said the BoE is not yet in a position to decide whether it should cut interest rates to negative territory as there is more work to be done on what effects they might have.

However, with the economic future far from certain, the bank did add negative interest rates to its ‘toolbox’ back in August, though Bailey said this does not mean they intend to use them.⁴

In its latest World Economic Outlook report, the International Monetary Fund (IMF) noted that it expects the global economy to have contracted by 4.4% in June, compared to the 5.2% contraction highlighted in June's publication.⁵

Oil

OPEC has once again cut its 2021 oil demand forecast as virus cases rise worldwide, having steadily lowered its predictions from the original 7m barrels per day (bpd) expected back in July.

The group also cut its estimate of world oil demand in the current quarter by 220,000 bpd, while leaving its estimate of the scale of this year’s historic contraction in oil use steady at 9.47 million bpd.

OPEC also forecasts that demand for its crude will be 200,000 bpd lower than expected next year at 27.93 m bpd because of the reduced global demand outlook.⁶

Today’s major asset analysis

EUR/USD and GBP/USD

Tomorrow is the deadline for the UK-EU Brexit negotiations. However, there has been no further progress on fundamental issues like fisheries and a regional financial support plan. As a result, UK PM Johnson has said he is now‘ready and willing’ to accept Brexit without a trade agreement⁷.

Both the euro and pound dropped further yesterday and tested their first support. A further drop would likely require additional fundamentals and time to ferment.

For the EUR, the support is around 1.17 and the upwards resistance is around 1.176.

Meanwhile, the GBP’s support is around 1.28 but price will probably test 1.286 first with the upwards resistance at 1.296.

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

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

AUD/USD

The Australian dollar tested both the support 0.7148 and resistance 0.72015 yesterday. It’s worth noting a disproportionately high AUD price is not good for Australia’s economic recovery and international trading, especially after China banned Australian coal and iron ore yesterday.

The Aussie is facing an upwards resistance around the weekly EMA and its support is around 0.7132.

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

Gold

Gold nosedived yesterday, another great escape for venture capital. The price dropped $32 within four hours, which along with the trading volume created new record for the past two weeks.

Nevertheless, the speed of the price drop means a reconsolidation will likely follow.The first resistance is around 1898 with another around 1905. If the price drops through the 1890 barrier again, its next support will likely be just under it.

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

USD Index

The USDX defended $93 and went stronger yesterday due to the dropping EUR and GBP. The price broke the key resistance at 93.4 and is struggling around $93.5 now.

After one week, the price has come back up to the weekly EMA. The USDX’s upward resistance is around 93.7 and the support looks to be around 93.4.

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

USD Index

USDX defended $93 and went strong due to dropping EUR and GBP. Price broke key resist at 93.4 and is struggling around $93.5 now. After one week, price comes back up weekly EMA. Up resist is around 93.7 and support is around 93.4.

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

[i]CNN politics （2020）

Key moments from contentious McConnell, McGrath debate

https://edition.cnn.com/videos...

[ii] US Bureau of labor statics （2020）

Consumer Price Index

https://www.bls.gov/cpi/

[iii]Youtube（2020）

Breaking News! Boris Johnson Questioned On Brexit & Russian Espionage https://www.youtube.com/watch?...

[iv]CITYA.M. (2020)

Andrew Bailey says Bank of England ‘not there yet’ on negative interest rates

https://www.cityam.com/bailey-...

[v]IMF(2020)

World economic outlook

https://www.imf.org/en/Publica...

[vi]CNBC (2020)

OPEC again cuts 2021 oil demand forecast as virus cases rise

https://www.cnbc.com/2020/10/1...

[vii]Youtube（2020）

Breaking News! Boris Johnson Questioned On Brexit & Russian Espionage https://www.youtube.com/watch?...