Major markets look somewhat cautious in early moves today as several key issues remain on a knife-edge. US politics remains front and centre. Whilst the market appears to be positioning for a Biden victory in the US Presidential election, there is a lack of clarity still on whether a fiscal stimulus agreement can be struck prior to the election. In some ways, the market is taking it as a win/win, with the Democrats driving a hard bargain (wanting more funding), but equally in the knowledge that the opinion polls have Joe Biden around 10%/12% ahead. Whether fiscal support is agreed now or after a Biden victory (still an assumption at this stage) then it will be risk positive. Markets are also tentatively pricing for moves towards a potential Brexit trade deal agreement. However, there is a balance to this mood today, as the Peoples Bank of China (the PBoC) made it cheaper to short the Yuan and this has just weighed across risk assets today. It is all leaving a slightly cautious look for forex with the dollar clawing back some of Friday’s losses. This is weighing on gold, whilst the Aussie is also slipping back slightly. Despite this though, equities still seem to be sustaining the positive bias. Today is Columbus Day in the US and cash Treasury markets are closed which could leave markets slightly lacking direction.
Wall Street closed decisively higher on Friday (S&P 500 +0.9% at 3477) whilst futures are showing mild early gains today (E-mini S&Ps +0.2%). This has left a mixed to slightly positive Asian session, with Nikkei -0.3% but Shanghai Composite +2.4%. European markets are also mildly positive in early moves, with FTSE futures +0.1% and DAX Futures +0.5%. In forex, there is an edge of USD outperformance along with JPY. AUD is the main underperformer. In commodities, gold is a shade lower (-0.2%) with the dollar strength, but risk appetite is still helping silver to move higher (+0.6%). Oil is around -1% lower in early moves.
There are no key data releases on the economic calendar today. It is also Columbus Day public holiday in the US, so be aware that there may be thin markets and this can sometimes make for elevated volatility.
Chart of the Day – EUR/JPY
There has been a very mixed and rather uncertain feel to risk appetite in the past week. This is reflected in Euro/Yen once more gravitating around 124.40 again (a feature of trading throughout August and September). However, the bulls have been trying to grasp control in the past week, but can they now push on. A degree of traction that they had been seeing into the close on Friday is just waning slightly today. However, if they can continue to buy into intraday weakness, and use the mid-range pivot of the past ten weeks at 124.40 as a basis of support, then they can push on. There is a supportive little uptrend (today around 124.60), meaning 124.40/124.60 is a mini buy zone today. Initial resistance is at 125.10 from Friday’s high. Momentum indicators have been improving but for a bull run to be sustainable, RSI needs to pull into the 60s. Then the bulls can begin to eye the resistance towards the top of the range, around 126.45/127.05. Initial higher low support is at 123.85.
There have been question marks surrounding moves on EUR/USD in the past week, however, dollar selling pressure seemed to move up a gear on Friday to pull EUR/USD to a three week high. This confirmed a break of the five week downtrend and really begins to find some traction in a renewed positive outlook for the pair. Momentum indicators have really turned the corner too, with a bull cross on MACD lines (a medium term positive signal) and Stochastics rising at two month highs. If the RSI moves into the 60s, this really is confirmation that the bulls are back. The old 1.1750 level is now becoming a basis of support, whilst a (slightly re-drawn) two week uptrend is supportive today around 1.1765. The bulls will be looking at initial resistance at 1.1870 before 1.1900/1.1920. The first real support is now 1.1725 which is a higher low from mid last week.
After some consideration around the 1.3000 resistance, Cable is looking to break through the barrier of 1.3000/1.3050. These were the old lows of August which have since been a basis of resistance for the past month. If the bulls can now break clear above 1.3050 then it would be a strong statement for further gains. Already we see momentum building positively, with the Stochastics especially moving into bullish configuration. If the RSI can move into the 60s and MACD lines accelerate above neutral, then the bulls are in control once more. Initially, trading consistently above 1.3000 would be a strong signal, with a close above 1.3050 being a breakout. The support at 1.2845 is now a near term key higher low. There is certainly an argument for saying this is already a base pattern formation (or upside break from a consolidation rectangle) which would imply +330 pips towards 1.3330 in the coming weeks. If the Brexit trade talks go well, this is a definite possibility.