A tech rally into the close on Friday helped a recovery take hold on Wall Street and continues to have a positive bias into the new trading week. US Democrats are still trying to work on a fiscal support package that could potentially be voted through this week. If so, it could signal a sustainable shift in market sentiment which has been trading very much with the risks in mind recently. Rising COVID second wave risks at a time in which US Congress has failed to deliver on a fiscal support package in the US. With the Presidential election just five weeks away now, political risk is also a factor as Trump is already threatening to take the result to the Supreme Court if he loses. The negative risks would be lessened if a fiscal package can be agreed upon. This morning we see equities continuing on the wave of Friday’s rally, whilst the dollar strength is also rolling over. How long can this improvement in sentiment last may depend upon progress on fiscal support in Congress.
Wall Street closed with strong gains, as the S&P 500 was +1.6% higher at 3298. US futures are continuing this vibe today with the E-mini S&Ps +0.8%. Asian markets traded broadly higher (Nikkei +1.3%, but Shanghai Composite was -0.1%). European markets are showing strong gains, with FTSE futures +1.3% and DAX futures +1.7%. In forex, there is a risk positive bias, with the USD rally falling back this morning. AUD and GBP are performing well, but also we see JPY strengthening too. In commodities, there is a slight break from the trend, with gold a couple of bucks lower, silver down around -1% but also oil lower too by just under -1%.
It is a sparse economic calendar today with nothing of note to worry traders.
There are however, a couple of important central bank speakers to watch for. ECB President Christine Lagarde speaks at 1445BST with any comments on inflation or asset purchases sure to be of interest. Furthermore, there is the FOMC’s Loretta Mester (voter, leans hawkish) speaking at 1900BST.
Chart of the Day – NZD/USD
The deterioration in risk appetite in the past week has had a significant impact to deteriorate the outlook for NZD/USD. A decisive downside break of 0.6600 completed a small top 190 pip pattern and implies a retreat towards 0.6410. This means that the next key support at 0.6490 will come under significant scrutiny in the coming couple of weeks. The bulls need to reclaim 0.6600 quickly to prevent continued downside pressure, but Friday’s bull failure candle reflects the growing sense of selling rallies as the dollar remains on its trend of strength. Momentum indicators show that this support at 0.6490 is a crucial crossroads now, as RSI and MACD especially are on the brink of taking on a decisively corrective outlook. A close below 0.6490 would mark a significant new phase of new bearish trend formation. It would open 0.6370 as the next support. An early tick higher today suggests that the market is holding ground for now, but continued failure under 0.6600 will increase the downside pressure on 0.6490.
The slide on EUR/USD continues. Another negatively configured candlestick on Friday shows that the market is increasingly happy to sell into strength. The importance of the resistance from the old support band 1.1695/1.1750 is growing and how the bulls react around here will be important if a rebound kicks in over the coming days. We now see a new downtrend formation of lower highs and lower lows of the past few weeks. With the top pattern now in place, alongside momentum which is now correctively configured, we see near term strength as a chance to sell. This will at least be in place until 1.1750 resistance can be broken. A retreat towards the 1.1420/1.1490 old highs is still likely.
Cable has been trending lower for nearly four weeks now. This trend has formed lower highs and lower lows, and turned a bullish medium term outlook into a neutral one. As there has been an early tick higher this morning, we see that this downtrend is being tested and is close to being broken. This is coming as the selling pressure has just paused in recent sessions and Cable has formed a number of consecutive neutral to slightly positive candles. However, consolidation breaking a downtrend is not bullish, it is just questioning the pace of the corrective move. There is a pivot around 1.2860 which needs