Major markets have become riddled with uncertainty. Although there is still an expectation that Joe Biden is (currently) very well placed to become President, just under three week’s to go there is plenty of time still for Trump to engage a recovery. A fiscal support package agreed before the election is increasingly less likely as Democrats once more reject a $1.8 trillion package from the White House as being inadequate. Risk appetite took a dive late Monday as Johnson & Johnson paused its COVID vaccination trails, and this has now been compounded by a similar move from another US pharma company, Eli Lilly. Although these kinds of pauses are common place in phase three trials, it has still jolted market sentiment. US yields have jagged lower, flattening the US yield curve and supported the safe haven US dollar (and also the Japanese yen too). Sterling will be particularly sensitive to EU/UK trade deal headlines in the coming days and a lack traction in front of this week’s soft deadline has left Cable at risk of the bears.
Wall Street ended a run of four successive days of gains, with a pullback yesterday. The S&P 500 was -0.6% at 3512, but futures have stabilised slightly this morning, with the E-mini S&Ps +0.2%. This has driven a mixed look to Asian trading, with the Nikkei +0.1% and Shanghai Composite -0.6%. European markets are mixed to slightly higher with FTSE futures +0.4% and DAX futures +0.1%. In forex, we see GBP struggling again this morning, whilst there is little real direction elsewhere amongst the majors. In commodities, we see gold has found a touch of support (+0.3%) after yesterday’s sell-off, whilst silver is -0.2% back. In a continuation of a mixed theme, oil has unwound some of yesterday’s bounce, and is around half a percent lower.
It is quite light on the economic calendar today. The Eurozone Industrial Production is at 1000BST and is expected to improve by +0.8% on the month of August (after growth of +4.1% in July) which would leave the year on year decline at -7.2% (up from -7.7% in July). Then later on is the US PPI, or factory gate inflation for September, at 1330BST. Consensus expects headline PPI to improve to +0.2% year on year (from -0.2% in August), whilst core PPI is expected to improve to +0.9% (from +0.6% in August).
There are also several Fed speakers to watch out for today. The FOMC’s vice chair Richard Clarida (voter, leans slightly dovish) is speaking at 1400BST. FOMC board member Randall Quarles (centrist) is speaking at 1500BST whilst the FOMC’s Robert Kaplan (voter, centrist) speaks at 2300BST.
Chart of the Day – AUD/JPY
It is interesting to see that throughout so many forex majors and crosses, markets are struggling for sustainable trends. The swing lower on risk appetite early this week has seen safe haven plays benefit (such as the yen), whilst the higher risk currencies (such as the Aussie) have struggled. This move has dragged an improving outlook on Aussie/Yen back to a recovery uptrend and at another crossroads. Once again, it seems that the bulls have been unable to find traction. Already the recovery failure (at 76.50) was under the resistance of an old pivot at 76.75 and leaves recovery momentum faltering. With indicators such as RSI back under 50, MACD lines struggling under neutral and Stochastics crossing back lower, the bulls are being neutralised again. Will this now turn corrective? A two week uptrend is creaking and a closing breach would at best confirm a neutral outlook, but would also pressure another old pivot around 75.00. Closing below 75.00 turns the market corrective once more to test 73.95. Resistance is strong now between 76.50/76.75.
The efforts of the bulls over the past couple of weeks seem to be coming to little. EUR/USD has struggled to find positive traction in a recovery and now, with yesterday’s decisive negative candle, the move seems to be over. A feature of ranging markets, is that attempts to form a new trend are quickly snuffed out. And so, with two opposing trendline broken in the past week (a five week downtrend was broken last week, and now a two week uptrend has been broken), we have to be neutral. The pair has been dragged back into the old 1.1695/1.1750 band once more, which seems to be very much neutral territory now. Momentum indicators have flattened off around their neutral points (RSI flat a shade under 50, MACD lines flat a shade under 0). This appears to be a market now stuck in a 400 pip range (between 1.1610/1.2010). There would be a negative bias forming if there was a break under 1.1695 now (to open 1.1610). Resistance at 1.1830 has also strengthened in recent days.