If ever there was a lesson in watching the newsflow as well as the technicals it was yesterday. The dollar weakening and positive risk appetite was turned completely on a sixpence with Trump’s announcement to end negotiations on fiscal support. Trump has pulled the plug on the White House negotiating with the Democrats, saying that Nancy Pelosi is “not negotiating in good faith”. He has ordered negotiations to stop until after the Presidential election. This coming even after Fed chair Powell spoke of the need for fiscal support to be used alongside monetary policy. Risk appetite flooded away and the dollar strengthened. Now, it is all about the reaction today. We will see what the recent risk recovery was really made of. Was it all a load of hot air, just pumped up on the assumption that a fiscal support package of possibly towards $2 trillion would flood the economy? Or is there something deeper to the move? An initial dollar strengthening on the disappointment has started to ebb again early this morning. Risk appetite is rebounding, with Treasury yields higher, the dollar broadly lower, US index futures higher and gold higher. Can this move continue into and through the US session. If US traders come in and see another opportunity to sell, it would signal a confirmation that there is likely to be at best choppy trading (likely in front of the election), but could even see another leg of dollar strengthening. It could be a key session ahead.
Wall Street gave up earlier session gains to close with a sharp turn lower into the close. The S&P 500 ended -1.3% lower at 3361, but futures have rebounded slightly today with the E-mini S&Ps +0.4%. This has left a mixed session in Asia, with the Nikkei -0.1% and Shanghai Composite -0.2%. In Europe, there is an uncertain look, although a degree of support for FTSE futures currently +0.1%, with DAX futures -0.2%. In forex, there is a mild move back out of USD as risk rebounds early today, with AUD and GBP performing well, whilst JPY is the main underperformer. In commodities, we see a bounce back higher on gold (+$13, or +0.5%), whilst silver is also higher (+2.2%). Oil has opened lower by around -1% after big recovery gains in recent sessions.
Today is quite light on key entries for the economic calendar. It is only really the EIA Crude Oil Inventories at 1530BST of interest, with an expectation of a slight stock build of +0.4m barrels (after a drawdown of -2.0m barrels last week).
It is however, a day heavy with central bank speakers. The ECB’s Christine ,Lagarde takes top billing at 1310BST where the hope is that perhaps she will give more away that yesterday’s speech. Then later in the session, the Fed speakers begin, with the FOMC’s Neel Kashkari (voter, very dovish) at 1800BST. The at 1900BST the FOMC’s John Williams (voter, centrist) speaks.
Chart of the Day – USD/CAD
The recovery outlook for the dollar has certainly under pressure across major pairs, however, has there been another change in outlook? With USD/CAD the market has been dragged back to test a five week uptrend. Whilst intraday tests have been seen in recent sessions, a pick up and positive candle into the close last night has firmed the support. More importantly, the breakout support around 1.3240/1.3260 has also held firm. The recovery outlook has been on the brink of breaking down, but the bulls have responded well. They will now look to build a position back above 1.3310 which is the basis of an old long term pivot, with a decisive close above re-opening 1.3420 again. Momentum indicators are still at a crossroads though. The RSI needs to hold above 50 (a basis where support has formed recently), with Stochastics also hovering around their neutral point, whilst MACD lines have converged. It could all hinge on the reaction today, where a second bull candle above 1.3310 would suggest strengthening buying pressure again. The bulls will be looking to get back above 1.3330/1.3340 initial resistance to regain some sort of positive outlook again. The importance of 1.3240 support is ever growing now.
It is an intriguing battle for control right now. Clearly there is a newsflow impact on trading, as Trump’s decision to pull the plug on fiscal support negotiations has turned right appetite sour and strengthened the dollar. How this now develops in the coming days will be key. EUR/USD looked to be developing a positive outlook as the market moves above 1.1750 and broke the five week downtrend. The intraday decline now drags the market back into 1.1695/1.1750 key pivot area and this is a key area to see what the outlook really is. Closing below 1.1695 would now reflect a growing and renewed dollar strengthening, whilst closing decisively back above 1.1750 would be a strong response to suggest that the market is turning against the dollar. Resistance is at 1.1805 now from yesterday’s high.
A sharp intraday turn lower has shifted the emphasis within the 1.2670/1.3000 range once more. A bearish engulfing candlestick has put a halt to upside pressure and bolstered the resistance at 1.3000 again. Breaking the 8 session uptrend reflects this. How the market responds today will be telling as to whether th