Primus Weekly - 16th November

Hi Everyone,

The world has become hopeful that the end of the global COVID-19 pandemic is near as Pfizer has announced a successful Phase 3 trial for its vaccine.

Despite the complex storage requirements, the vaccine is simple to manufacture and large-scale production is expected to start soon. Global markets clearly had a sigh of relief, resulting in huge moves in equities, fixed income and gold on November the 9th. In currency markets USDJPY bounced from 103.26 to 105.38 levels – a huge swing for a pair with such deep liquidity. The markets were reflecting increased risk appetite with a focus on re-opening or normalization sectors in equity markets, such as airlines, leisure and hospitality. Whilst it may take another 3-6 months for our lives to resemble any normalcy, we can be assured that we have entered the final stage of the pandemic.

Things have started to settle on the remaining Senate seats – Alaska’s Dan Sullivan has won the re-election, ensuring the Republican Party holds 50 seats at this point, versus Democratic Party’s 48 seats. The 2 remaining seats are determined in a runoff in the state of Georgia in January 2021, but the Republican Party is expected to secure majority in the Senate once again. This means Joe Biden is taking office without having much power to implement his policies. He is facing a divided Congress which has historically resulted in weaker GDP growth, government expenditure, employment, as well as equity markets, as opposed to having one-party rule. The uncertainty and gridlock arising from the split government spills over to private markets, forcing companies and individuals to be careful in terms of the spending and investing. GDP growth seen during periods of united government has been 3.9%, versus only 2.4% during divided Congress.

A number of new secular trends have emerged from this pandemic, such as working from home, cooking at home and DIY to name a few. An observation can also be made about the increased savings rate that skyrocketed to 25% in Q1 2020 in the U.S. Savings rate, an important factor from a macroeconomics perspective, as increased savings by the individuals translate into less retail spending. Excess saving was supported by the stimulus and government transfers which are not expected to continue but what’s certain is that those caught swimming naked when the tide went out, won’t make the same mistake again. The projection by Rosenberg Research is that equilibrium long-term savings rate will stabilize at around 9% (up from 7.2%), decreasing consumers’ contribution to GDP growth from 1.9% to 0.9%. Hard to overemphasize the importance of retail in the context of the U.S. GDP growth – around 70% is consumer driven. The excess savings rate also translate into lower efficacy of government stimulus, given the obvious propensity to save we are witnessing.

Equity markets gained 1.04% and 0.98%, measured by S&P500 and Nasdaq100 respectively. Gold futures printed a steep loss of 3.52%, while US Dollar was fairly stable at -0.14%.

Have a great trading week ahead!

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In The Spotlight

Friday USD 2nd Presidential Debate

 

DateCurrencyEventPrevious Consensus 
TuesdayUSDRetail Sales (MoM)1.90%0.50%
WednesdayGBPConsumer Price Index (MoM)0.40%-0.10%
WednesdayEUREuro Area Consumer Price Index (MoM)0.10%0.10%
WednesdayUSDBuilding Permits (MoM)1.55 *1.56 *
ThursdayUSDInitial Jobless Claims0.71 *0.71 *
ThursdayUSDExisting Home Sales (MoM)6.54 *6.45 *
FridayGBPRetail Sales (MoM)1.50%0.30%
FridayG20 Meeting

*In USD millions

Impact

  • US Retail Sales

US economy, being very consumer driven, is heavily impacted by retail sales and consumer sentiment. Up to 70% of the GDP is related to consumer spending, meaning all data points related to retail are heavily scrutinized, and have the potential to move markets. Increased retail sales are considered bullish for USD, whereas lower or below expectations read is generally considered bearish.

  • Euro Area Consumer Price Index

Inflation measures the rise in consumer prices in an economy over a certain period of time. Higher inflation means that consumer prices have grown compared to the previous period. Higher than expected rate may be both positive or negative for EUR as the market does not like inflation expectations too far off from consensus. Euro Area has been struggling with deflationary environment, therefore a slightly higher than expected inflation can be bullish for EUR, indicating an increased consumer activity. Generally, both high and negative inflation are bearish for currency, while positive and low inflation, in line with expectations, is bullish.

Market Sentiment

EURUSD continues to trade in the tight range of trade in the range of 1.1940 and 1.1600 since late July with 21-day Moving Average currently at 1.1785 levels, acting as a support level. The next key support is near 1.1550 which is an extension of long-term pennant formation, and as well as 34-week Moving Average level. There seems to be both short-term as well as long-term bullish momentum in action as the Moving Averages are stacked (8 > 21 > 34 > 50 > 100 > 200), albeit there’s little air between them. On November the 9th EURUSD kissed 1.1913 levels, the highest since early September, signaling the risk-on sentiment on that day. The price has retreated to 1.1841 levels since then but Stochastic of 66.6 indicates that we the pair may be overbought. RSI of 81 is currently neutral. DMI+ sits at 23.0 and DMI- at 16.9, while ADX of 13 shows that there isn’t much strength left in this recent uptrend.

Support: 1.1785

Resistance: 1.2000

The pair has continued marching higher after breaking 1.3000 resistance back in early November. Stacked moving averages indicate a bullish short-term and long-term trend. Last week 8-day Moving Average acted as a support near 1.3165 levels, while upper Bollinger Band forced the price lower from 1.3284 levels. RSI of 59.6 is neutral, Stochastic of 64.3 signals overbought levels and DMI+ of 23.6, DMI- of 13.6 show there’s more bullish momentum in play. ADX is 20.0, signaling that the upward trend may not be over yet.

Support: 1.3165

Resistance: 1.3500

The pair has continued marching higher after breaking 1.3000 resistance back in early November. Stacked moving averages indicate a bullish short-term and long-term trend. Last week 8-day Moving Average acted as a support near 1.3165 levels, while upper Bollinger Band forced the price lower from 1.3284 levels. RSI of 59.6 is neutral, Stochastic of 64.3 signals overbought levels and DMI+ of 23.6, DMI- of 13.6 show there’s more bullish momentum in play. ADX is 20.0, signaling that the upward trend may not be over yet.

 

Support: 1.3165

Resistance: 1.3500

  • USDCHF

This pair confirmed last week’s risk on sentiment as the price recovered from 5-year low of 0.8989 to 0.9136 on November the 9th. Since then the pair has oscillated near 0.9131, giving little guidance on the short-term trend. 100-day Moving Average has stopped the price near 0.9177 levels, while 21-day Moving Average has stopped the price from falling below 0.9118. RSI is neutral at 32.3 and Stochastic overbought at 71.6

 

Support: 0.9119

Resistance: 0.9177

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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