Primus Weekly - 26th October

Global coronavirus outbreak is not showing signs of slowing – a number of countries, including France, the U.S., Germany and Italy have reported a new record of daily cases within the last couple of weeks.

The U.S. is in a dire situation as the cases reach a new high for a second straight day. Compared to the first wave back in April and May when the virus was rapidly spreading in coastal metropolitan areas, this wave is hitting mostly the Midwest states such as North Dakota, South Dakota, Wisconsin and Montana. All these states report the highest number of new cases per capita last week. Also, a number of states have reached record high hospitalizations– a statistic that most health experts are extremely worried about, given that timely and adequate access to medical resources is critical for those in risk groups. The public discussion about the mandatory mask policy is gaining momentum with authorities emphasizing the importance of slowing the spread of the virus as we are nearing winter season. Enforcement of such policy will be challenging though, given the reluctance of the American people to adhere to authoritarian policies. Partial lockdowns are also being discussed, especially during Presidential Debates as President Trump and Democratic nominee Joe Biden have different opinions on this topic. Donald Trump is very much against any lockdown, whilst Biden is promoting partial and measured restrictions. The impact of record new cases on asset prices has been relatively muted as the news flow in relation to the elections and stimulus bill has been dominating the markets. Gold futures were largely flat last week, attempting to break out from 1,920 resistance levels but closing near 1,902. US Dollar, measured by DXY index, was down last week by 1%.

Positive data was reported from the UK last week when retail sales picked up by 1.5% in September, vs the expectation of 0.4%, on a monthly basis. The Office for National Statistics reported that the rise in Q3 was at record pace of 17.4% between July and September. The spending was mostly discretionary in nature, similar to the US latest data, as people opened their wallets for clothing, shoes and dining out. DYI related services and goods did also well. It should be noted that this data is not inclusive of October numbers when curfews were implemented, forcing pubs to close at 10.30 PM. The Office of National Statistics also released September CPI data for the UK which was in line with expectations of 0.5% on an annual basis but slightly below monthly expectation (actual 0.4% vs expectation 0.5%). Any positive trend in inflation numbers is welcomed as the rest of Europe is still trying to fight with potential deflation. Deflation is dangerous as people perceive the value of money growing with time, and hence are reluctant to spend today. This introduces a dangerous spiral whereby businesses are unable to generate revenue and may start laying off workforce. GBPUSD gained 1% last week but that again can be attributed to positive Brexit news when European negotiators signaled a potential deal by mid-November.

Please find the below report to read more analysis of key macro and economic events this week!

Have a great trading week ahead!

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In The Spotlight

Friday USD 2nd Presidential Debate

 

DateCurrencyEventPrevious Consensus 
MondayUSDUSD New Home Sales (MoM)1.01 *1.02 *
TuesdayUSDDurable Goods Orders0.5%0.7%
ThursdayJPYBoJ Interest Rate Decision-0.1%-0.1%
ThursdayUSDInitial Jobless Claims0.79 *0.76 *
ThursdayUSDGross GDP (Annualized)-31.4%30.8%
ThursdayEURECB Interest Rate Decision0.0%0.0%
ThursdayEURGerman Consumer Prices (YoY)-0.4%-0.4%
ThursdayEURECB Monetary Policy Statement
FridayEUREuro Area Consumer Prices (YoY)-0.3%-0.3%
FridayUSDMichgan Consumer Sentiment Index81.279.0

*In USD millions

  • US GDP growth

GDP data shows the monetary value of all the goods and services produced in the U.S. A negative number indicates a contraction of economic activity while a positive number shows an expansion. U.S. is expected to print a record growth of 30.8% since WWII after a record slowdown in previous quarter. A better than expected growth is generally positive for USD, whilst a print below expectations tends to be negative.

 

  • 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. Generally, both high and negative inflation are bearish for currency, while positive and low inflation, in line with expectations, is bullish.

Market Sentiment

EURUSD has broken the resistance level of 1.1800 last week, ending the week up at 1.8550. Short-term trend is pointing higher with Exponential Moving Averages stacked (8 > 21 > 34) and with 8-day Moving Average offering support at 1.1811 levels, suggesting strong upward trend. 24% Fibonacci retracement level (measured from June lows) is also offering support at 1.1800. Also, a diagonal support line with a number of touch points has formed, indicating that strong support levels have been formed for the pair. Stochastic of 75.2 signals EURUSD being overbought whilst RSI of 38.6 is neutral. EURUSD is currently trading near the upper levels of Bollinger Bands so the price might retreat to 1.1768 levels before shooting higher.

Support: 1.1800
Resistance: 1.2000

NZDUSD pair has been crawling higher, hitting a monthly high of 0.6680 last week. Short-term Exponential Moving Averages are stacked, indicating a potential short-term bullish move (8 > 21 > 34). 62% Fibonacci level has been offering resistance at 0.6686 levels. The pair seems to be in a squeeze setup, measured by Keltner and Bollinger bands as the volatility has been suppressed since October 16th. Looking at the Moving Averages and the direction of the squeeze, we would expect the pair to climb higher.

Support: 0.6651
Resistance: 0.6686

USDCAD has been moving lower, retreating from September high of 1.3393 levels to 1.3120 last week. Stacked Moving Averages support short-term down trend (34 > 21 > 8). Support level can be found at 79% Fibonacci retracement level of 1.3090, while 21-day Moving Average is offering resistance near 1.3209 level. Stochastic is 37.3 while RSI is near 81.

Support: 1.3090
Resistance: 1.3209

This pair continues to find resistance in 8-day Moving Average this week, forcing the price to 0.9030 levels which is also a long-term resistance level in place in August. Stacked Moving Averages indicate that short-term bearish trend is in full swing (34 > 21 > 8). Stochastic of 20.3 indicates the pair is oversold, while RSI of 60 is neutral.

Support: 0.9030
Resistance: 0.9080

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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