Primus Weekly - 2nd November

Hi Everyone,

US Q3 GDP print published last week came slightly better than expected at annualized rate of 33.1%, versus the consensus view of 31.9%. This historic recovery from -31.4% in Q2 was largely expected by market participants.

The support for such recovery came predominantly from the stimulus by the Federal Government and from the re-opening of the U.S. economy. Lockdowns imposed in March this year have largely been lifted, with a few regional restrictions still in place. But that was before the U.S. was hit with the third wave of infections. Over the weekend U.S. reached another record of 100,000 daily new cases, while the total count of infections exceeds 9 million in America now. The experts are warning that situation will deteriorate before it starts showing signs of improvement. This means that the U.S. may face lockdowns again, similar to what European countries have been forced to do, in order to slow the spread of the virus. The economic impact of lockdowns will be severe – hampered consumer confidence, lower consumer spending and housing sales, to name a few. The latter two skyrocketed in Q3, with respective growth rates of 40.7% and 59.3%, on an annualized basis. It’s noteworthy that the growth in housing is driven purely by residential real estate as commercial real estate investment is down by -15% YTD. Residential real estate and spending on durable goods are now exceeding their pre-COVID levels, having grown by 6.8% and 7% YTD respectively. What’s certain is that the Q4 will not be easy, not from healthcare nor economy’s perspective. This puts the U.S. in the worst recession ever with an annual growth rate of -3.8%, after considering the first three quarters of the year. As a comparison – during 2008 crisis the economy shrank by ‘only’ -2.5%. Further stimulus from the Congress might give a small boost to consumers and businesses but as the talks between Mnuchin and Pelosi seem to have come to a halt, we may need to wait until 2021 when the POTUS 46 gets inaugurated.

U.S. Presidential and Congressional elections are around the corner – Americans are going to the polls on 3 November. Joe Biden is currently leading by a very narrow margin in key states, based on data from Rosenberg Research. However, as we can remember from 2016 elections, polls can be misleading. Adding to the controversial and polarizing pre-election campaigning there have been scandalous reports from the U.S. around mail ballots. For instance, voters in Texas have not received their absentee ballots at the time of writing this report. Absentee voting has really been a key topic during this election, in the context of COVID-19 but also the attempts by Republicans to suppress the voting process. However, it should be highlighted that 5 days before the election more than half of 2016 votes have been submitted using absentee ballots, meaning that we can expect further discussions and potentially even federal judges stepping in during the counting process.

The markets have been restless this past week, at the back of COVID-19 spread, pre-election conundrum, as well as pending stimulus bill. Equity markets are down – S&P500 declined by -5.6% and Nasdaq100 by -5.5%. VIX hit 4-month intraday high of 41.06, while USD, measured by DXY index, was up by 1.2%, breaking short-term Moving Average levels and kissing 100-day Moving Average at 94.3. Gold futures have been moving in a lockstep with USD, shedding 1.2% this week. Oil futures really took a beating, dropping 10.1%.

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 
MondayEURMarkit Manufacturing PMI58.058.0
MondayUSDISM Manufacturing PMI55.455.6
TuesdayAUDInterest Rate Decision0.25%0.10%
TuesdayUSDPresidential Election
WednesdayUSDADP Employment Change0.75 *0.53*
WednesdayUSDISM Services PMI57.857.8
ThursdayEURRetail Sales (YoY)3.7%2.8%
ThursdayGBPBoE Interest Rate Decision0.1%0.1%
ThursdayUSDInitial Jobless Claims0.75 *0.77 *
ThursdayUSDInterest Rate Decision0.25%0.25%
FridayUSDNonfarm Payrolls0.66 *0.7 *
*In USD millions

Impact

  • Initial Jobless Claims

Initial jobless claims have been better than expected for two consecutive weeks, meaning that less people are applying for first time claims. Having said that, current levels are still historically high. Lower than expected claims are generally bullish for USD, while higher than expected are bearish.

  • RBA Interest Rate Decision

Royal Bank of Australia is expected to cut interest rates this week to a record low of 0.1%. This is after hint dropped by the Governor Philip Lowe that RBA may implement negative interest rates. Lower interest rates tend to depreciate the value of a a currency, while interest rate hikes appreciate the value.

Market Sentiment

USDJPY continues its path to lower levels, hugging 104.00 levels intraday on Thursday. Moving Averages are stacked, pointing to both short-term and long-term downward trend, and 8-day exponential Moving Average acting a resistance level near 104.71. The pair has been trading near the lower end of Bollinger Bands, attempting to break out even lower. Keeping that in mind, USDJPY may gain its strength and move back to its 21-day Moving Average level of 105.02. Slow Stochastic is near 29.7, indicating that the pair is oversold. RSI at 79.9 is neutral. The pair is in a weekly Squeeze since last week. Once this Squeeze fires, we can expect the momentum to carry the price for another 4-6 weeks.

Support: 104.00

Resistance: 104.71

NZDUSD price action has been muted this week – the price was climbing higher, only to revert to 0.6643 levels by Friday – not far from 21-day Moving Average of 0.6639. The pair has been supported by 100-day Moving Average near 0.6600. Slow Stochastic is hovering around 39.6 and RSI near 10.0, indicating that we are near oversold levels.

Support: 0.6600

Resistance: 0.6707

EURJPY hit 3-month low 121.9 after breaking through a number of support levels. Short-term Moving Averages are stacked in a bearish fashion (50 > 32 > 21 > 8) while 200-day Moving Average is offering support at 121.13. RSI near 0.1 and Slow Stochastic near 9.4 are indicative of the pair being oversold. EURJPY has is currently trading below lower Bollinger Band. DMI is bearish with DMI- near 32.1 and ADX of 21.5 may give the signal that here’s still some momentum for the price to move lower.

Support: 121.13

Resistance: 122.8

This pair has just broken through 200-day Moving Average 1.0629, closing the week at 1.0624. This means that both short-term and long-term momentum is bearish, given the stacked Moving Averages. AUDNZD seems to be trading in a bearish channel, being supported near 1.0400 and forced down from 1.0522. RSI is currently 64.5 and Slow Stochastic 10.6. The pair seems oversold as it’s trading below lower Bollinger Band levels.

Support: 1.0400

Resistance: 1.0522

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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