Primus Weekly - 12th October

Hi Everyone,

Following up on last week’s explosive news of President’s Trump’s positive COVID-19 test and subsequent hospitalization, it appears that the POTUS has recovered miraculously.

President Trump was hospitalized at Walter Reed National Medical Center on 2 October after showing mild symptoms. It should be mentioned that the President’s condition did not appear to be severe as he greeted his supporters outside the hospital from a motorcade drive-by. As per the White House physician Dr Sean Conley’s statement, the President was treated with a number of drugs, including experimental antibody cocktail Regeneron. This mix seemed to have done the job as President Trump left the hospital on 5 October, declaring he was feeling better than 20 years ago. Markets obviously liked Trump’s fast recovery – S&P500 was up 1%, while Nasdaq climbed 1.3% higher on the day. US Dollar declined modestly by 0.4% and gold gained 0.7% on 5 October. Gold and equities tend to have an inverse relationship with the strength of USD – whenever dollar gains, equity markets and gold (in fact commodities in general) tend to decline.

The optimism in markets was hampered by subsequent tweets from the President calling off stimulus talks until after the election. House Speaker Nancy Pelosi had put forward U$2.2 trillion stimulus bill which Trump declared would ‘bailout poorly run, high crime, Democrat States’. The announcement came hours after the Federal Reserve Bank chairman Jay Powell had warned of the risks if Congress provided too little stimulus in the form of fiscal support. Trump reversed his strong stance in follow-up tweets requesting a piecemeal stimulus to various sectors of the economy, such as for airlines, small businesses and private citizens. The situation developed further on Thursday in a head-spinning reversal when Treasury Secretary Steven Mnuchin, in a call with Speaker Nancy Pelosi, said President Trump was now interested in coming back to the table to discuss stimulus package sending equities markets up once again. What a rollercoaster and we are still 3 weeks away from the election day!

UK GDP print came out last week weaker than expected when month on month growth was 2.1% vs the expected 4.6%. GBP initially lost 0.6% during morning trading hours but recovered some of the losses by the end of the day. UK showed strong recovery during summer months when initial lockdown measures were being eased. A chunk of GDP growth stemmed from ‘Eat Out to Help Out’ scheme, aimed to support food and beverage businesses. However, the British government has imposed 10 PM curfew for bars and restaurants in order to curtail the spread of COVID-19. Bank of England has already cut its main lending rate to 0.1% and is expected to increase their qualitative easing programme next month. With Brexit looming on the horizon it sure looks gloomy for the United Kingdom. GBPUSD is at the time of writing near 1.3000 levels – price point that we first saw in July 2016, and which has remained an important resistance and support level since then. Price has tested 1.3000 resistance level a number of times since early September with no success to break out. GBPUSD volatility has been compressed since 5 October and we see a high probability move to near 1.2700 levels in the near term.

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

Date Currency Event Previous  Consensus 
Monday GBP BoE’s Governor Bailey speech
Tuesday EUR German Consumer Prices (YoY) -0.4% -0.1%
Tuesday GBP UK Claimant Count Change 0.73 *
Tuesday GBP UK Unemployment Rate (3M) 4.1% 4.1%
Tuesday USD US Consumer Price Index (MoM) 0.4% 0.2%
Tuesday CNY Chinese Consumer Price Index (YoY) 2.4% 2.4%
Thursday USD Initial Jobless Claims 0.84 * 0.85 *
Thursday EUR European Council Meeting
Friday EUR European Council Meeting
Friday USD US Retail Sales (MoM) 0.6% 0.5%
Friday USD Michigan Consumer Sentiment Index 80.4 81.0

*In USD millions

Impact

  • US Retail Sales and Michigan Consumer Sentiment Index

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 and growing consumer sentiment is considered bullish for USD, whereas lower or below expectations read is generally considered bearish.

  • UK Unemployment Rate (3 month)

UK has been able to maintain unemployment rate at relatively low levels throughout the COVID-19 crisis by offering a number of subsidies and payroll protection. August print increased by 0.2% from 3.9% to 4.1% which is expected to remain the same for September. Higher than expected unemployment number is most likely bearish for GBP, while lower than expected is potentially bullish.

Market Sentiment

EURUSD pair gained around 0.75% last week, hitting long-term resistance level of 1.1800 twice. 1.1800 level coincides with 50-day moving average, as well as 62% Fibo retracement level, measured from high price of 1.19151 on 10 September to lows on 25 September offering a very strong resistance level. Support level has formed at 1.1730 level which is 38% Fibo retracement level. Also, a diagonal support line has formed an ascending triangle formation which can be expected to break out next week. 50-day simple moving average is higher than 21-day moving average, hence the breakout is more likely to happen to lower price points. RSI is currently 84 and stochastic near 79, indicating the pair is overbought.

Support: 1.1730

Resistance: 1.1800

AUDUSD has been stopped by 21-day and 34-day moving average level of 0.7173 throughout the week, with a few attempts to break out, only to be stopped at 38% Fibo retracement level of 0.7212. The next resistance level is at 79% Fibo level of 0.7268. 8-day moving average is trading below 21-day, 34-day and 50-day simple moving average, confirming that short-term negative trend is in place. RSI of 71 and stochastic of 81 indicate the pair is overbought.

Support: 0.7133

Resistance: 0.7212

This pair has been trending lower with 8-day simple moving average crossing below 21-day and 34-day moving average at the end of last week. 8-day moving average has been offering resistance, not allowing the price break out to higher levels. On Friday USDCAD pair found support level near 1.3158 which is 62% Fibo retracement level. RSI of 10 and stochastic 19 tell us that this pair is oversold.

Support: 1.3158

Resistance: 1.3327

This pair gave up some of the gains from previous week, retreating back to 0.9170 levels. 8-day simple moving average has acted as a resistance level throughout the week, forcing the price lower. On Friday we saw 8-day moving average merging with 21-day and 34-moving average, indicating that potential consolidation may be ahead. 50-day moving average has been supporting the price falling below 0.9132.

Support: 0.9132

Resistance: 0.9174

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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