Primus Weekly - 28th September

Hi Everyone,

The most volatile weeks of the year are ahead of us as we are nearing the US Presidential and Congressional elections on 3rd November. Voters in America are going to the polls amid the worst financial crisis since the Great Depression back in the 1930s, with a civil unrest, a global pandemic and the worst wildfires in the US history. The first Presidential Debate is taking place on Wednesday when President Donald Trump and Democratic nominee Joe Biden are scheduled to square off for the first time on stage.

The discussion is expected to be extremely heated as the topics covered are ‘The Trump and Biden Records’, ‘The Supreme Court’, ‘Covid-19’, ‘The Economy’ and ‘The Integrity of the Election’. Each segment will last about 15 minutes and the candidates will have two minutes to respond to questions from the moderator, followed by further discussion on the topic. If history is any guide, we can expect plenty of hits below the belt. Trump, known for his name-calling habit and somewhat questionable data points, will use this opportunity to undermine Joe Biden as corrupt and deteriorating in terms of mental health. Biden, on the other hand, has plenty of trumps (excuse the pun) given the subpar management of Covid-19 pandemic at the federal level.

Additional fuel is added to the flame on the topic of the Supreme Court nominee appointment. Namely, an iconic liberal Justice of the Supreme Court of the United States, Ruth Bader Ginsburg, passed away on 18th September. Supreme Court Justices are confirmed by the Senate based on nomination by the President, and have a lifetime tenure, unless they resign, retire, or are removed from the office. Given the importance of the appointment on the legislative policy for years to come, Democrats are determined to block this process until the Presidential Elections. Republicans used a similar delaying technique back in 2016 when Senate Majority leader McConnell blocked the hearings for Merrick Garland just prior to the Presidential Elections. A number of Republicans, including Senate Judiciary Committee Chairman Lindsey Graham, commented back in 2016 and 2018 that a Supreme Court nominee should not be considered in an election year. Trump, however, is determined to nominate a candidate potentially this week. What’s certain is that we can expect volatile markets until November.

New and existing home sales data published in the US did not disappoint – both were up 4.8% and 2.4% respectively and exceeding expectations by reaching 14-year high. Given that housing is such an economically sensitive sector from household wealth and employment perspective, stemming from construction and related services, these numbers are great indicators of the economic situation in the US. Notwithstanding the fact that 30-year mortgage rates have reached all-time low of 2.9% and that Covid-19 crisis has expedited the exodus of people from large coastal metropolitans to mid-tier cities in the US, housing data confirms that we are experiencing a V-shape recovery.

USD was up 1.6% this week at the back of positive housing data, weaker than expected manufacturing and services PMI data from the Euro Area, and the re-emergence of Covid-19 in European leading countries, as measured by DXY.

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

Have a great trading week ahead!

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In The Spotlight

Date Currency Event Previous  Consensus 
September 29th EUR German Consumer Prices (Yoy) -0.1% -0.1%
September 29th USD Consumer Confidence 84.8
September 30th CNY NBS Manufacturing PMI 51.0 51.2
September 30th USD Presidential Debate
September 30th GBP UK GDP (QoQ) -20.4% -2.0%
September 30th EUR Euro Area Consumer Price Index (YoY) -0.2% 0.2%
September 30th USD US 2Q GDP (QoQ) -31.7% -31.7%
October 1st JPY Tankan Large Manufacturing Index (QoQ) -34.0 -23.0
October 1st USD Initial Jobless Claims 0.87 *
October 2nd USD Nonfarm Payrolls 1.03 * 0.91 *

*In USD millions

Impact

US Q2 GDP
GDP data shows the monetary value of all the goods and services produced in the US during Q2. A negative number indicates a contraction of economic activity while a positive number shows an expansion. US economy is still in a partial lockdown as a number of restrictions are imposed of F&B and hospitality industries, to name a few. Therefore, a contraction of annualized -31.7% is expected for Q2, which translates into -7.9% on a quarterly basis. Better than expected print is generally bullish for USD, whilst a disappointing print is generally bearish.

Nonfarm Payrolls
Private nonfarm payrolls have been growing since the crash March and April, albeit at a disappointing rate. Last month’s print came near the expectations of 1.4 million but we are still far from creating enough jobs for the currently 25-30 million unemployed Americans. Lower number tends to be negative for USD while a higher than expected number is generally positive for USD.

Market Sentiment

EURUSD has broken below the range of 1.1771 to 1.940 where the price had been trading since August. Price was stopped by 38% Fibonacci retracement level (measured from June 2020 lows) at 1.1689 on September 22nd, only to break lower on subsequent trading days. Additionally, 38% Fibonacci retracement level turned into a resistance level on the 24th and 25th of September. The next support is expected to be at 50% Fibonacci retracement level at 1.1600, followed by 62% retracement level at 1.3443. Exponential Moving Averages made critical crosses when 8-day MA (red line) crossed below 21, 34 and 50-day MA (respectively orange, yellow and green lines). Such price action can be considered bearish for the pair. Daily price action has broken out from consolidation zone as measured by Bollinger Squeeze, meaning volatility has expanded once again. RSI and Stochastic are both near 9, indicating the pair is oversold.

Support: 1.1588
Resistance: 1.1700

After hitting a cycle high of 0.6797 last Friday, this pair collapsed below 50-day Moving Average. RSI of 8 and Slow Stochastic of 11 indicate the pair is oversold, whereas a double top formation on the charts that would confirm a downward trend going forward. 79% Fibonacci retracement level, measured from August 20th lows, supports the price around 0.6549 levels.

Support: 0. 6549
Resistance: 0.6635

USDJPY pair has regained some of its poise, recovering from last week’s lows of 104.534. 8-day Moving Average became a support level at the end of the week at around 105.20 levels, whilst 21-day Moving Average acted as a resistance near 105.45 levels. The latter also coincides with 50% Fibonacci retracement levels, measured from highs on August 28th to lows in September 21st.

Support: 105.20
Resistance: 105.45

The pair reached 2-month high of 0.9284. That price point is also 62% Fibonacci retracement level, measured from July 16th high to August 31st lows. 8-day Moving Average has crossed above 21, 34 and 50-day Moving Average, indicating a potential change in the trend to higher levels. RSI of 100 and Slow Stochastic of 90 indicate the pair is overbought.

Support: 0.9229
Resistance: 0.9284

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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