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Daily Fundamental ForexTime ( FXTM )

Yuan eases on risk-off sentiment, regional currencies suffer and Gold tumbles






Financial markets have entered the new trading week on negative footing as a mixture of different market themes weigh on investor sentiment and promote risk aversion.

Ongoing external uncertainties around matters such as trade tensions and the Italian budget coupled with increased optimism over higher US interest rates at a time where questions remain over what will happen to Iranian Oil exports from next month represent just a few of the uncertain themes that are promoting a risk-off atmosphere. The announcement from the PBoC to cut the RRR requirement for the fourth time in 2018 hasn’t been enough to inspire potential buyers back into global stock markets for now. This lack of appetite for risk was reflected across Asian markets, with Chinese equities witnessing heavy losses following a week-long holiday. The Shanghai Composite Index shed 3.7% while the CSI 300 Index plunged 4.3%. With heightened trade tensions denting risk sentiment and the prospects of higher US rates spooking investors, this could be a rough week for global stocks.

In the currency markets, the Yuan has weakened to its lowest level in nearly two months against the Dollar on the backdrop of a combination of external and domestic factors. It is possible that the latest move from the PBoC to ease monetary policy by cutting the RRR requirement is a possible driver behind the offshore Yuan weakening as much as 0.5 as the USDCNY advanced back above the 6.90 level, but it is also important to take into account that a resilient Dollar has weighed heavily on a number of different emerging market currencies.

The technical picture on the USDCNY is firmly bullish on the daily charts with prices trading marginally below 6.9300 as of writing. A decisive daily close above the 6.9300 level could inspire a move higher towards 6.9347. This increases the likelihood that losses in the Yuan could extend further into the week, which would be something to monitor on a global level due to how correlated Yuan moves can be for regional currencies in the APAC region and specifically because the U.S Treasury repeated previous comments that it is concerned that China is manipulating its currency.

The overall risk-off vibe looks to be a threat for investor sentiment into Tuesday, and we do look at risk to suffering from a fragile global marketplace this week.

Emerging market currencies stand to be in trouble this week amid risk aversion, prospects of higher US interest rates and Dollar strength. The impacts of the recent spike in US Treasury yields continues to be reflected across most major EM currencies with the Indian Rupee crashing to a new record low past 74.00, the Indonesia Rupiah touching a fresh two-decade low and South African Rand sinking to its lowest level in three weeks. With the pressure across EM likely to mount, especially for those economies with currency account deficits and high levels of debts, the outlook looks gloomy for emerging markets.

Across the Atlantic, the Dollar is poised to find support from safe-haven flows, rate hike expectations, and optimism over the strength of the US economy. With the United States firing on all cylinders and the Fed expected to raise rates in December and another three times in 2019, the interest rate differential trade supports the Greenback. In regards to the technical perspective, the Dollar Index may be gearing for further upside on the daily charts with a bull’s steadily eyeing the 96.00 level. A solid close above this point could inspire prices to challenge 96.43 in the near term.

A strengthening Dollar has resulted in Gold experiencing its biggest one-day selloff since the middle of August with prices trading marginally below $1185.00 as of writing. The price action in recent weeks continues to highlight how the precious metal remains negatively correlated to the Greenback. With the fundamental drivers behind the Dollar’s appreciation still firmly in place, Gold’s outlook points to further weakness. Sellers need a solid daily close below $1190 to open a smooth path towards $1180 and $1174, respectively.



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Daily Fundamental ForexTime ( FXTM )

Yuan firms on Dollar weakness, Risk aversion reigns




Global investors will likely remain on high alert throughout the end of the week to see if the largest market sell-off since early 2018 will continue.

It has been an incredibly tense and volatile trading week for financial markets with equities across the globe collapsing on widespread risk aversion. The International Monetary Fund’s (IMF) gloomy global growth forecast and ongoing market uncertainties over external unknowns, such as trade tension are just a handful of the many themes that could be encouraging this sudden nosedive in investor sentiment. The repeated criticism from President Trump in the direction of the Federal Reserve regarding higher US interest rates is only adding to the bucket load of market uncertainty. When you combine all the different elements of financial market risk across all corners together, it becomes no surprise that risk aversion has exploded out of control.

While Trump has a part to play in the current stock market selloff, there are other key factors brewing in the background. Global equity bulls are engaged in a fierce battle with rising U.S bond yields, ongoing trade tensions, global growth concerns and the prospects of higher US interest rates. For as long as these themes remain, speculation is likely to heighten over the party coming to an end for stock bulls. This might well mean the long-awaited stock market correction.

It has been a bloodbath of market selling across regions throughout the globe. In China, no prisoners with taken with the Shanghai Composite Index plunging 5.22% while Hong Kong stocks shed 3.54%. European equity markets were a sea of red while U.S stocks extended losses with the Dow Jones Industrial Average dropping more than 500 points for a second straight day.

In the currency markets, the Chinese Yuan strengthened against the Dollar in line with many other emerging market currencies advancing against the USD. This came in spite of the PBoC setting the midpoint rate lower for the ninth consecutive day and might have been encouraged by weakness in the Greenback after President Trump once again lashed out at the Federal Reserve.

A weaker Dollar from this point would be positive for emerging market currencies, but we must also monitor the potential risks that EM currencies could fall victim to the “risk-off” environment and the prospects of higher US interest rates. In regards to the technical picture, the USDCNY will be positioned to test 6.86 if a daily close below 6.90 is achieved.



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Daily Fundamental ForexTime ( FXTM )

Equity sell-off resumes in Asia







The steep sell-off in U.S. equity markets suggests October could be the worst month since the global financial crisis of 2008. Seven trillion dollars have already been wiped from the global market cap, and still there are no signs of bulls returning.

Chinese stocks fell today with the CSI 300 declining more than 3% while the Yuan remained trading near a decade low. The Nikkei 225 gave up gains of more than 1% to trade in negative territory. Moving against the trend were stocks in Australia, with the ASX 200 gaining more than 1% supported by the healthcare and telecom sectors.

The bears seem well in control of the market and there’re many reasons to justify their actions. Whether it’s weakening global economic growth, the ongoing U.S.-China trade war, monetary policy tightening, fears of a hard Brexit, Italy’s budget woes… and the list goes on. What is more interesting is that investors are even punishing companies that have reported positive earnings surprises.

To date, almost half of S&P 500 companies have announced earnings results for Q3. Out of 241 companies, 77% managed to beat on EPS, and 59% beat on sales according to FactSet. Companies that have reported positive earnings surprises saw their stocks declining 1.5% on average two days before the earnings release through two days after the announcement. So, earnings do not seem to be a key reason for the market sell-off despite some big names like Amazon and Alphabet disappointing investors.

In fact, valuations are becoming attractive following a 10% plunge in the S&P 500. Forward P/E ratio is currently standing at 15.5 compared to the 5-year average of 16.4. That’s the time when investors should consider buying companies with strong fundamentals. This is especially the case when economic data is still supporting. Friday’s data showed the U.S. economy expanded 3.5% in Q3 after 4.2% growth in the previous quarter mainly driven by consumer spending.

So far, it seems more of a market correction than signs of a recession. However, if leading economic indicators begin pointing south while the Federal Reserve keeps raising interest rates, the stocks correction may become a bear market. Inflationary pressures are the biggest risk to preventing the Fed from slowing the tightening cycle. That’s why investors need to keep a close eye on Friday’s U.S. wage growth figure.




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Daily Fundamental ForexTime ( FXTM )

Conflicting trade signals set the tone; GBP remains way off 1.35 “target” on Brexit deal







The early part of trading for the week has already showed how sensitive emerging markets can react to newsflow around potential trade developments with a number of different emerging market currencies trading lower against the USD on Monday. This has included losses close to 1% in the Indian Rupee, while the Chinese Yuan has lost just over 0.5% and the Malaysian Ringgit above 0.4%.

This trend of trajectory does overall sum up how sensitive emerging market assets will be to newsflow around a potential breakthrough in trade talks between the two largest economies in the world.

Air of caution before U.S. risk events this week

Elsewhere, there are some indications at time of writing of limited trading volumes as the new trading week commences, which sum up that investors could be hesitant to add more positions into their portfolios just one day before mid-term elections take place in the United States.

When you consider how off-guard financial markets have been caught to political events in recent history, caution before the event is a likely investment strategy that is on the mind of investors. This means that we might not see much movement in global stocks before the event, while safe-haven assets like Gold and the Japanese Yen will be the first thing on traders’ minds if an air of market uncertainty comes their way.

The general consensus is that while, overall, mid-term elections do not on a historic basis create too much fuss in financial markets, this administration running the White House is unlike anything we have seen before and this is why it is expected that investors will tread with caution before the outcome becomes clearer.

It is not possible to predict potential political outcomes in the modern world of unpredictable politics, but most emerging market investors will be hoping the Dollar does sell-off on the outcome of the election because emerging markets do appear heavily undervalued at current levels.

The upcoming Federal Reserve meeting will be another risk event to monitor this week, but interest rates are not expected to change in November and as long as the FOMC carries the same narrative that U.S. interest rates will be gradually adjusted higher in the next 15 months or so, the mid-term elections should overshadow the Fed decision when it comes to potential financial market volatility.

The best-case scenario for investors who would like to consider selling the Dollar at what still appears to be historically-high valuations for the Greenback would most likely be that the mid-term election outcome encourages concerns that President Trump will face legislative resistance when it comes to pushing pro-America policies.

Emerging markets are those that remain greatly pressured from broad-based Dollar strength, so I would expect emerging market currencies to be contenders to benefit the most over the medium-term if the Dollar does get squeezed lower.

Sanctions were re-imposed into Oil price long time ago

The return of re-imposed sanctions on Iran on November 5 has encouraged a small recovery in the Oil markets today. However, I wouldn’t buy into this headline too much, because we could be in line for a small recovery in the Oil markets after the commodity edged dangerously close to bear market territory after withdrawing close to 20% from its multi-year highs a few weeks ago.

Re-imposed sanctions on Iran have been something that were priced into the Oil markets a long time ago, all the way back from when Trump confirmed he would pull out of the 2015 nuclear deal, so I wouldn’t associate sanctions coming back into play as a near-term driver for the price of Oil. I would instead, focus more heavily on the global demand outlook because of the ongoing external uncertainties weighing down on economic prospects. This is something I see of more of a risk for Oil over the coming months. If concerns over slowing global growth come to fruition, it signals less demand is needed for commodities like Oil and I see this as a major risk to the valuation of Oil.

Hopes of Pound rising above 1.35 on Brexit deal long way off!

Optimism that a long-awaited breakthrough on the prolonged Brexit negotiations is close has sent British Pound forecasts into a frenzy. Suggestions are making their way that the Pound could rally all the way to 1.35, if not above on an eventual breakthrough in the Brexit drama, but I would personally stay away from such claims.

Yes, we all know how sensitive the British Pound has behaved to Brexit newsflow but let’s not get ahead of ourselves and suggest a return to 1.35 is imminent when the GBPUSD is trading marginally above 1.30 at time of writing.

UK Prime Minister Theresa May will still need to receive approval for the terms of the soon-to-be-expected agreement, which given the ongoing controversy that Brexit still receives around the United Kingdom will likely not be an easy task.

I would personally factor into consideration that the Pound is just as much likely to shoot lower once again on more Brexit gridlock, as it is to aim higher on a breakthrough. Such headlines on an expected rally in the Pound generally suggest that markets are positioning themselves on a breakthrough, meaning that I would factor into my own expectations how suddenly the Pound could fall sharply below 1.30 on another round of hard-Brexit fears.




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Daily Fundamental ForexTime ( FXTM )

Temporary trade truce provides additional boost to risk







Just a few days after Fed Chairman Jerome Powell unexpectedly signaled that the Federal Reserve is turning dovish, investors received further positive news over the weekend after a temporary ceasefire between Washington and Beijing regarding trade tensions was announced after the G-20 summit in Argentina.

The two-hour dinner between senior authorities from both the United States and China, including President Trump and President Xi, that led to the announcement of a temporary trade truce was of greater importance than the G-20 communique which stated that the WTO needs to be reformed to improve its function. What was delivered over the dinner was not a breakthrough, neither a long-term solution for the ongoing trade war between the largest two economies, but a 90-day window to improve relations. Introduction of new tariffs are now shelved, and trade talks will intensify over the next three months. This outcome seems to be an optimistic one from the two leaders and more than what was priced into markets beforehand, meaning that this is enough to boost sentiment and risk-on trade.

Chinese stocks rose more than 3% and the S&P 500 futures surged 1.7% at the time of writing. While bulls seem to be well in control for now, investors need to know that what was achieved is only a short-term relief to markets. Whether this will be translated into longer-term advances depends on the path of negotiations over the next three months. For now, one obstacle has been removed, but all longer-term risks remain there.

Canada joins Saudi Arabia and Russia in managing production

The risk-on rally sent Brent Oil above $62 early Monday. The U.S.-China trade truce is not the only source of support for prices, but signals of another production cut from Russia and Saudi Arabia seem to be the key factor. OPEC’s official meeting will be held on Wednesday and markets are expecting to see a substantial production cut after Russian President Vladimir Putin said his country’s cooperation on Oil supplies with Saudi Arabia would continue. Another surprising announcement came from the government of Alberta on Sunday stating a cut of 325,000 barrels a day for three months starting in 2019. Given this combination of factors, Oil prices are likely to have bottomed out for 2018, but a confirmation is needed when OPEC and non-OPEC members meet in Vienna on December 6.

Dollar heads south

The demand for riskier assets sent the Dollar lower against most developed and emerging market currencies. The Dollar index fell back below 97 with commodity currencies AUD and CAD being the best performing ones. The Chinese Yuan also broke a three-week trading range to trade 0.8% higher against the Greenback. This relief rally may continue for the next couple of days, unless surprising negative news arises.



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Daily Fundamental ForexTime ( FXTM )

EM Currencies hit by risk aversion; Pound dives on delayed Brexit vote







Emerging market currencies are poised to remain in the firing line this week as ongoing trade tensions, Brexit uncertainty, depressed equity markets and turmoil in France cripple investor confidence.

The unfavourable market conditions are already boosting appetite for the safe-haven Dollar, which will most likely translate to further pain and punishment for EM currencies. With concerns over plateauing global growth and geopolitical risk leaving sentiment extremely fragile, risk aversion has the potential to become a major theme in the near term.

In the currency markets, the Chinese Yuan weakened against the Dollar mostly due to trade tensions. An appreciating Dollar weighed on the local currency further with the USDCNY trading marginally above 6.908 as of writing. With trade tensions seen weighing on the Yuan but strengthening the Dollar, the USDCNY has scope to challenge 6.923 in the near term.

Chaos in Commons as May delays Brexit vote

The British Pound was treated without mercy by bearish investors on Monday after UK Prime Minister Theresa May abruptly postponed a parliamentary vote on her Brexit deal.

Appetite towards Sterling instantly diminished following the news with the GBPUSD crashing to levels not seen since April 2017. A strong sense of uncertainty over the various scenarios that could happen regarding Brexit is likely to leave investors extremely uneasy and edgy. As the week progresses market players will be pondering whether May has the ability to renegotiate with Brussels in a bid to save the deal? If she will face a leadership vote or the possibility of a second referendum. With Brexit chaos in the House of commons raising the likelihood of a no-deal scenario, the near-term outlook for the Pound points to further downside.

In regards to the technical picture, the GBPUSD is heavily bearish on the weekly charts. The downside momentum could send prices below 1.2500. Bears remain in firm control below the 1.2700 resistance level.



Currency spotlight – Dollar

The Dollar staged an impressive rebound as trade tensions and Brexit related uncertainty sent investors sprinting to the safe-haven currency.

Although the Dollar has scope to extend gains on safe-haven flows, the upside is poised to face headwinds in the form of fading Fed hike expectations. With November’s disappointing US jobs report reinforcing expectations over the Federal Reserve taking a pause of rate hikes next year, Dollar bulls are at threat of running of inspiration in the medium term. Focusing on the technical picture, the Dollar Index has scope to hit 97.50 this week.




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Daily Fundamental ForexTime ( FXTM )

Dollar rebounds following hawkish Fed rate hike






In a widely expected move, the Federal Reserve has raised its key interest rates by 25 basis points for the fourth time this year.

However, the central bank’s less dovish than expected tone came as a surprise that sent shockwaves across financial markets. Investors who were hoping for a firmly dovish statement that dropped the phrase “further gradual increases” where left disappointed after the Fed flagged “some further gradual increases” on rates were still on the cards. Although the dot plot was revised lower to two rate hikes for 2019 from three previously, the Fed’s less dovish stance sent jitters through US stock markets.

Investors seem concerned with the fact that the Fed is signalling further rate hikes despite such unfavorable market conditions and lower economic growth forecasts for 2019. It is worth noting that hawkish comments from Fed Chairman Jerome Powell compounded to the uncertainty, especially when considering how Powell was dovish a few weeks ago.

While the Dollar has the potential to extend gains on the hawkish Fed hike, bulls still remain a threat of running out of steam. With the Fed likely to adopt a data dependent approach to monetary policy decisions next year, the Dollar is poised to become highly sensitive to domestic economic data. Signs of the US economy experiencing a slowdown will weigh on prospects of higher US interest rates – ultimately pressuring the Dollar.

Yuan unfazed by Fed rate hike

The Chinese Yuan offered a fairly muted response after the Federal Reserve raised interest rates by 25 basis points.

With the US rate hike already heavily priced in, the Yuan was most likely concerned with other pressing market themes like ongoing trade tensions. With global growth fears and other geopolitical risk factors weighing on investor confidence, emerging market currencies remain vulnerable to downside shocks. In regards to the technical picture, the USDCNY could retest 6.90 if the Dollar continues to appreciate.




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Daily Fundamental ForexTime ( FXTM )

US stocks: More bumps ahead?






Asians stocks are putting in a mixed shift after Wall Street was unable to sustain its mid-week rebound. Investors are also mulling the prospects of another round of US fiscal stimulus arriving before the November elections, which have now grown slim, after Senate Democrats shot down the Republican’s downsized proposal. The MSCI ACWI Index, which measures the performance of global equities, is set for two straight weeks of losses, with such an instance only last seen in March.

The heightened volatility in the markets of late is evidenced by the VIX index rising above its 100- and 200-day moving averages, though the index has now moderated from its peak a week ago and now reads slightly below the psychologically-important 30 level.

Investors apparently remain trepidatious about preserving the same break-neck speeds in adding to stocks’ advances, considering the still-lofty valuations. Yet the desire to push US stocks even higher is still attempting to gain critical mass, with benchmark futures edging higher at the time of writing, while FXTM trader's overall sentiment is long on the US SPX 500 (Mini).





Watch out for witching day

Looking ahead, there could be even more volatility in store, with quadruple witching day for US markets set to happen in a week from now. On September 18th, futures and options on indices and stocks are set to meet their quarterly expiration, which can trigger heightened volatility and a surge in trade volumes.

In the week before the June quadruple witching day, the S&P 500 tumbled by as much as 7.7 percent and the VIX breached above the 40 mark. Since the June 19th quadruple witching event, the VIX then moderated through end-August, even flirting with its long-term average of 20, while the S&P 500 added another 12 percent through the end of August.

Perhaps the volatility so far this month is just another bump in the road for US stocks, as investors pursue new record highs, emboldened by the tremendous support from global central banks.

Beleaguered Pound helps Dollar index stay afloat

The Dollar index (DXY) has managed to clamber back on top of the 93.0 psychological level and keep its head above the 30-day simple moving average, as EURUSD’s break above 1.19 proved fleeting. Still, the Euro’s resilience remains a drag on the DXY, having set aside the notion of immediate central bank intervention in the bloc’s currency for the time being.

The DXY’s fortunes are also aided by the weaker Pound, which accounts for 11.9 percent of the DXY. With bigger cracks showing up in UK-EU talks, it raises the threat of a no-deal Brexit on December 31. Having concluded eight rounds of negotiations, with another round set to take place in Brussels next week, the Brexit drama could return with a vengeance and haunt the British Pound. The uncertainty is expected to keep GBPUSD in the sub-1.30 region over the coming weeks, barring a miraculous breakthrough in negotiations or a sudden bout of weakness in the US Dollar.

The US inflation outlook remains a key driver of the US Dollar, with the August CPI data in focus today. Although the spectre of faster US inflation, as tolerated by the Fed, threatens to erode the Dollar’s allure, markets remain sceptical over the source of such upward price pressures, especially considering the uneven recovery in the US jobs market as seen in Thursday’s disappointing weekly US jobless claims data. Without the promise of incoming fiscal support over the near-term, coupled with the rising political uncertainty surrounding the November elections, such concerns may in turn bolster support for the Greenback.







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Daily Fundamental ForexTime ( FXTM )

A not-so-happy birthday for OPEC







On 14th September 1960, OPEC was born in Baghdad, aiming to “co-ordinate and unify petroleum policies among Member Countries”. 60 years later, the alliance is being strained by a global pandemic.

OPEC’s birthday week holds key events that could influence the near-term performance of Oil prices. Later today, OPEC is set to release its Monthly Oil Market Report, complete with its outlook on global demand and output. Then on Thursday, the OPEC+ Joint Ministerial Monitoring Committee is scheduled to meet and discuss the efficacy of its supply cuts, while assessing the level of compliance among members.

Recall that back in April, OPEC+ agreed to an unprecedented supply cuts deal, shaving off 9.7 million barrels per day (bdp) from its collective output, only to then ease off by about two million bpd starting last month in hopes that global demand will stage a sustained recovery.

However, things haven’t quite panned out as they hoped.







Both Crude and Brent are coming off back-to-back weekly drops for the first time since April. On a month-to-date basis, Brent and WTI futures have fallen by over 12 percent respectively, leaving both to be ‘scooped up’ by their 100-day simple moving averages. Both these instruments are also trying to claw themselves out of the ‘oversold’ domain, judging by their respective 14-day relative strength indices having dipped into sub-30 levels recently. At the time of writing, Brent and WTI futures are about 35 percent lower so far in 2020.

The slide in Oil prices comes amid signs that the global demand recovery appears to have stalled. Diesel stockpiles in Singapore are at their highest since 2011, while Saudi Arabia, Iraq, and other Gulf producers have slashed the pricing on their respective crude grades to the US and Asia. Oil supermajor, BP, recently cited the risk that global demand may never recover to pre-pandemic levels, while traders are buying up tankers in case they need to hold crude supplies for months. According to CFTC data, short-selling on Oil has risen to its highest levels since the historic crash in April this year, when WTI futures were sent into negative territory.

This week, investors will be monitoring how much sway the alliance could still have over global markets, even as these major Oil-producing nations aim to shore up prices. While its 60th birthday celebrations had to be put on hold due to Covid-19 restrictions, OPEC may not be able to hold off further intervention for much longer if Oil prices keep unwinding more of its recovery from the past five months.




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Daily Fundamental ForexTime ( FXTM )

China’s better-than-expected data push stocks higher







Chinese stocks are advancing on Tuesday morning, with the Shanghai Composite Index and the CSI 300 erasing losses from today’s open, after the world’s second largest economy posted a slate of better-than-expected data for August’s industrial production, as well as investments in fixed assets and property. Retail sales officially returned to positive territory with a 0.5 percent growth compared to August 2019; its first on-year expansion so far this year. The Chinese Renminbi is now at its strongest versus the US Dollar in over a year, trading on the stronger side of 6.8 psychological level for the first time since May 2019.

Such data underscores the notion that China is making further inroads into the post-pandemic era, adding another dimension to the recovery in the world’s second largest economy. Industrial production has been recording on-year gains since April, and a resurgence in domestic consumption could further buffer China’s role in leading the world towards relegating the pandemic’s ill effects to the past. This also shows that a firm grip on the outbreak is paramount before any economy can boost its recovery prospects.



Hong Kong’s Hang Seng index also counts itself among the few gainers in Asia. If this holds at the close, the benchmark would post its first 3-day run of advances since early July. The HSI50 is now testing its 100-day simple moving average, which is now acting as the immediate resistance line, even as the index is squeezed into a triangle pattern.

Asian stocks are broadly mixed, as it struggles to maintain the strong start to the week. At the time of writing, Japan’s Nikkei 225 has erased Monday’s advances, as the benchmark’s quest to return to year-to-date growth appears to have stalled. The Nikkei 225 remains some 1.3 percent lower so far in 2020.



Despite Japanese stocks having the biggest weightage by country on the MSCI AC Asia Pacific index, 34.09 percent to be more precise, the benchmark for regional equities has still managed to post a year-to-date gain of over one percent, powered on by Chinese stocks which account for 26.42 percent of the overall index. Despite the selloff earlier this month, Asian stocks were able to bounce off the MSCI index’s 50-day moving average and to remain in the green so far in 2020.



Still, there are several key events that could sway global sentiment over the coming days. The Fed’s policy decision and Fed chair Jerome Powell’s press conference, slated early Thursday morning before Asian markets open, could have a major say over how markets perform. Should investors get further assurances that the US monetary policy will maintain its ultra-accommodative stance, that could allow investors to continue nibbling at riskier assets. US equity futures are pushing slightly into the green at the time of writing, suggesting further gains at the New York open.




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Mid-week technical outlook: Gold waits for Fed decision







The Federal Reserve monetary policy announcement later today will be the most important economic event of September.

Although the central bank is widely expected to leave interest rates unchanged, much of the focus will be directed towards the economic projections, Powell’s press conference and updated ‘dot plot’ forecast of interest rate moves. Given how this will be the first meeting after the Fed announced its new average inflation targeting (AIT) framework, there could be some volatility in the Dollar as investors sift for clarity during the meeting.

Back in June, policy members projected GDP to decline 6.5% in 2020 while unemployment was seen rising 9.3%. However, the current unemployment rate of 8.4% is already below the medium forecast - something that could allow the Fed to express some confidence over the US economy.



Let’s be honest, the US economy is certainly not out of the woods yet despite the improving unemployment rate.

Rising coronavirus cases in major states coupled with the congressional stalemate over a new fiscal package remain major threats to the country’s economic outlook. Markets expect the Fed to signal that interest rates will remain unchanged and close to zero through the end of 2023! But It will still be interesting to hear Jerome Powell’s thoughts on the latest developments, in addition to how high or how long the Fed will allow inflation to overshoot the 2% target.

What does this all mean for Gold?

Gold seems to be drawing strength from a softer Dollar this morning as anticipation mounts ahead of the Federal Reserve meeting.

Regardless of the choppiness witnessed over the past few weeks, the precious metal remains underpinned by low-to-negative government bond yields, rising COVID-19 cases in the United States and a tired Dollar.

Price action suggests that the precious metal is in search of a fresh directional catalyst to breakout of the current range. This may come in the form of the Fed meeting today.

After the Federal Reserve’s policy shift to let inflation rip, the big question on the mind of many investors is how will the central bank put this policy to action? Clarity on this could provide Gold a tailwind as the metal is seen as a hedge against inflation. Additionally, a dovish sound Fed could weaken the Dollar, further supporting Gold prices.

Looking at the technical picture, strong support can be found around $1910 and resistance around $1985. The solid daily close above the $1952 intraday resistance level may open the doors towards $1985. If $1952 proves to be unreliable support, prices may decline back towards $1910.






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Stocks tumble after Powell’s warnings over US economic recovery







Fed chair Jerome Powell poured cold water over stock markets during his latest press conference on Wednesday, as he expressed doubts whether the US economic recovery can persist at the same pace without more fiscal stimulus.

Asian equities are in a sea of red, after US stock indices posted declines on Wednesday. The Dow Jones index was the sole exception, as it eked out a 0.13 percent advance, aided by the climbs in the industrials and financials segments. The US central bank left interest rates unchanged at the record low during their meeting this week, and suggested that rates could be kept near zero until the year 2023, or at least until the US can return to maximum employment and reach the average two percent inflation. Such an ultra-accommodative interest rate environment should keep global equities well bid over the coming years. In technical terms, the Dow may be able to call upon its 50-day moving (MA) average to guide the index higher eventually. However, at the time of writing, the FXTM trader's sentiment is short on the Wall Street 30 (Mini).





However, stocks bulls may not get the near-term boost that they desire, considering the stalemate in negotiations over the next round of US fiscal stimulus. Despite US President Donald Trump saying on Wednesday evening that he was more open to bridging the gap with Democrats, markets remain doubtful that the next support package can arrive before the elections on November 3. Global investors are also fearing a delayed outcome to the polls, with the political uncertainty further delaying the much-need financial support. Such a major event risk, if it happens, is then likely to trigger heightened volatility in global equities. At the time of writing, US stock futures are edging slightly lower.

The concerns over the delayed US fiscal stimulus are also set to colour the jobless claim data due out later Thursday, with both initial claims as well as continuing claims expected to show slight declines. Yet, with about 13 million Americans still having to rely on unemployment benefits along with the more than 800,000 still being added to that list per week, such figures only underscore the need for more financial support for the vulnerable segments of the US economy. Further signs that the recovery in the US jobs market is stalling, even as the world’s largest economy presses on with its reopening, could trigger more risk aversion which may push the Dollar index closer to its 50-day MA.







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Daily Fundamental ForexTime ( FXTM )

Bank of England pour fuel onto the GBP fire







Although the BoE kept policy measures and rates unchanged at its meeting today, it said it had explored plans to take interest rates into negative territory if necessary. The bank’s main scenario is based on the UK signing a Brexit trade deal before the end of the year, so the market has reacted strongly in light of the negative recent headlines and increasing risk of a no-deal. At one point, the GBP was one of the weakest major currencies on the day, down nearly 0.7% while money markets have been given little choice but to price in negative rates in early 2021.

Although it would seem that more QE and bond buying will take place ahead of negative rates, sub-zero borrowing costs are not just in the toolbox now, but briefings are taking place on how to implement them effectively. And that is the sixty-four million pound question as negative rates have failed to boost the economies of Japan and Europe, hurting the banking sector in the process who park their funds with the central banks.

The damage to Sterling has been done and the recent softening in the UK government stance by giving a veto to Parliament over some measures of the Internal Market bill doesn’t appear to be enough to change the odds so far of any kind of success in the trade talks. The 50-day Moving Average at 1.2993 was too much of a hurdle for Cable but the pair has found near-term support at 1.2850.



Fed aftermath leaves risk off, for now

The Dollar is consolidating its gains from overnight with US stocks opening firmly lower as the disappointment from last night’s meeting grows. The Fed delivered the minimum dovish statement on QE as the bar to ‘outdove’ itself and shake the prevailing stance was high. Chair Powell emphasised the steady profile of rates in the coming years and the fact that data has surprised to the upside is clearly positive, with the upcoming elections and the pressure now on government to do more.

Further out, in an average inflation targeting regime, what matters is continuously easier financial conditions, and this ultimately means the Dollar trading weaker in the Fed’s fight for higher inflation. DXY’s pop higher earlier this morning bumped up near to resistance at this month’s peak around 93.66. If prices continue to struggle, then bears will attack 92.70/80 as the first support ahead of the big figure.






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Daily Fundamental ForexTime ( FXTM )

Supreme Court battle presents another major risk for investors








Asian stocks and US equity futures are mixed, as global investors have been dealt with a major twist just six weeks before the US Presidential elections.



Supreme Court Justice Ruth Bader Ginsburg passed away on Friday, which means her seat has now been vacated in the highest federal court in the land. US President Donald Trump and his fellow Republicans are now rushing to fill that seat, as this appointment would be monumental in shaping the Supreme Court’s ideological framework for many years to come, potentially even beyond the tenure of the next President of the United States. And a more conservative-leaning jurist would be most appealing for President Trump’s voter base, something which Democratic nominee Joe Biden would want to prevent.

In other words, the November 3rd elections is set to become not just be about who occupies the White House, but also the Supreme Court.

Since the pandemic broke out, market participants have been hoping for more stimulus packages from policymakers, and Washington DC has been locked in battle between Republicans and Democrats over the next round of US fiscal support.

However, this fight for the Supreme Court vacancy could dominate the political agenda in the lead up to the elections, perhaps at the expense of the next round of fiscal stimulus. This might deflate some of the optimism that’s still baked into US equities about more incoming financial support for the world’s largest economy to boost the performance of stock markets. Instead, it adds another major element of uncertainty over the next 44 days.

With the Dow Jones index now testing its 50-day moving average, a break below this support level could make the benchmark index susceptible to further declines until it can find a steadier footing. At the time of writing, the FXTM Trader's Sentiment on the Wall Street 30 (Mini) remains short.





This turn of events means that fundamentally-driven investors who have been paying attention solely on the US economy and policymakers’ response to the pandemic may have to focus a lot more on the political narrative over the coming weeks. Although voting for the next President of the United States is already underway in several states, whoever can best galvanize their supporters over the Supreme Court battle could have the upper hand in the Presidential race. And as we know, the eventual winner of the November 3rd polls, and his policies, would certainly have a major bearing over the performance of global markets over the ensuing four years.

Already, since the passing of Justice Ginsburg, Democratic candidates received over US$103 million in donations on Sunday alone. It now remains to be seen how investors’ funds will flow when US stock markets open for trading this week.



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Daily Fundamental ForexTime ( FXTM )

US stocks near correction territory; is it time to turn bullish?







Equity markets sold off aggressively on Wednesday dragging the S&P 500 2.4% lower for the day and the index is now down nearly 9% from its record high set at the start of the month. We are almost in correction territory for the world’s most followed stock market, which is defined as a 10% fall from its latest peak. Meanwhile the tech heavy Nasdaq composite is already in one, having lost 12% in value from its August highs.

Investors who missed the six-month rally since March may find it compelling to dive in now as many stocks have corrected their excessive valuations, especially on the Tech front. The likes of Tesla, Apple and Amazon have been dragged 15% to 30% lower in a matter of three weeks. The selloff however has been broader this time, with the energy sector back to the April levels when Oil futures contracts fell into negative territory for the first time ever.

If the latest selloff is just about the removal of froth and a healthy correction, it may indicate we are near a bottom and it’s time to reaccumulate stocks. This approach would be based on the notion that the US and the global economy will continue heading in the right direction towards a full recovery. And with central banks across the globe remaining extremely generous with their policies, we should not worry about some bumps along the road.

However, the risks of a stalling recovery are growing as spikes in Covid-19 cases surge across Europe and expectations are for similar trends in the US if no action is taken. The virus continues to be winning at this stage and there are no clear answers as to when a vaccine will be delivered.

Fed Chair Jerome Powell and some of his colleagues are pressing Congress for more fiscal stimulus, in a sign that monetary policy cannot do much more to support the economy. But heading into the Presidential election and given how divided Congress is, the chances of delivering a stimulus package soon is fading. Add to this President Trump’s refusal to commit to a peaceful handover of power if he loses the election on 3 November and it all makes great ingredients for extreme uncertainty and volatility in asset prices.

Overall, we continue to see the risks skewed to the downside and more volatility in the next two months, so despite the recent correction in prices, it does not look tempting to turn overly bullish. Unless Congress surprises us with another convincing round of fiscal stimulus, it will be wise to wait for more attractive valuations.

Gold is another asset that has been sold aggressively over the past four days. This is mainly due to the stronger Dollar, a slight increase in real yields and a break below the $1,900 support level. Expect Gold to gain some traction here as its one of the few assets available to hedge against future expected volatility and the prolonged period of low interest rates.





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Daily Fundamental ForexTime ( FXTM )

Mixed market mood continues







European stocks have hit three-month lows as worries about the prolonged economic damage from coronavirus will not go away, while US markets are volatile, with the Nasdaq on course for its worst month since March. The tech-heavy index touched official ‘correction’ territory just after the open, but this comes after a rampant 65% gain from April to the August highs. It certainly seems like markets are working it out now that fiscal action in the US will be limited to damage control rather than any significant spending package if it comes before the Presidential elections.

One asset which is liking all this uncertainty and disappointment from a Fed waving the white flag in the last few days, is the Dollar. The greenback has added to its gains through the week as it sits on track for its strongest weekly performance since early-April. The shorts are definitely trimming their positions and running to the ‘close position’ door in quick fashion ahead of the depressing increases in virus contagions.



Fed speakers are again on tap this afternoon after yesterday’s continued line that they will remain on hold for a long time and are unwilling to go the extra mile. While they are not able or willing to inject more momentum into the reflation trade, pushing the onus increasingly on to the fiscal policymakers and Government, markets are in a sombre mood.

Sunak giving a boost to Sterling

The pound is the top performing major currency today, as it makes back some of the 4.5% drop it has suffered since the start of September. The UK Chancellor unveiled support measures this afternoon for jobs and businesses, as the Government strives to ‘protect jobs though the winter’. Unemployment would have risen sharply in the coming months as the furlough scheme ends in October, but the new scheme is less generous. More importantly for the Treasury, it will cost alot less which matters when the size of UK public debt was equivalent to UK GDP at the end of July.

Cable is just about bouncing off the crossing of the 100- and 200-day Moving Averages at 1.2703 and 1.2722 respectively. Prices need to get back above the mid-September lows around 1.2762 to have a chance of building any bullish momentum. Allowing for the current pause in recent selling, indicators looks quite bearish with 1.2650 opening up, if the Moving Averages prove to be feeble in their support.







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Daily Fundamental ForexTime ( FXTM )

Risk off as Trump tests positive for Covid-19







A wave of risk-off sentiment swept through the global financial markets after US President Donald Trump tweeted that he and First Lady Melania Trump have both tested positive for Covid-19 and will begin their quarantine and recovery process. US and European equity futures, along with Asian benchmark indices, all sank on the news. The safe haven Japanese Yen surged by as much as 0.68 percent to hit its strongest level in over a week against the US Dollar, dragging the Dollar index (DXY) back below the 94.0 level.







This surge in political uncertainty comes just a month before the November 3rd Presidential Elections, adding to the plethora of concerns that investors are already contending with. This could potentially weigh on the political will to reach an agreement over the next round of US fiscal stimulus, while pushing the Trump administration’s handling of the pandemic front and centre on the election campaign.

Given this added layer of uncertainty, a growing sense of risk aversion could dominate market sentiment, until there is further clarity about the President’s health response to the coronavirus.



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Daily Fundamental ForexTime ( FXTM )

Is the best of the recovery behind us?






Signs that the spread of coronavirus is gathering pace and dwindling US stimulus hopes have dented sentiment today, with major US stock markets opening up more than 1% lower. While some of the losses have been clawed back on news President Trump is willing to look beyond the current $1.8 trillion package, markets are in gloomy mood.

The Vix index – the so-called Wall Street ‘fear gauge’ – has jumped up above 28 and is much higher than its long-term average around 20. With market sentiment wilting, the Dollar is trading broadly higher with higher beta currencies taking a pounding. The release of the weekly US initial jobless claims has also not helped the mood, with the print of 895k claims coming in well above the 825k estimate. The figures may be distorted by a processing backlog in California, but the uptick is certainly disconcerting in the current environment.

PM Johnson will officially decide tomorrow whether the UK will remain at the Brexit negotiating table. The bar for walking away seems very high at the moment, particularly with clear downside risks to the domestic economy from imminent new lockdown measures. There is pressure on France by Germany to soften its demands on fisheries and accept a deal, but the choppy nature of sterling this week is likely to continue as headline havoc continues.

Potential November rate cut hurting AUD

Higher beta currencies are struggling today and overnight dovish comments by RBA Governor Lowe have added to the Aussie’s pain. He said the bank could cut rates to 0.1% and leave them at lower levels for longer. This cautious stance outweighed the better-than-expected jobs report, which saw the unemployment rate stay below 7%.

AUD/USD has sliced through the 100-day Moving Average today at 0.7091 and a strong close below here may see prices test the September low just above 0.70. However, the pair was supported by the 100-day MA back then so the close is crucial.







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