28-Oct-2020

1) EUR/USD: Bulls Losing The Grip Amid Fresh Coronavirus Jitters, Ahead Of ECB
2) BOJ: Economic Forecasts Downgrade And Hints On December Move
3) Crude Oil Price Falls On Demand And Supply Concerns

1) EUR/USD: Bulls Losing The Grip Amid Fresh Coronavirus Jitters, Ahead Of ECB

The EUR/USD pair failed to capitalize on its intraday positive move on Tuesday, instead met with some fresh supply near the 1.1840 region amid a late pickup in the US dollar demand. As the US presidential election draws near, the uncertainty about the actual outcome kept the USD bulls on the defensive through the major part of the European trading session and provided a minor lift to the major. It is worth reporting that the incoming polls have been indicating that Democrat candidate Joe Biden is ahead of incumbent President Donald Trump. However, investors remain wary of predicting the actual outcome as the gap is narrow in certain key swing states.

Meanwhile, growing market worries about the potential economic impact of the ever-increasing coronavirus cases, along with the lack of progress in the US stimulus talks continued weighing on investors’ sentiment. This, in turn, helped limit deeper losses for the safe-haven USD, which was further supported by upbeat US Durable Goods Orders data. In fact, the headline orders rose 1.9% MoM in September, while orders excluding transportation increased by 0.8% as against consensus estimates pointing to a growth of 0.5% and 0.4%, respectively. Separately, the Conference Board’s US Consumer Confidence Index fell to 100.9 for October from the previous month’s downwardly revised reading of 101.3.

 On the other hand, the shared currency was weighed down by reports that France could reintroduce a national lockdown to curb the second wave of COVID-19 infections. According to Reuters, Eurozone’s economic powerhouse Germany also contemplates a measured lockdown as its health care system is close to breaking point. The development fueled worries that renewed lockdown measures could prove detrimental to the already fragile Eurozone economic recovery and sent the pair tumbling down to six-day lows during the Asian session on Wednesday. The downside is likely to remain limited as investors might refrain from placing aggressive bets ahead of the latest monetary policy update by the European Central Bank on Thursday.

There isn’t any major market-moving economic data due for release on Wednesday, either from the Eurozone or the US. Hence, market participants will look forward to the French President Emmanuel Macron’s televised address to the nation later this Wednesday. Apart from this, investors are likely to take cues from developments surrounding the coronavirus saga. Meanwhile, the broader market risk sentiment will influence the USD price dynamics and further assist traders to grab some meaningful opportunities.

From a technical perspective, the pair was last seen hovering near the 38.2% Fibonacci level of the 1.2011-1.1612 downfall. Some follow-through selling below the mentioned support, around the 1.1770-65 region, now seems to accelerate the fall back towards the 1.1700 mark before the pair eventually slides back to retest September monthly swing lows, around the 1.1615-10 region.

On the flip side, the 50% Fibo. level, around the 1.1815 region, now seems to act as immediate resistance. Above the mentioned hurdle, the pair is likely to make a fresh attempt to challenge the 61.8% Fibo. level, around the 1.1855-60 region. A sustained move beyond the recent swing highs, around the 1.1880 zone, will negate any near-term bearish bias and set the stage for an extension of the recent appreciating move, possibly towards reclaiming the key 1.2000 psychological mark.

2) BOJ: Economic Forecasts Downgrade And Hints On December Move

The Bank of Japan (BOJ) is likely to stand pat on its monetary policy settings when it concludes its two-day review meeting on Thursday. Although the policy announcement may not be market-moving, investors will pay close attention to the Japanese central bank’s quarterly outlook report and future policy guidance.

Prime Minister (PM) Yoshihide Suga’s new government is set to compile an additional budget to counter the coronavirus pandemic-caused economic damage. According to media reports, the administration is likely to finalize an extra budget worth around JPY10 trillion ($95.5 billion) around mid-December.

Suga is seen following former Prime Minister Shinzo Abe’s policy, Abenomics, with instructions on the economic measures and benefits likely to be announced next week. The extra budget could be used to extend a labor subsidy program scheduled to end in December and to pay for the distribution of a coronavirus vaccine.

The BOJ board members are expected to keep rates unchanged at -10bps while maintaining a 10yr JGB yield target at 0.00%. However, the bank is seen extending the deadline for two virus-linked funding programs and enlarged asset purchases at the meeting.

Alongside the policy announcement, the central bank is seen downgrading this fiscal year’s economic and inflation outlooks in its quarterly assessment report. The lowering of the growth forecasts is in lieu of the bigger-than-expected economic slump in April-June and soft consumption while the inflation downgrade is largely due to the impact of a government campaign offering discounts to domestic travel, in a bid to boost tourism.

Although the outlook reviews are already priced-in by the markets, any hints on additional monetary policy easing in December, by way of fresh quantitative easing (QE), could have a significant impact on the yen.

Industry experts believe that the BOJ could work with Suga’s government to stimulate the economic recovery but only after the November US Presidential election.

Heading into the BOJ decision, the risk-off flows and US dollar dynamics remain the main market drivers and the scenario is unlikely to change following Thursday’s policy announcement.

The second wave of coronavirus accelerating across the globe and pre-US election anxiety seem to be boding well for the anti-risk yen, as we write. USD/JPY sits at the lowest levels in five-week just above 104.00.

On the daily chart, USD/JPY remains vulnerable to deeper declines. The immediate support of the three-month-old descending trendline, seen at 103.87, could be put at risk on any policy efforts by BOJ to boost the economic rebound.

If the announcement turns out to be a non-event, investors could use it as an excuse to embark upon a corrective pullback towards the 105.00 level, above which the next resistance awaits at the 21-daily moving average (DMA) hurdle of 105.27.

The 14-day Relative Strength Index (RSI) points south within the bearish zone but holds just above the oversold territory, suggesting that there is still some room to the downside.

3) Crude Oil Price Falls On Demand And Supply Concerns

The US dollar rose in overnight trading as traders reacted to impressive durable goods orders and the growing risks of coronavirus. According to the Bureau of Statistics, core durable goods orders rose by 0.8% in September, higher than the consensus estimates of 0.4%. The total orders rose by 1.9% while orders non-defence and air rose by 1.0%. However, according to the Conference Board, consumer confidence declined from 101.3 in September to 100.9 in October, mostly because of the uncertainties of the election.

The price of crude oil tumbled as traders reacted to the surging number of Covid-19 cases in the US and Europe. Yesterday, the US reported more than 74,000 new cases. Similarly, Germany confirmed more than 11k cases while Spain recorded more than 18,000 cases. The challenge is that demand will be subdued as more people stay at home at a time when supply from OPEC and other producers is rising. The price also fell because of the rising crude oil inventories. According to the American Petroleum Institute (API), the stocks rose from 584k to more than 4.57 million in the previous week. The EIA will release the official numbers later today, with analysts waiting for an increase of 1.23 million barrels.

The Canadian dollar is little changed ahead of the Bank of Canada’s decision that will come out later today. Analysts expect the central bank will leave interest rates unchanged and possibly hint at more rate cuts later this year or in 2021. Other important economic numbers to watch today will be the Swedish manufacturing and consumer confidence and retail sales. From the US, we will receive the mortgage market data and wholesale inventories. We will also receive important earnings from Visa, Mastercard, Boeing, Amgen, and Anthem, among others.