Forex News

• USD/CHF pulls back from 0.9160 and dives to 0.9030.
• The dollar is approaching five-year lows at 0.8998.
• Below 0.9048, next key support levels are 0.8998 and 08943 –  Commerzbank.

US dollar recovery attempt from Tuesday’s lows at 0.9085 has been capped at 0.9160 area and the pair resumed its downtrend on Wednesday, returning below 0.9100 to hit session lows at 0.9030,  approaching dangerously five-year lows at 0.8998.

US dollar dives on hopes of a US stimulus deal 

The greenback plunged across the board on Wednesday as hopes of a breakthrough on the US coronavirus stimulus negotiations boosted demand for risky assets. The US Dollar Index has declined for the fourth consecutive day to hit seven-week lows.

Investors’ optimism was triggered by the US Home Secretary, Nancy Pelosi who showed optimism about the chances of reaching a deal before the Elections Day. Today, US President Trump said that he is willing to accept a large aid package, suggesting that he will pass the $2.2 trillion bill pushed by the Democrats against the opposition within his own party.

USD/CHF: Important support at 0.8998 and 0.8943 – Commerzbank

On the technical front, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank points out to 0.8998 and 0.8943 as key support levels for the USD: “Attention on the 0.9048 mid-September low. Only a slide below 0.9048 will target the 0.8998 recent low. The recent low at 0.8998 guards 0.8943 (TD support). Failure at 0.8943 is needed to introduce scope to the 0.8703/0.8698 2014 lows.” 

Technical levels to watch

• PayPal has entered the cryptocurrency market, sending both the crypto space and PayPal higher.
• PayPal Holdings INC prints all-time highs of $215.83.
• US benchmarks end in the red as US stimulus deal hopes faded into the close, as 'tomorrow' never comes. 

Stocks on Wall Street were once again turbulent on a week where politics meets earnings and the coronavirus spread rages on through both the US and Europe, particularly. 

• Europe's COVID-19 plight and prospects for the EUR/USD

However, it wasn't all bad news.

PayPal Holdings Inc adopts cryptocurrencies 

The stand out performer on the day was PayPal Holdings Inc which marked an all-time high following its announcement that customers will be able to buy and sell Bitcoin and other virtual currencies using their PayPal accounts:

(Source: TradingView)

''Virtual coins could then be used to buy things from the 26 million sellers which accept PayPal'', it said.

PayPal plans to roll out buying options in the US over the next few weeks, with the full rollout due early next year.

The other cryptocurrencies to be added first will be Ethereum, Litecoin, and Bitcoin Cash (a spin-off from Bitcoin).

All could be stored "directly within the PayPal digital wallet", the company said.

Breaking: PayPal enables buying and selling of cryptocurrencies in 2021

Bitcoin prices rose alongside the news, breaking the $12,000 mark.

Mañana, mañana ...

Meanwhile, investors are now worried whether difficult negotiations in Washington will produce a deal for a fresh US coronavirus stimulus package before the November 3rd US Presidential Elections. 

White House Chief of Staff Mark Meadows said that while there are several differences between the White House and Congressional Democrats, Republican President Donald Trump was "willing to lean into" working on an agreement.

Meadows: Optimistic a deal can be reached

US House Speaker Nancy Pelosi's spokeswomen, Drew Hammill tweeted that a call between Pelosi and the Treasury Secretary Steven Mnuchin lasted for 48 minutes and ''today's conversation brings us closer to being able to put pen to paper to write legislation.''

Pelosi spokeswomen Hammill: Today's conversation brings us closer to ... legislation

However, the carrot can be dangled for only so long before investors will grow tired of hearing ''tomorrow' that never seems to come. 

Consequently, the Dow Jones Industrial Average fell 98.76 points, or 0.35%, to 28,210.03, the S&P 500 lost 7.77 points, or 0.23%, to 3,435.35 and the Nasdaq Composite dropped 31.80 points, or 0.28%, to 11,484.69.

S&P 500 levels

Fed's Bullard says that negative rates are not a good option for the US and that they will need to think about how to play QE going forward.

Negative rates probably aren't effective where they have been tried. 

Bullard says that the Fed isn't battling with markets.

Key comments

''Markets believe Fed will keep rates low for quite a while.''

 Bullard says ''so far so good, as far as fed policy.''

Bullard argues that the US has made substantial progress in getting virus under control and that the US daily fatalities per million have fallen to levels similar to accidental injury.

His base case is for no second wave of virus, in terms of daily rate of fatalities.

Bullard says people at risk are taking precautions and businesses are mitigating risks.

He argues that most businesses can operate safely, and succeed economically

Bullard says could wait until 1Q 2021 to assess need for the further fiscal stimulus. 

Bullard says if inflation goes higher, the Fed will not react as aggressively as in past.

Market implications

There has been no market reaction to these comments. 

The dollar was lifted into the end of wall Street on weaker equities as a stimulus package is a promise that never comes.

Wall Street Close: PayPal prints all time highs on Bitcoin adoption

• Gold rallies 0.8%on the day to approach October's top at $1933
• XAU/USD appreciates on dollar weakness amid hopes of a US stimulus deal

Gold futures have posted their best daily performance in two weeks, appreciating about $20 on Wednesday, favoured by broad-based dollar weakness to reach session highs at $1,930, only a few dollars shy of October’s top, $1,933.

Gold appreciates on US dollar weakness

Bullion appreciated on Wednesday to break beyond the last five days' trading range as hopes of a stimulus deal in the US boosted market sentiment, sending the US dollar lower across the board. Comments by House Secretary Nancy Pelosi who showed her optimism about reaching a deal before the elections were echoed by President Trump who affirmed that he is willing to accept a large stimulus bill.

Trump’s comments suggest that he will approve the $2.2 trillion aid package pushed by the democrats, which has triggered a sell-off in US bonds, ultimately contributing to US dollar weakness. The US Dollar Index las lost 0.4% to complete a four-day decline and hit seven-week lows.

On the technical front, XAU/USD is pushing against resistance area at $1,925/35 (50-day SMA / October 12 high). Above here, the precious metal might set its focus towards $1,975 (September 16 high) and $1,992 (September 1 high). On the downside, immediate support lies at $1,875 (100-day SMA) and below here, $1,850 (September 26 low) and mid-July lows at $1,792.

Technical levels to watch

The Reserve Bank of New Zealand's Simone Robbers has expressed concern over potential further disruptions from the coronavirus. 

The RBNZ Official says the country still facing uncertain times and potential further disruptions from covid-19, but it is well prepared for this challenge.

Robbers says ''we are providing liquidity to banks and coordinating monetary and fiscal policy settings to support New Zealand's economic recovery.''

Additional, it was stated by the Official that the RBNZ is looking at how to use its monetary policy and alternative monetary policy tools.

''It is possible that bank resilience will be tested in the coming months as loan losses rise materially from current low levels,'' Robbers added. 

Here is what you need to know on Thursday, October 22:

The greenback kept losing ground on Wednesday, down against all of its major rivals. Hopes for a US stimulus package kept it in sell-off mode despite the poor performance of equities, as European indexes closed it the red while US ones were able to post just modest intraday gains, but closed the day in the red.

Talks continued between House Speaker Nancy Pelosi and US Treasury Secretary Steven Mnuchin, without a deal. Delayed talks weighed on the market’s mood ahead of the close.

The second wave of coronavirus is hitting Europe quite hard. Curfews are under study in different countries, as a record number of new cases are being reported in Spain, Italy and the UK. Curfews and additional restrictive measures are under study. UK Chancellor Rishi Sunak is to unveil a fourth COVID-19 support package.

In the Brexit front, the UK and the EU agreed to resume trade talks, boosting Pound. GBP/USD soared to 1.3176.

The EUR/USD pair traded as high as 1.1880, ending the day a handful of pips below the level, and retaining its bullish stance.

Gold benefited from the broad dollar’s weakness, surging to $1,931 a troy ounce, finishing the day around 1,925.

Crude oil prices were sharply lower, partially weighed by the soft tone of equities, but also hurt by demand concerns. The EIA reported a 1M barrels´ decline in the week ended October 16, pretty much in line with expectations. The API reported a  draw of 3.8 million barrels earlier in the day.

PayPal enables buying and selling of cryptocurrencies in 2021

US House Speaker Nancy Pelosi's spokeswomen, Drew Hammill has tweeted details of the call between Pelosi and the Treasury Secretary Steven Mnuchin.

Market implications

Stocks may soon grow tired of hearing 'tomorrow' every day, as it never seems to arrive.

However, it is inevitable that a stimulus package will be made available but the uncertainty of the US elections and the possibility of a contested outcome, thus the delay in a package is what will concern investors the most. 

Meanwhile, the US indexes ended lower on the day as stimulus hopes faded into the close, assisting the greenback to come off its lows. 

• NZD/USD's rebound from 0.6550 extends to 0.6680 area.
• The kiwi approaches the top of the last two weeks' trading range, at 0.6685.

The New Zealand dollar has bounced up strongly after hitting two-week lows at 0.6550 on Tuesday. The pair has rallied more than 1.2% on the day to erase previous losses and approach an important resistance area at 0.6685.

The daily chart shows the pair approaching the top the last four weeks horizontal channel, at the mentioned 0.65685. Above here, the path seems clear to extend towards 18-month high at 0.6795. If the pair manages to break that level, next potential resistance might be April 2019 highs at 0.6840.

On the flip side, a reversal from current levels might find support at the 100-day SMA, now at 0.6585 before testing the channel bottom at 0.6550. Once below here, next support level would be 0.6490 which, if broken, might activate an “H&S” pattern, sending the pair to 0.6200 or lower.

NZD/USD daily chart

A call was taking place today between the US House of Representatives Speaker Nancy Pelosi's and Treasury Secretary Steven Mnuchin to discuss an aid package for COVID-19. 

There is no detail of the call so far, but the White House Chief of Staff Mark Meadows, as he did yesterday after the call, made some recent comments around the time of the call taking place. 

He said that there are a number of differences between the White House and Democrats in Congress on coronavirus relief but President Donald Trump is "willing to lean into" working toward an agreement.

"There continues to be a number of differences but, as I mentioned earlier, we've entered a new phase where we're actually looking at some of the technical language," Meadows said on Fox News Channel.

He later told reporters he was optimistic a deal could be reached and that the administration would stay engaged for the new couple of days.

S&P 500 reactions

S&P 500 a touch lower, -0.28%, as Mnuchin and Pelosi talk is confirmed to have started

Weekly structure

• AUD/USD bounces up strongly at 0.7020 to reach session highs at 0.7135.
• Optimism about a stimulus deal in the US boosts the aussie.
• AUD/USD to resume the bullish trend after a corrective move – Credit Suisse.

The Australian dollar has gone through an impressive come back on Wednesday to reverse most of the ground lost after a four-day negative streak. The aussie bounced up from Tuesday’s low at 0.7020 to appreciate beyond 1% on the day, extending to session highs at 0.7135.

Aussie soars on a risk-on market

The AUD/USD has been buoyed by the generalized risk appetite with the investors increasingly confident about the chances of a coronavirus stimulus agreement in the US.

President Trump’s comments suggesting that he is willing to accept a large relief bill in spite of the opposition shown by Senate Republicans have boosted optimism, spurring a rush for risky currencies, in detriment of the safe-haven greenback.

In this backdrop, the aussie has managed to shrug off the previous days’ negative pressure generated by the increasing chances of further monetary tightening in Novembner. The RBA confirmed yesterday by that the issue of a rate cut had been on the table on the previous meeting, which confirmed the market expectations and increased bearish pressure on the AUD..

AUD/USD expected to resume the bull trend – Credit Suisse

FX analysis team at Credit Suisse observes the recent AUD/USD pullback as a correction before resuming the upside trend: ““AUD/USD remains in a near-term corrective period, which is likely to extend further in the short-term, but we stay biased for an eventual resumption of the core bull trend following the completion of a large ‘head & shoulders’ base in July.” 

Technical levels to watch

• S&P 500 index pulls back as the call between Pelosi and Mnuchin gets underway.
• Mitch McConnell does not want to bring a large coronavirus aid bill to the Senate floor.

The S&P 500 is into positive territory in the afternoon but pulls back as markets brace for an outcome of the US House of Representatives Speaker Nancy Pelosi's and Treasury Secretary Steven Mnuchin's talk.

They were scheduled to talk at 230 PM EDT (1830 GMT) about details of a relief package.

However, confirmations are only just coming through now at the time of writing that they are indeed talking.

At the same time the prior day, when the call was confirmed to start, stocks on Wall Street fell as soon as the call was reported to have started. 

We are seeing the same now.

The S&P 500 had risen 0.3%, possibly in anticipation of a breakthrough prior to the call but are starting to talk off as the call is confirmed to have started.

The S&P 500 has dropped 0.28%.

Democrats want the package to be in the range of $2.2 trillion, but Pelosi said she hoped to resolve the "appropriations piece" of the aid bill Wednesday, which the market thinks is more realistic. 

However, Senate Majority Leader Mitch McConnell does not want to bring a large coronavirus aid bill to the Senate floor before the election, a senior Republican aide said.

This makes for a pre-election agreement far less likely.

Meanwhile, according to the polls, Democratic challenger Joe Biden Republican is leading the race to the White House, according to the latest polls. 

Currently, the 10-poll average indicates that just over half of Americans intend to back Joe Biden while President Donald Trump’s support trails this by around five or six points.

Americans will vote Tuesday 3rd November in order to elect their next President.

President Donald Trump and Democratic challenger Joe Biden will face off in their second and final debate on Thursday night.

In data, the S&P 500 was changed little after the Federal Reserve's Beige Book gave a snapshot of the economy which has shown that employment increased in almost all districts, though growth remained slow.

Fed's Beige Book: Employment increased in almost all districts, growth remained slow

In performers, of the major industry sectors communications services .SPLRCL was the biggest gainer, up nearly 2%, after Snapchat messaging app owner Snap Inc SNAP beat user growth and revenue forecasts, as more people signed up to chat with friends and family during the COVID-19 pandemic, Reuters reported.

''The results boosted the shares of social media companies Facebook Inc FB , up around 5%, and Twitter Inc TWTR , up around 8%, helped lift the communications services sector along with a 2.7% rise for Google-parent Alphabet Inc GOOG.''

S&P 500 levels

The euro has pulled back against the Norwegian Krone, after having peaked at 11.17 earlier in September, and, according to the Rabobank FX analysis team, it might go somewhat lower over the next months.

Key quotes

“The downturn suffered by the Norwegian economy in the first part of this year was not severe as most of its neighbours. Norges Bank data puts the domestic 2020 Q1 and Q2 GDP contractions at -2.2% q/q and -6.3% q/q respectively compared with +0.2% q/q and -8.3% q/q in Sweden and -3.7% q/q and -11.8% q/q in the Eurozone.”

“Part of the market’s relative optimism for the Norwegian economy is the ability of the government to dip further into the nation’s wealth fund to boost fiscal spending. The recent budget suggests that Solberg’s government plans to use NOK313.4 bln of ‘oil money’ to plug the deficit in state finances next year. This is lower than the amount used in 2020 but still above recent averages.”

“With EUR/NOK trading well above historical averages and so adding to policy accommodation it does seem possible that the Norges Bank could raise rates ahead of the pack and before the end of next year. In the near-term, oil prices will remain an influence for the NOK, though with relatively better economic fundamentals compared with its neighbours we see scope for EUR/NOK to pull back to 10.80 on a 3-month view.”

UK Chancellor Rishi Sunak is to unveil a fourth COVID-19 support package for ailing firms in as many months amid mounting pressure on the government to help hard-hit companies in lockdown-affected regions.

The Guardian reported on Wednesday that trade unions and the UK’s five big employers’ organisations have been summoned to the Treasury on Thursday morning to hear details of the chancellor’s plans before he makes a statement to MPs.

Market implications

GBP/USD has been meandering in late New York following a strong rally from 1.2934 lows to 1.3176 on dollar weakness. 

Brexit fears ebb and flow as to rate cut expectations will undermine the pound, but the stimulus has to be good news which alleviates some of the pressure from the Bank of England to cut rates. 

• WTI fell below $40 mid-week as investors worry over demand and spread of COVID-19.
• OPEC tapering is also a concern for bullish bets. 

West Texas Intermediate crude is currently trading at $39.97 and down by 2.8% having travelled from a high of $41.57 to a low of $39.81.

Despite a second weekly decline in US crude supplies reported by the Energy Information Administration, the price of oil has been pressured as investors move away from risk assets, including oil.

The rising cases of COVID-19 in Europe, in particular, has impacted investor sentiment mid-week.

Europe's COVID-19 plight and prospects for the EUR/USD

All eyes on OPEC

The potential for more economic shutdowns will impede demand for energy, something for which will be in focus next month when the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, meet to discuss output controls. 

OPEC compliance with production cuts is has helped to protect the downside for oil prices to date but the prospects of the group tapering could be part of why the bid has been pulled. 

''While OPEC+ stopped short of a firm decision on output cuts, the group sent a strong signal of support, warning those that gamble on the group's determination and implying that the November meeting will likely feature a decision on tapering from the group,'' analysts at TD Securities explained.

The analysts are bullish on the longer run of the outlook and have stated, 'with the OPEC+ put nearly at-the-money, we see a potential set-up building for an upside surprise.''

''Normalizing demand expectations, large-scale fiscal stimulus and a potential vaccine announcement shortly following the election, along with an OPEC+ revision to the planned tapering of their historic output deal, should all conspire to offer strong support in energy markets.''

WTI levels

• EUR/GBP reversal from 0.9145 extends towards 0.9000 area.
• The euro dives 1.2% with amid broad-based pound strength.

The euro performed a false break of the five-week bearish channel on Tuesday, as the pair turned south, plunging about 1.2% so far today to test the bottom of the last two weeks trading range, at 0.9000.

Pound bounces up as Brexit talks resume

The sterling has appreciated against its main rivals on Wednesday after Bloomberg reported that Brexit talks are set to resume this week after the unexpected close last weekend. The report suggests that the negotiators are aiming to reach a deal by mid-November.

This news has boosted demand for the British pound, pushing the euro more than 100 pips lower on the day, to hit session lows right above 0.9000 support area.

A confirmation below 0.9000 (October 14 low) might drive the pair towards trendline support from late April / early May lows, now around 0.8945 before heading to 0.8870 (September 3 low).

On the upside, a potential recovery from current levels should extend beyond the 100 and the 50-day SMAs, at 0.9045 and 0.9065 respectively before aiming towards 0.9145 (October 20 high).

EUR/GBP daily chart

The Federal Reserve released the beige book report on the US Economic activity stating that employment increased in almost all districts, though growth remained slow.

Additionally, it states that the economic activity continued to increase across all districts, with pace of growth characterized as slight to modest in most.

Key notes

''Changes in activity varied greatly by sector.

Employment gains were reported most consistently for manufacturing firms, although firms continued to report new furloughs and layoffs.

Most districts continued reporting tight labor markets, attributing it to workers' health and childcare concerns.

A few districts, however, noted some firms were finding it easier to hire workers.

Manufacturing activity generally increased at a moderate pace; residential housing markets continued to experience steady demand.

Commercial real estate conditions continued to deteriorate in many districts.

Wages increased slightly in most districts, often tied to firms' difficulty finding workers, especially for low-wage or high-demand jobs.

Consumer spending growth remained positive and some districts reported a leveling off of retail sales and a slight uptick in tourism activity.

Prices rose modestly across districts since the previous report.

Demand for autos remained steady, reports on agriculture conditions were mixed.

Districts characterized the outlooks of contacts as generally optimistic or positive, but with a considerable degree of uncertainty.

Restaurateurs in many districts expressed concern that cooler weather would slow sales.

Input costs generally increased faster than consumer prices.

Banking contacts in many districts expressed concern that delinquency rates may rise in coming months.

Overall, consumer prices across districts rose modestly, with the notable exceptions of food, automobiles, and appliances, which increased significantly.

Multiple districts reported continued additional costs for firms due to COVID.''

Market implications

Stocks and the dollar were unchanged on the release as the markets focus on stimulus talks and progress towards a financial aid package for the nation. 

• USD/JPY breaks below 105.00 support and reaches 104.35 low.
• USD drops nearly 1% to hit one-month lows.
• The dollar drops across the board amid hopes of a US stimulus deal.

The US dollar is feeling heavy against the Japanese yen on Wednesday. The pair has lost nearly 1% on the day, retreating from 105.50 area, to break support at 105.00 reaching to multi-week lows at 104.35.

Dollar plunges on US stimulus hopes

The US dollar has broken below the 105.00/106.00 horizontal trading range seen during the last two weeks as fresh hopes about the possibility of a fiscal stimulus agreement in the US have triggered a sell-off on US bonds that has undermined demand for the greenback.

News reports suggesting that the COVID-19 stimulus agreement might be closer have been welcomed by the market, that has reacted with a renewed appetite for risk. With the investors increasing bets for riskier assets, the safe-haven US dollar he's dropped to seven-week lows against a basket of the most traded currencies.

The White House Spokesperson, Nancy Pelosi affirmed that she is optimistic about the chances of reaching an agreement before the Presidential elections and US President Trump has boosted hopes further earlier today affirming that he is willing to accept a large aid bill despite the opposition of Senate Republicans.

Technical levels to watch

• European nations are awash with the spread of the coronavirus, undermining EUR's bullish outlook.
• Spain is the first European country to record a million coronavirus cases, France close behind.

The COVID-19 health crisis has been a historic shock for a fragile eurozone economy and banking system. 

The weakness of individual nation-economies, such as the Italian economy, has been a long-standing theme in markets and problematic for the euro and European politics. 

In recent trade, there are updates as to just how seriously bad the COVID surge of new cases is for various countries in Europe. 

Today marks the day that sees Spain as the first European country to record a million coronavirus cases.

The most concerning of that statistic is the doubling on that number on just six weeks. 

Yesterday alone, the nation reported 38,000 new cases in a single day

It has also recorded 575 deaths over the past week, bringing the official number of coronavirus deaths to 34,366.

Several Spanish regions had already toughened their coronavirus restrictions on Monday, seeking to curb the second wave of the contagion.

“We are in circumstances similar to those of March or April,” Burgos Mayor Daniel de la Rosa told state broadcaster TVE, recalling the start of the epidemic when Spaniards were confined to their homes to stop the spread.

Earlier this month, the central government was declaring a state of emergency in Madrid to reimpose a partial lockdown on several million people in and around the capital.

The government is now considering introducing a nighttime curfew across the whole of the country, Health Minister Salvador Illa said on Tuesday. 

Meanwhile, neighbouring France has nearly 931,000 cases and could also surpass 1 million soon.

Alarmingly, Italy's cases have shot up in a very step curve since the end of September. 

The data is from yesterday but there have been 15,199 new cases reported vs 10,870+ yesterday, which is quite a jump and enough for markets to increase their negative bets on the eurozone economy and asset classes. 

Regardless, however, the euro has galloped to reach a month high to 1.1880 as the US dollar falls out of bed based on stimulus hopes. 

However, technically, the outlook for the euro does not look so rosy and nor does the situation of the spread of the virus, for not only the economy but European politics. 

Investors found reassurance both in the ECB’s commitment to ease and in the EU’s Recovery Fund.

This sparked hopes that European politicians were finally making small steps towards a more harmonious fiscal arrangement. 

However, heavily long positioned CFTC data in EUR positions coupled with the second wave of covid-19 could all come crashing down for the single currency.

Fresh demands for fiscal funds could trigger fresh debates about fiscal support and that is where the euro bull could come unstuck.

Against this backdrop, ECB officials have not been quiet about their dovish outlooks, preparing the market for more monetary policy action in the coming months.

Daily chart structures

• EUR/USD rallies for the fourth consecutive day to hit one-month highs at 1.1880.
• The US dollar dives amid hopes of a US COVID-19 stimulus deal.
• EUR/USD might appreciate to 1.20 in December – Danske Bank.

The euro has rallied for the fourth consecutive day against the US dollar on Wednesday, extending its recovery from last week lows at 1.1685 to one-month highs near 1.1900.

Euro appreciates on US dollar weakness

The common currency has rallied nearly 0.5% so far today, with the US dollar trading at multi-week lows after US President, Donald Trump, suggested he is ready to accept a large coronavirus-relief package. This has boosted investor’s optimism which has favoured riskier currencies, increasing negative pressure on the dollar.

The White House spokesperson, Allysa Farah affirmed she is optimistic about the fiscal deal and President Trump suggested that he would be willing to agree on the $2.2 trillion bill proposed by the Democrat party. Trump’s position, however, contrasts whit that of the Senate Republicans who have made public their opposition to a large bill.

EUR/USD seen at 1.20 in December – Danske Bank

In a mid-term perspective, the FX analysis team at Danske Bank observes the euro marching towards 1.20 in December: “A Brexit solution, a Biden win and an EU budget agreement may culminate in December to move EUR/USD to 1.20, which remains our best (and base) case scenario. There is a risk we are too optimistic and if we do not see improvements over December, we expect to shift our one-to-twelve month profile (currently 1.20 on six-month) in favour of USD.”

Technical levels to watch

Data released on Wednesday showed retail sales rose 0.4% in August in Canada, below expectations. Kyle Dahms, analyst at the National Bank of Canada points out sales reached a new record high and are 1.8% above their February level. 

Key Quotes:

“The August retail sales report came in a bit weaker than expected. The increase was propelled by a minority of categories, but the declines elsewhere were not significant enough to offset the headline number.”

“Spending in August remained decent after having recovered to pre-pandemic levels in July. Indeed, headline sales are now 1.8% above their February level. The August report on retail spending helps affirm our belief that most of the pent-up demand has been absorbed. Despite the slight disappointment in August, retail sales are on track for a massive increase in the third quarter.”

“Including the preliminary result for September, retail spending likely rose over 110% annualized in Q3 after having declined 42% in the second quarter of the year. While this rebound was expected given delayed spending and government assistance measures, it remains to be seen if household spending will be sustained in the fourth quarter (and beyond) given the tapering of support programs and a second wave of COVID cases in many provinces.”

• Loonie among worst performers in the market on Wednesday.
• USD/CAD now neutral for the day after hitting lowest since early-September.

The USD/CAD pair printed a fresh daily high at 1.3139 despite the decline of the US dollar across the board. Earlier on Wednesday during the European session the pair bottomed at 1.3080, the lowest level since September 7.

The rebound took place amid a decline in crude oil prices and after Canadian economic data. Also, some profit-taking in some CAD’s crosses might have weighed on the loonie. The WTI barrel is falling 3.50%, trading slightly above $40.00.

On Tuesday AUD/CAD bottomed at 0.9245, the lowest since June and it has rebounded more than a hundred pips, a similar pattern is following NZD/CAD. Both, the aussie and the kiwi are sharply higher versus the US dollar on Wednesday.

Economic data from Canada showed a lower than expected increase in retail sales in August and the CPI index rising to 0.5% (year-over-year) in September. “Our current forecast has headline CPI growing just 1.2% in 2020. That benign inflation backdrop is in line with the Bank of Canada’s expectations, and should leave monetary policymakers free to maintain interest rates at exceptionally low levels for the foreseeable future”, explained analysts at RBC Economics.

As of writing, USD/CAD trades at 1.3115/20, around the same level it closed on Tuesday. The rejection from below 1.3100 could suggest some consolidation ahead, with the potential for a recovery to 1.3200, if it breaks the immediate resistance at 1.3150. A close below 1.3100 would expose the next strong support seen at 1.3030.

Technical levels

The S&P 500 Index has turned positive after White House spokesperson Allysa Farah said she is cautiously optimistic about reaching a fiscal stimulus deal. Both sides reported progress after long talks on Tuesday. 

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are set to speak once again, trying to clinch a deal ahead of the November 3 elections. Senate Republicans seem reluctant to support a large bill at this point. 

The safe-haven US dollar has been on the back foot amid the risk-off sentiment.

• Pound jumps on Brexit latest developments, add to gains.
• GBP/JPY looks at the 138.00 area that capped the upside earlier in October.

The GBP/JPY pair rose sharply over the last hours extending gains after it was reported that Brexit talks are set to resume aiming for a deal by mid-November. The pound soared across the board, extending the positive momentum.

The daily chart shows GBP/JPY moving with a positive trend in the short-term after finding support on the 20-day moving average that stands today at 136.35.  A daily close below would expose the uptrend line at 135.80; with a break lower negating the bullish bias.

On the upside, the next strong barrier is seen slightly below 138.00, a horizontal resistance and also the 55-day moving average. A close above would suggest more gains ahead targeting the 139.00 area (intermediate resistance at 138.60).

GBP/JPY daily chart

• Pounds soars as Brexit are set to restart formally.
• EUR/GBP drops on Wednesday a hundred pips, approaches monthly lows.

The EUR/GBP dropped further during the last hours after Bloomberg report that Brexit talks were set to restart, aiming for a deal by mid-November. The pair fell to 0.9016, reaching the lowest level since October 15. It remains near the lows under pressure.

The pound jumped across the board after the report, extending daily gains. The report mentioned that a decision could come in the next hours, with negotiators ready to resume talks to find a deal by November 13.

The decline in EUR/GBP is the most significant in months. The area above 0.9000 so far capped the slide. A break under 0.9000 could open the doors to more losses. The next support might be seen at 0.8965, followed by 0.8935.

On Tuesday, EUR/GBP offered some bullish signs by surpassing the 20-day moving average that stands at 0.9085. Price is back below with the momentum now favoring the downside.

Technical levels

The EUR/USD pair has extended its weekly advance to 1.1870 this Wednesday, amid persistent dollar’s weakness, and could regain the 1.1900 threshold, FXStreet’s Chief Analyst Valeria Bednarik reports.

Key quotes

“Talks about a US stimulus aid package provided support to the high-yielding EUR, as US Treasury Secretary Steven Mnuchin and House Leader Nancy Pelosi reported progress in trade talks, and said they would continue negotiations this Wednesday.”

“The 4-hour chart shows that the advance extended above all of the moving averages, while the 20 SMA accelerated north and crossed above the larger ones. Technical indicators, in the meantime, maintain their bullish slopes, despite being in overbought territory. 

“A break through 1.1870 should see the EUR/USD pair regaining the 1.19 threshold during the upcoming sessions.”

• US stocks edge higher on the back of optimism over a pre-election stimulus.
• Talks will continue this Wednesday amid opposition from the Republican party.

Major US equity indices opened higher on Wednesday amid growing confidence that US lawmakers can come to an agreement over a new coronavirus relief package.

The US President Donald Trump raised hopes for a stimulus breakthrough and said that he was willing to accept a larger aid bill. White House chief of staff Mark Meadows added to the optimism and said that House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have made good progress on stimulus talks.

Investors, however, remained sceptic on the back of opposition from Trump's own Republican Party. Negotiations are set to continue on Wednesday and anything indicating that both the parties are leaning towards a deal would provide an additional boost to the broader market sentiment and fuel the intraday positive momentum.

At the time of writing, the Dow Jones Industrial Average was up over 100 points and the broader S&P 500 index added 20 points for the day. Meanwhile, tech-heavy Nasdaq Composite Index rallied around 80 points despite disappointing results from pandemic highflier Netflix.

Technical levels to watch

• EUR/USD keeps the buying bias unchanged around 1.1860.
• Markets’ focus remains on potential stimulus talks.
• ECB’s Luis De Guindos, Fed’s Beige Book next in the calendar.

Following earlier multi-week tops around 1.1870, EUR/USD has met some selling pressure and recedes to the 1.1850 zone in the wake of the opening bell in Wall St. on Wednesday.

EUR/USD stays vigilant on stimulus headlines

EUR/USD posts gains for the fourth consecutive session on Wednesday against the backdrop of the steady downtrend in the greenback.

Indeed, the dollar meets increasing selling pressure as the upcoming meeting between S.Mnuchin and N.Pelosi (at some point later on Wednesday) has reignited hopes of further fiscal stimulus.

Nothing scheduled data wise in Euroland, while ECB’s Luis De Guindos said earlier in the session that an early removal of current stimulus carries the potential to hurt the incipient recovery in the region and warned at the same time against financial risks stemming from mounting debt.

Earlier comments from FOMC’s L.Brainard did not help the dollar either after she suggested inflation is forecasted to remain low for the next few years while the US recovery is seen highly uncertain and uneven.

Later on Wednesday, De Guindos is due to speak again and board member Phillip Lane will participate in an online discussion panel.

What to look for around EUR

EUR/USD extends the bounce off last week’s lows in the 1.1690/85 band and already navigate in multi-week peaks well above 1.1800. The outlook on EUR/USD still remains constructive and bearish moves are deemed as corrective only. Further out, the positive bias in the euro remains underpinned by auspicious results from domestic fundamentals (despite momentum appears somewhat mitigated in several regions), the so far cautious stance from the ECB and the solid position of the EMU’s current account. In addition, the probable “blue wave” following the US elections is deemed as a negative driver for the greenback and carries the potential to lend extra legs to the pair in the longer run.

EUR/USD levels to watch

At the moment, the pair is gaining 0.31% at 1.1858 and a breakout of 1.1862 (monthly high Oct.21) would target 1.1917 (high Sep.10) en route to 1.1965 (monthly high Aug.18). On the other hand, the next support is located at 1.1688 (monthly low Ot.15) followed by 1.1612 (monthly low Sep.25) and finally 1.1495 (monthly high Mar.9).

Brexit talks are set to formally restart with an aim to reach a deal by mid-November. Calls between London and Brussels have been held earlier this week, seeking a path to reignite and intensify talks. 

Last week, Prime Minister Boris Johnson told the nation to prepare for a no-trade-deal Brexit after EU leaders refrained from ceding ground nor agreeing to ramp up the pace of negotiations. Since then, the mood has changed. 

Hopes for a fiscal stimulus deal in Washington are also contributing to cable's advance. The safe-haven dollar is coming under pressure. 

GBP/USD has been rising ahead of the news, but burst significantly higher and hits 1.3139, the highest since September.  

Here is how sterling's move looks on the four-hour chart. The Relative Strength Index is above 70, thus at overbought conditions. Momentum remains to the upside. 

More GBP/USD Forecast: Sterling set on breaking double-top as dual talks extend

Are Republicans and Democrats on the verge of a massive stimulus bill? House Speaker Nancy Pelosi reported progress and said the parties are drafting an accord, letting her deadline lapse. White House officials also seemed optimistic.

While both sides say some issues are left open, the prospects of Uncle Sam printing around $2 trillion have pushed XAU/USD significantly higher after long days of the lackluster movement. 

How is the precious metal positioned on the charts? 

The Technical Confluences Indicator is showing that immediate resistance awaits at $1,924, which is the convergence of the Bollinger Band 1h-Upper, the Pivot Point one-day Resistance 2, and the BB 15min-Upper.

The next level to watch is $1,937, which is where the PP one-day R3 and the Fibonacci 61.8% one-month hit the price. 

Looking down, some support awaits at $1,915, which is the confluence of the BB 1h-Middle, the SMA 5-4h, and the PP one-day R1.

Strong support is at $1,909, a juncture of lines including the SMA 200-1h, the SMA 50-4h, the Fibonacci 23.6% one-day, and the SMA 10-4h. 

Key XAU/USD resistances and supports

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