BFJ Research
29.10.2020

Part 1. Market Overview

The market yesterday was quite volatile, most major currencies were down, apart from USD rising, equity indexes among the globe have been hit hard, with VIX rising 12.793%. There is growing concerns about the rising Covid infection rates, and more significantly, rises in death rates in Europe and the US. With France and Germany imposing tighter restrictions, their economies could be lockdown soon. US top disease expert Fauci also said the vaccine would not be available in the US until January at the earliest. In the US, although Biden is still expected to win in the US election next week, with 8.5% lead in the polls according to RealClearPolitics, but there is growing concern in how clear the victory will be, as Biden’s leads in key swing states are marginal (5.7% in Pennsylvania). Also, whether Trump will contest the result is still uncertain.

Part 2. Previous Economic Data Highlight

The BoC announced their interest rate will be kept at 0.25% for an extended period of time, and they also said fiscal measures will be the most effective injection for its COVID-hit economy.

New Zealand’s business confidence is still in the negative territory, but it is better than the previous month, and the data is making positive progress in three consecutive months, suggesting local businesses are recovering. Exports and imports on the other hand had been decreasing for three consecutive months, the main contributors to the decrease were gas, natural and manufactured. Due to NZ’s geographic distance from the rest of the world, COVID infection worsen in other nations undermined the demand from a distanced supplier, and it also suggests recovery for the rest of the world is far from pre-pandemic level.

Part 3. Upcoming Economic Data

The US GDP forecast is significantly better than the previous quarter, if the actual data matches forecast, then it shows the extent of the country’s bounce back. On paper, this look like a ‘V-Shape’ recovery which will favor Trump for his election campaign, however, whether this is an actual ‘V-Shape’ or just the first half of a ‘W-Shape’ is unknow.

ECB is facing increasing pressure from COVID and the status quo of European economy, as weak growth, negative interest rates and sub-zero inflation are all hot topics, in which relevant guidance from the ECB will provide direction for the market.

Part 4. Technical Analysis

XAUUSD

XAU dropped by about 3750bp last night, and found its support at 1869, breaking the week long consolidation. In terms of intraday, it is experiencing a pullback after falling out of the lower Bollinger band on the daily chart, currently consolidating between 1884-1875. Our 5MA system portrays significant momentum in the decrease, we need to pay close attention in the next few hours to seek hint for direction, if the downward movement continues, the effectiveness of the support at 1869 need to be examined.

GBPUSD

GBP was also impacted by the surge in USD last night and fell by over 1000bp, ended its weeklong wide range consolidation and found its support at 1.2916. In terms of intraday, the long shadow lines of the hourly candlesticks suggest uncertainties in the market, currently consolidation between 1.3-1.297. As there is no clear direction now, it is recommended to use range trade. We need to closely monitor the candlesticks as they move out of the consolidating range, the 240hr MA has been an effective resistance today, and we need to continue to examine its effectiveness. Whilst the hourly 5MA are showing bearish pattern, if the candlesticks move beneath the consolidating range, there will be more room for further downward movement.