BFJ Research
03.11.2020

Part 1. Market Overview

Yesterday’s market ended with more optimism yesterday than on Friday, with USD and US equities up, as the market is expecting a Biden victory, whilst he currently holds 8.7% lead in the polling, moreover, the solid US manufacturing PMI numbers were an encouraging sign for investors and they also contributed to the market’s performance. Ahead of the US election that every investor is keeping an eye on, the RBA will speak this afternoon, and they are expected to provide more guidance towards the interest rates and possibly the QE.

Part 2. Previous Economic Data Highlight

The Chinese manufacturing PMI was out yesterday afternoon and the number was on par with expectation. Historically Caixin PMI numbers were an reflection of how SMEs performed in the industry, this is important during pandemic since SMEs get less support from the government and hence the solid number reflect the manufacturing industry in China is performing well.

The US manufacturing PMI only beat the previous month but also the forecast, the reading pointed to the 4^th consecutive month of growth in factory activity and the strongest since January 2019. The strong performance is a juxtaposition to the pessimistic sentiment from the uncertainties with Covid, and it to an extent installed confidence to investors, which also partially explained the rebound in USD and US equities.

Part 3. Upcoming Economic Data

The RBA meeting will be held early this afternoon, with an expected announcement regarding interest rate decision. The market has forecasted the rate will be adjusted to 0.1%, which is still higher than the previous hints regarding negative interest rates. Moreover, the RBA is expected to announce plans regarding QE. Despite the solid performance in economic data of Australia, such as improved trades, PMI and home loan numbers, unemployment remained a key issue that RBA aims to address, therefore the QE should be aiming to tackle the problem under the pandemic situation.

The US presidential election remains the most important matter for the next few days. IN THEORY, the election result will be announced around 1PM, 4^th Nov Australian time.

Part 4. Technical Analysis

 XAUUSD

Despite very little fundamental news and the slight rebound of USD, gold continued to rise yesterday, and it successfully breakout the 240hr MA resistance on the hourly chart. Not only did the rise highlighted the risk hedging character of gold, but the candlesticks also portrayed uncertainties in the market, with short bodies in the candlesticks and long shadow lines. Whilst the 24hr MA carried some momentum to cross the 120MA from beneath, the ATR reading in the hourly chart is quite low. In terms of intraday, there are still many uncertainties before the US election, it is recommended to closely monitor the effectiveness of support level at 1889.7 (the previous high) with the current pullback, if it is effective, then there may be more space for upward movement to the 1909 area.

GBPUSD

GBP continues its wide range downward consolidation, the downward trend was not only caused by the rise of USD as it is the denominator, but also the lack of progress with Brexit. According to news reports, the last major misalignment between EU and the UK is about the fisherman policy, therefore a Brexit deal is expected to be announced soon, and GBP is expected to rise by then. As of intraday, the biggest influencer remains US election; given the uncertainties, there is no clear sign of trends, with the current resistance area at 1.2935, if the resistance is effective, there will be room for further downward movement until election result announcement.