BFJ Research
20.10.2020

Part 1. Market Overview

The FICC market was relatively calm yesterday, with Euro and Steering rising slightly. Although UK PM Boris Johnson said the Brexit trade deal should follow ‘Australian style free trade agreement’, which is an euphemism for no deal Brexit, yet the market clearly did not believe him, given the severe economic consequences that could occur if UK just ‘walks away’, and such sentiment was reflected in the market with Euro and Pound both increasing.

The USD is finding its way slowly creeping back up, as the Democrats set 48 hour deadline for US stimulus talks, later followed by Perlosi and Munchin’s discussion on the stimulus deal; such optimism was projected in the market.

Along with the overall weak USD and strong Chinese economic data, the AUD should in theory benefit from them, yet the dovish statements gave by RBA governor Lowe clearly impacted the market negatively, whilst AUD struggles to find its momentum, the predicament is exacerbated by a series of unofficial trade sanctions coming from China.

Part 2. Previous Economic Data Highlight

The Chinese GDP growth rate was announced yesterday along with several other economic data, although some are weaker than forecast, but still very strong compared to the rest of the world. As China is the first economy recovered from the pandemic globally, its economic data serve as leading indicators for the global recovery, for instance, despite the government support going to the industrial production and the domestic demand, such performance also implies the global demand from the rest of the world as they recover. Usually strong Chinese performance will have a positive impact on AUD, but the sanctions clearly undermined the impacts.

The Fed highlighted the importance of digital currency yesterday, this can be understood in two dimensions. Firstly, it is the political competition with China as China recently launched testing for digital currency; secondly, it serves the purpose of distracting the market. As for now, this has little impact on the market.

Part 3. Upcoming Economic Data

The Chinese prime rate puts an extraordinary juxtaposition with the rest of the world, that China is holding back its strength through interest rates fixing, show the remarkable economic power compared to other nations during the pandemic.

The German PPI provides an outlook of over all Europe economic recovery.

Part 4. Technical Analysis

XAUUSD

The gold market has been volatile for the past few trading days, as the market struggles to find direction due to two major uncertainties – US election and stimulus. The upward momentum yesterday was unable to carry on, although depicting signal of breakout, but soon after dropped back down. In terms of intraday trading, XAU is currently consolidating within a narrow range, the shadow lines for the past few hours have been long, with lower shadow slightly stronger than upper shadows; beside the downward velocity of 24 hr moving average is quite high compared to the previous pullback. Given the moving averages are all tangled together, the overall consolidation is expected to last until further fundamental news, as for intraday, the smooth daily ATR and RIS in conjunction with the candlesticks falling within the Bollinger bands, there will be room for XAU to fall after today’s consolidation.

USDCAD

Consistent with the overall bearish trend for USD and the uncertainties US current faces, the USDCAD is projecting a downward trend for the past week, with 24hr MA crossing 10 days MA at high velocity, it could also carry 5day MA to a downward trend. With H1 RSI8 sitting at 65, it is almost over bought, meaning it will likely to consolidate for the next few hours. It is recommended to watch closely to see if the downward trend could be continued after consolidation.