BFJ Research
21.10.2020

Part 1. Market Overview

The market has been fairly volatile yesterday, with Euro rising and USD falling in general. Despite the UK PM Boris Johnson signaled no-deal Brexit and continued to blame the EU for lack of progress, the market clearly thinks otherwise, and credit rating agency Moody also warned the negative consequences of no-deal Brexit.

In the US, the stimulus talk between Perlosi and Mnuchin continues, as they reportedly achieved greater progress in agreeing a mutually accepted amount close to $2tn. The stimulus talk not only slightly boosted gold price, but also the US stocks. Now the focus would be whether the stimulus plan would be approved before the election, if not, which party winning the senate would be the next critical focus as the market and the polls currently believe Biden will win the election, hence whether the Democrats could get a full sweep would directly impact the US economy. Moreover, AstraZeneca also announced the continuance of COVID drug clinical trial, which also positively impacted the market.

Part 2. Previous Economic Data Highlight

As expected, the Chinese Loan Prime Rate was as high as forecast and held consistent to previous data, which is significantly higher than other major economies, and it is a good indication of the current economic presence of China.

The German PPI is higher than forecast and consensus, a solid depiction of the economic recovery in the previous month. Yet the new wave of COVID cases is expected to have a negative impact, and the latest figures had little impact on the market.

The US Building Permits number is an interesting data, despite the economic shortfall in the US, the Building Permits raised higher than expected, and it is a depiction of the shift in working habits, that remote working has changed many people’s perception towards the need of living near city center.

The Fed yesterday said US is buying its bond in a rapid rate, and it may jeopardize the bond yield. Evans also said the interest rate should be kept as it is now, and the unemployment rate should be around 5.5% by the end of 2021. This partially explained the decrease in USD.

Part 3. Upcoming Economic Data

UK inflation, retail and PPI figures would be released today, given the COVID case surge in the UK, these data could be lower than forecast, and the market should be expecting them, hence they should have marginal impacts towards the market.

Part 4. Technical Analysis

 XAUUSD

Gold continues the week long consolidation within the range of 1918-1894.5, and there was a short boost due to positive news regarding the stimulus talk, but it unlikely to find direction before the US election as the uncertainties remain, the 72, 120 and 240MA tangling together also suggest the consolidation will continue. In term of intraday, the candlesticks continuously spiked above the upper band of Bollinger, in conjunction with H1 RSI8 level of 68, the rise should be expecting a pullback if the resistance of 1918 is still effective. It is recommended to pay close attention towards the effectiveness in 1918 resistance level, if it holds, there will be opportunity of shorting.

USDCAD

The stimulus talk progress clearly downplayed the USD, with the significant dropped last night. Aside the limited news from macro level, our H1 5MA system portrays a bearish arrangement, and a downward trend could be initiated. In terms of intraday, there is a widespread in Bollinger band, along with high ATR in 24hr and H1 RSI reaching 30 mark, a mild consolidation could be expected. It is recommended to monitor the movements in USDCAD today to confirm the initiation of downward trend.