BFJ Research
22.10.2020

Part 1. Market Overview

The market was quite volatile yesterday, in particular, the focus is back on Brexit and the stimulus in the US. In regards to Brexit, EU chief negotiator Michel Barnier resumes talks with UK, this is anticipated by the market as the general sentiment towards Johnson’s no-deal Brexit was in disbelieve, and the resume in talk echoes and installed further confidence in the market. Whilst UK is not doing so well fighting Covid domestically and lockdowns in the north struck dissatisfaction from the public, along with numerous institutions and economists warning the negative consequences of no-deal Brexit, Boris Johnson is facing immense political pressure, and we can expect the UK to be more proactive in the upcoming negotiation.

In the US, Pelosi said she ‘has a prospect for an agreement’ with the Treasury secretary regarding the stimulus, but it may not come together in time to pass before the US presidential election. The White House responded in aiming for a compromise around $1.8tn in the next 48 hours. Despite the prospect for an agreement, the main resistance still remain the senate Republicans, unless they make a compromise, a finalized agreement is still unlikely to pass before the election. As mentioned previously, whilst Biden is leading the polls, the focus now is whether the Democrats could achieve a full sweep in the senates as well. Overall, the uncertainties contributed to the USD shortfall for 4 straight days.

The sudden rise of cryptocurrency is a beneficiary from PayPal’s acceptance of cryptocurrency as payment method.

Part 2. Previous Economic Data Highlight

A series of economic data was realized for the UK yesterday and most of them were better than expected, and to a certain degree they contributed to the surge of GBP yesterday. Yet, as the current stage, the significance of these data is taking the backseats, as there are many factors that may distort the data, for instance the PPI is backed partially by the government support, moreover the focus now is on Brexit rather than anything else.

Part 3. Upcoming Economic Data

As the current focus about UK remains on Brexit, the BoE is unlikely to provide any significant updates now, however there is a possibility that they will provide more guidance towards the negative rates that were previously mentioned, since BoE did send out survey asking how banks are prepared for negative rates.

The jobless claims for US will be released later tonight and I could add to the ‘risk on’ mood in the market, however when incorporating previous data regarding employment, we are not expecting any surprise.

Part 4. Technical Analysis

 XAUUSD

In accordance to the ‘risk-on’ sentiment previously discussed regarding the US, USD has been on a rollercoaster shortfall ride for a few days straight, and it has impacted the gold market heavily yesterday. As the market now generally believe in a Biden victory, the focus is now in the senates; however given the record of Trump’s notorious speech, we can hardly expect exact outcome of tomorrow’s presidential debate, which could bring uncertainty to the market. In terms of technical analysis, the gold market has opened up spaces for upward movement since the formation of bullish pattern with the H1 5MA system. With the pattern of higher highs and higher lows, an upward trend has been confirmed; along with the smooth H1 ATR and RSI, we are expecting a rise after the current pullback ends. The candlestick for the previous hour is a star with longer lower shadow, hence if the next two candlesticks are bullish, we can expect a continuation of the upward trend and opportunity for buying would occur.

EURUSD

As Brexit talk resumes, it certainly installed confidence in the market, and bullish formation with H1 5MA is captured. In terms of intraday, the upward momentum is currently stalled, and we need to focus on whether the 1.184 support is effective, if so, we can expect more space for upward movement as H1 ATR and RSI are on a health level, and current price falling within Bollinger band.