BFJ Research
26.10.2020

Part 1. Market Overview

The market was fairly quiet over last Friday and the weekend, the US presidential debate did not touch on major policies, nor did the market changed its expectation over the election in terms of polling. Nonetheless, last week finished with US stocks down, the USD down and the price of bonds down. It demonstrates the USD is in a down trend. Other than Pelosi saying she still has hope over the stimulus package as negotiation with the White House continues, if nothing else significant happens over the next week, we can expect market to continue to be influenced by election polls. On the other hand, we see EURO rise along with FTSE100 rise, hinting the market is optimistic towards a more pronounced Brexit deal in the near term.

Part 2. Previous Economic Data Highlight

The UK retail figures were decent and they were beating the forecast, and it is the fifth consecutive month of rising retail sales and the third highest gain so far this year. The main increase was on food sales as people have eaten out less. As the UK government imposed a series of tighter restrictions in October, we expected the current market has already factored in the September data, and the data for October should reflect the economic impact of further lockdowns.

As we often refer Germany as the drivetrain of European economic growth, manufacturing plays the same role in Germany’s very own economy. As the Markit Manufacturing PMI for Germany continues to grow, the reading pointed to the strongest expansion in factory activity since April 2018, strong factory output responding to increasing demand from Asia, EU and America showcased the overall progress in global economic recovery.

Activities in the UK are not far from expectation as COVID cases was rising again in the UK since September, and these data should be factored in by the market already.

PMI data in the US are not far from forecast.

Part 3. Upcoming Economic Data

A rise in new home sales seems to be a common trend globally, with UK government imposing higher rates to slow down mortgage, it is interesting to see how the US is performing in this area. On Wednesday the Australian CPI will be announced, the forecast is lower than the previous quarter, whilst we previously had hints from the RBA that we could be going to negative rates territory, we need to keep an eye on how the RBA is reacting to this. On Friday the ECB press conference is likely to mention about Brexit as last week they announced the Brexit negotiation would continue, and we can expect some progress in the upcoming days as both parties seem to show some good faith.

Part 4. Technical Analysis

 XAUUSD

The gold market was quite volatile ahead of the US election which is in a little over a week, and it is looking for direction. In terms of intraday, a short term downward trend is initiated with lower lows and lower highs, with the nearest resistance at 1905.5. A pull back is witnessed after a shape fall below the lower Bollinger band this morning, if the 1905 resistance level holds, and the rebound breaks out at 1889.4, then the downtrend will continue and we expect more room for shorting.

GBPUSD

The Sterling was in a shortfall over the last few trading days, there were a lot of uncertainties regarding Brexit, ever the talk was resumed, and this was reflected in the short candlesticks last week that investors were waiting for signals. As of intraday, it is currently in the a tight consolidation, with the over arching fall of the 24 hr MA, almost crossing the 72hr MA, if there are no further fundamental news, and the candlesticks end beneath 1.304, we expect more room for further downward movement.

EURUSD

The strong Germany’s PMI data certainly played a crucial role in last Friday’s rise, but overall, the market is searching for direction and keeping its eye on the Brexit deal. Without further fundamental news, an uptrend tunnel is portrayed in the daily chart, if the tunnel is effective, the short term uptrend will continue as the 5MA system is showing support, however, the 24hr ATR is quite volatile, therefore the momentum of the uptrend is unstable.