FTMO Market Analysis

Weekly analysis for the week starting Oct 19 

 

  • More volatility expected with the upcoming US elections
  • Rising Covid-19 cases in the US and Europe with more possible lockdowns, slowing down the economic momentum in the US and Europe
  • Waiting for a possible deal on a fiscal stimulus package
  • Continuing Brexit talks
  • New Zealand election – the victory of Jacinda Arden’s Labour Party

 

The U.S. stock market opened in green numbers last week, supported by Trump’s comments about approaching deal on a fiscal stimulus package and coming earnings season. However, the market sentiment turned negative on Tuesday evening and the U.S. stocks suffered. Even the beginning of a strong earnings session did not help the market to recover. Small gains came on Friday afternoon after the U.S. Retail Sales data jumped above expectations. They rose by 1.9% m/m in September beating estimates by 1.2%. It was the fifth monthly gain in a row, a positive sign for the U.S. economy dependant on domestic consumption. Soaring Retail Sales is a positive sign in a period when the Covid unemployment benefits run come to the end. On the other hand, the U.S. job market showed slowing momentum on Thursday. Initial jobless claims hit 898 000, the highest level since August.

 

We expect fiscal stimulus talks to continue in the White House this week. President Donald Trump will probably try to keep markets positive above the negotiation results. Though, the probability of reaching a deal is falling to a freezing point with the forthcoming November election.

 

It looks like the current earnings session might stay away from investors’ attention. 49 out of S&P 500 companies released earnings last week with 86% beating the expectations. The market showed no significant reaction to the earnings reports.

 

This choppy trading may continue till Nov 3rd when the U.S election takes place. The S&P 500 index broke the neckline of inverted head and shoulders formation last week, as we described in the analysis and it moved up in the rising trend channel. Even though the formation misses a few points to be accomplished, the bulls should be on alert this week. The weekly candle on the lower chart indicates that the market is indecisive in the next steps. Bulls are probably running out of steam as the index approaches the previous top and sellers hesitate whether it’s the right time to step in the market. As long as the index remains in the rising channel, bulls dominate the market. Once the index breaks out from the channel, bears could take control over the market.

 

S&P 500 index – 4H chart

 

S&P 500 index – weekly chart

 

The U.S. dollar is trading in the opposite direction to the U.S. stock market these days. It plays the role of a safe haven asset in contrast to the risky U.S. stock market. Rising uncertainty caused by higher Covid-19 positive patients in the US, no fiscal stimulus deal supporting the losing momentum of the U.S. economy, and doubtful result about the U.S. election support appetite for the safe U.S. dollar.

 

The U.S. dollar index gained 0.7% last week. It moved out from the declining trend channel and turned up again. It was able to overcome the 55-day moving average and finish the week right ahead of the next strong resistance in the form of the trendline connecting the tops since March. The U.S. dollar index already tried to break this trendline at the end of September, but with no success. If the index breaks out this time, it will be a very positive sign and the space for further uptrend would be open. This movement will be reflected in the whole FX market (currencies against the U.S. dollar will tend to depreciate, except for JPY which plays the role of safe haven too).

 

The U.S. dollar index – daily chart

 

Jacinda Arden won the national parliamentary election in New Zealand on Saturday. She got over voters by tackling coronavirus successfully.  Her Labor Party gained enough seats to form a one-party government. Still, Jacinda wants to talk with Green Party about a coalition, which would give her 56 seats in the Parliament, comparing to 43 in the previous term. She plans to form a new government very quickly in 2-3 weeks. No significant change in economic policy is expected with her victory. Continuation in previous political party governance should bring a stable environment for the New Zealand dollar. Though, Jacinda Arden has a lot of work ahead. Strict lockdowns contracted New Zealand’s’ GDP by 12.2% in the second quarter. Generous social benefits diminishing the losses from a lockdown are reflected in rising state debt and the economy needs to kick off again.

 

Brexit talks continued with no results last week. The EU is aware of its strong position in the talks and does not want to step back from its claims. Probably even Boris Johnson starts to realize it while informing via media that business should be prepared for a “no-deal scenario”. Even though the talks are not over yet, the EU would hardly change its stance. The France President Emanuel Macron said that it was not a duty of sovereign leaders of 27 EU states to make the British prime minister happy. The future does not look bright for Britain now. With rising numbers of the positive Covid-19 cases and stricter lockdowns, the economy deteriorates. Moreover, the Bank of England presents a downside risk to the sterling with a rising likelihood of negative interest rates.

 

Also, the Sterling could be affected by the result of the U.S. presidential election. The two candidates have an opposite attitude to the U.K. On one side, President Donald Trump promises strong trading alliance with the U.K. after the election, on the other hand, Joe Biden says that he won’t support a trade deal with the U.K. unless they respect the Good Friday Agreement, which is one of the key points of EU-UK talks.

 

 

The sterling is not in a free fall showing that investors hope for some agreement to be reached. The GBPUSD chart demonstrates that sterling rose above the neckline last week with a willingness to complete inverted head and shoulders formation (last week analysis) but has a big problem to stay above a very strong resistance of 1.30. It fell below the neckline and cancelled the formation. The cable is reversing from the key zone of 1.30 and retesting the previous (blue) trading channel. Breaking down the latest (grey) channel looks negative for the GBP.

 

GBP/USD – daily chart

 

The long-term analysis of Bitcoin on the weekly chart looks promising. Bitcoin created the inverted head and shoulders formation, whose neckline was broken, opening a space up for Bitcoin. It’s following the formation and moving up with rising trendline facing the very strong resistance of 12 000, last broken the previous year. Getting above, it would let Bitcoin accomplish the formation and move higher to the tops from the last summer.

 

Bitcoin – weekly chart

 

EURAUD trades closely to the strong resistance of 1.6550. There are two possible scenarios in the game. On one side, the double bottom formation with the broken neckline appeared on the 4hour chart, though the resistance of 1.6550 – 1.6590 must be overcome. On the other side, the formation of the double top comes to the game in case the market fails to break the resistance.

 

EURAUD – 4H chart

 

What’s on the macroeconomic calendar this week (CEST):

 

Monday: China 3Q GDP data, Fed Chair Powell speaks, ECB President Lagarde speaks, BoC Business Survey Outlook

Tuesday: RBA Monetary Policy Meeting Minutes

Wednesday: UK inflation data, Canada inflation data and Retail Sales

Thursday: BoE Gov Bailey speaks, NZD inflation data

Friday: Eurozone PMIs, US PMI from Manufacturing Sector