EUR/USD Mid-Session Technical Analysis for October 20, 2020

The Euro is trading higher against the U.S. Dollar on Tuesday ahead of a deadline for a new fiscal stimulus deal from Washington.

Optimism is being fueled as House Speaker Nancy Pelosi and Treasury Steven Mnuchin “continued to narrow their differences” in a Monday afternoon phone call to discuss another stimulus package, according to Pelosi spokesman Drew Hammill.

At 12:38 GMT, the EUR/USD is trading 1.1807, up 0.0036 or +0.30%.

Despite the early strength, fading hopes for a U.S. coronavirus aid package and weaker demand for risky assets worldwide, with rising coronavirus infections in Europe are likely to continue to limit gains in the single currency.

Daily EUR/USD

 Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.1831 changes the main trend to up. A move through 1.1688 will signal a resumption of the downtrend.

The minor range is 1.1831 to 1.1688. Its 50% level at 1.1760 is new support.

The main retracement zone support is the 50% level at 1.1691.

The short-term range is 1.2011 to 1.1612. Its retracement zone at 1.1811 to 1.1859 is potential resistance. The lower or 50% level of this zone at 1.1811 is currently being tested.

Daily Swing Chart Technical Analysis

Based on the early price action, the direction of the EUR/USD on Tuesday is likely to be determined by trader reaction to the short-term 50% level at 1.1811.

Bullish Scenario

A sustained move over 1.1811 will indicate the presence of buyers. This could create the upside momentum needed to take out the 1.1831 main top, followed by the Fibonacci level at 1.1859.

Bearish Scenario

A sustained move under 1.1811 will signal the presence of sellers. This could trigger an acceleration into the minor pivot at 1.1760.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD and NZD/USD Fundamental Daily Forecast – Aussie Hits Three-Week Low on QE Expectations

The Australian and New Zealand Dollars are trading sharply lower on Tuesday, putting them in a position to change their respective trends to down on the daily chart for the first time in nearly two-weeks.

Both currencies are being pressured by increasing expectations of monetary easing with the Australian central bank likely to take action at next month’s meeting and the New Zealand central bank likely to make their move early next year.

At 08:15 GMT, the AUD/USD is trading .7047, down 0.0022 or -0.32% and the NZD/USD is at .6575, down 0.0033 or -0.50%.

US Dollar Supported as Stimulus Deal Hopes Fade

Also weighing on the Aussie and the Kiwi was as stronger U.S. Dollar, which rose as fading hopes for a U.S. coronavirus aid package dealt a blow to risky assets worldwide.

While traders remain hopeful talks between U.S. House Speaker Pelosi and Treasury Secretary Mnuchin will result in a deal before the November 3 presidential election, any agreement will have to pass the Republican-controlled Senate where opposition to a bigger stimulus bill remains stubborn.

RBA Minutes Weigh on Aussie as QE Looms Large

The Reserve Bank of Australia (RBA) discussed the possibility of further monetary easing at its October board meeting, including cutting the cash rate towards zero and buying longer-dated government bonds, minutes of its most recent meeting showed on Tuesday.

RBA board members noted larger balance sheet expansions by other central banks had led to lower sovereign yields in most other rich nations, minutes of the October 6 meeting showed.

Board members also discussed implications for the exchange rate, providing the clearest sign yet the RBA will likely soon cut rates further and expand its massive bond buying campaign, to lower both borrowing costs and the local dollar.

Short-Term Forecast

The RBA has held its cash rate at a record low 0.25% since can emergency 50 basis points (bps) cut in mid-March. However, economists widely predict the RBA will trim the rate at its November 3 policy meeting by 15 bps to 0.1%. This move, coupled with the buying of bonds further out the yield curve should be enough to keep the pressure on the Aussie Dollar.

Buying long-dated bonds is one way that central bank policymakers would reduce funding costs.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Daily Forecast – Rangebound as Fiscal Stimulus Deadline Looms

Gold futures are edging lower on Tuesday taking out yesterday’s low in the process as the rangebound market continues to be held hostage by Washington policymakers’ inability to come to an agreement as to the size and timing of the next U.S. fiscal stimulus package.

So far this week, the market is hovering just above the psychological $1900 level as caution spreads ahead of a deadline for agreement on a new U.S. coronavirus stimulus package and next month’s presidential election.

At 07:06 GMT, December Comex gold is trading $1905.60, down $6.10 or -0.32%.

The lingering choppy, two-sided trade in gold is really a reflection of the problem in the U.S. where politicians are putting their party platforms ahead of the needs of the people.

Gold is being supported by the hope of a stimulus deal ahead of the presidential elections on November 3, but some traders are starting to dispel that thought, while stating that a fresh round of U.S. fiscal stimulus is likelier to be a post-election event.

Then there’s the truth issue. Are we actually being told the truth about the negotiations – a couple of million here, a couple of million there? What’s the difference?

President Trump doesn’t seem to care about the stimulus. Two weeks ago, he called for an end of the negotiations and for Republican Senators to focus on the affirmation of his Supreme Court nominee. He then came back later with suggestions to piecemeal the package.

Trump is focused on his reelection campaign, seemingly conceding that the money won’t be in the hands of voters before the election. Furthermore, if he loses the election then what difference does it make to him if people get additional stimulus measures.

Besides, post-election stimulus is not guaranteed either because the Democrats are likely to save their bullets for an even bigger stimulus package in 2021.

Short-Term Outlook

Let’s start by saying I believe the longer-term up trend is fully supported, but the short-term outlook is very shaky due to the lack of clarity from Washington.

We may see some heightened volatility on Tuesday because after all, it is the deadline set by House Speaker Pelosi.

Pelosi and Treasury Secretary Steve Mnuchin “continued to narrow their differences” about the package, her spokesman Drew Hammill said.

Pelosi hopes that by the end of Tuesday there will be “clarity” on whether a stimulus bill can be passed before the November 3 election, he wrote on Twitter.

I think there are too many variables out there to produce a major rally in gold if a stimulus deal is made. How big will it be? When will the money be distributed? But we’re likely to see a knee-jerk rally if the U.S. Dollar falls on the news.

I believe that gold’s downside will be limited if there is no deal and negotiations are called off. This is because investors will be counting on a new fiscal deal after the election.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – Gains Capped by Intensifying COVID-19 Second Wave Worries

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower on Tuesday, while rangebound for a third session into a technical retracement area. The price action indicates investor indecision and impending volatility despite worries about further demand loss due to rising coronavirus cases and the potential for increasing supply.

At 06:00 GMT, December WTI crude oil futures are trading $40.93, down $0.13 or -0.32% and December Brent crude oil is at $42.46, down $0.16 or -0.38%.

Rising COVID-19 Cases Expected to Weigh on Demand

The story that continues to dominate the trade and keep a lid on prices is worries a resurgence of coronavirus cases globally is stifling a promising recovery in fuel demand, while growing output from Libya adds to plentiful supply.

The threat of another wave of coronavirus cases is certainly painting a bleak picture for demand. There doesn’t appear to be an end in sight since measures such as social distancing and mask-wearing are being practiced in some areas and not in others. The outlook for a successful vaccine is also gloomy. It may be just a matter of time before another wave of demand destruction hits.

COVID-19 cases topped 40 million on Monday, according to a Reuters tally, with a growing second wave in Europe and North America sparking new clampdowns.

Rising Output from Libya Another Major Concern

Rising output from Libya, which is operating outside the OPEC+ pact, was adding to oversupply concerns.

Libya is rapidly ramping up production after armed conflict shut almost all of the country’s output in January. Output form its biggest field, Sharara, which reopened on October 11, is now at around 150,000 bpd, or about half its capacity, two industry sources told Reuters.

OPEC+ Holds Key to Controlling New Supply Worries

A meeting on Monday of a ministerial panel of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together called OPEC+, pledged to support the oil market as concerns grow over soaring infections.

For now OPEC+ is sticking with a deal to curb output by 7.7 million barrels per day (bpd) through December, and then shaving the cuts back to 5.8 million bpd in January.

Short-Term Outlook

The real question that needs to be answered is, will the oil market be able to absorb the around 2% of global supply that OPEC+ is expected to restart from January 1, 2021?

Oil demand is at about 92% of pre-pandemic levels, “but it’s too early to declare an end to the COVID-19 oil demand destruction era,” said Rystad Energy oil market analyst Louise Dickson.

We think the way of least resistance is down because we’re looking for demand to weaken and global supply to rise over the near-term. OPEC+ would have to change its mind and announce a reversal of its planned output increase from January, and a working vaccine would have to be implemented before we’d see a breakout to the upside of this current rangebound trade.

For a look at all of today’s economic events, check out our economic calendar.

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Strong Over 28040, Weak Under 28025

December E-mini Dow Jones Industrial Average futures are inching higher early Tuesday after posting a steep decline the previous session. The move represents disappointment in Washington lawmakers’ inability to reach an agreement on coronavirus stimulus ahead of a Tuesday deadline that would make a relief package possible ahead of the November 3 elections.

At 05:33 GMT, December E-mini Dow Jones Industrial Average futures are trading 28134, up 34 or -0.12%.

Pelosi and Treasury secretary Steven Mnuchin “continued to narrow their differences” in conversations on Monday and Pelosi was hopeful that by the end of Tuesday there will be “clarity” on whether coronavirus stimulus is possible before November 3 election, according to a spokesperson for Pelosi.

Daily December E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 28846 will signal a resumption of the uptrend. The main trend will change to down on a move through 26407. This is highly unlikely but there is room for a normal 50% to 61.8% retracement of its current short-term rally.

The minor trend is also up. A trade through 28025 will change the minor trend to down. This will also shift momentum to the downside.

The new minor range is 28846 to 28025. Its 50% level or pivot at 28436 is potential resistance.

The intermediate range is 29050 to 26407. Its retracement zone at 28040 to 27729 is the next potential target zone. This area is actually controlling the near-term direction of the Dow.

The short-term range is 26407 to 28846. Its retracement zone at 27627 to 27339 is another potential downside target and possible support zone.

Short-Term Outlook

Based on Monday’s price action, the direction of the December E-mini Dow Jones Industrial Average futures contract on Tuesday is likely to be determined by trader reaction to the Fibonacci level at 28040.

Bullish Scenario

A sustained move over 28040 will indicate the presence of buyers. This could create the upside momentum needed to challenge the minor pivot at 28436. This level is a potential trigger point for an acceleration into 28732 to 28846.

Bearish Scenario

A sustained move under 28040 will signal the presence of sellers. This should lead to a quick test of the minor bottom at 28025. This price is a potential trigger point for an acceleration into a pair of 50% levels at 27729 and 27627.

Since the main trend is up, buyers could come in on a test of 27729 – 27627. If the latter fails as support then look for the selling to possibly extend into 27339.

For a look at all of today’s economic events, check out our economic calendar.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Strengthens Over 11761.75, Weakens Under 11550.50

December E-mini NASDAQ-100 Index futures are trading sharply lower shortly before the close on Monday as traders express doubts that government policymakers will be able to agree on a new fiscal stimulus package that is needed to help keep the economy on the road to recovery.

At 20:46 GMT, December E-mini NASDAQ-100 Index futures are trading 11685.00, down 113.00 or -0.96%.

In other news, according to Reuters, Netflix Inc will tell investors on Tuesday how the ongoing COVID-19 pandemic affected membership in the third quarter – a period when analysts remain bullish on the company despite the return of live sports and more streaming competition. The video-streaming service was up around 1% ahead of its results on Tuesday.

Daily December E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. A trade through 12249.00 will signal a resumption of the uptrend. The main trend officially turns down on a move through the last swing bottom at 11197.50.

The minor trend is down. This shifted momentum to the downside. The minor trend changed to down when sellers took out 11736.50.

The intermediate range is 12444.75 to 10656.50. Its retracement zone at 11761.75 to 11550.50 is currently being tested. Trader reaction to this zone will likely determine the near-term direction of the index.

The short-term range is 10656.50 to 12249.00. Its retracement zone at 11452.75 to 11264.75 is the next downside target.

Since the main trend is up, all retracement zones are potential support areas until the trend changes to down. The price action also suggests that investors may not be willing to chase the market higher, but instead may be looking for a value area.

Short-Term Outlook

We’re going to be watching trader reaction to 11761.75 early Tuesday since this is likely to set the tone for the session. Over the short-run, however, it’s probably best to watch 11761.75 and 11550.50.

Buyers may try to form a support base inside 11761.75 to 11550.50.

We are also confident that a break down under 11550.50 will not mean a major break is coming. Buyers are still likely to come in at 11452.75 to 11264.75.

We’re also pretty confident that new fiscal stimulus is coming, but we don’t know when, or even the size of the deal. In the meantime, investors may continue to probe the downside, looking for a value area. Basically, I still like the upside potential of this market, except I only want to buy at my price. I think chasing a rally is dangerous at this time and at current price levels.

For a look at all of today’s economic events, check out our economic calendar.

E-mini S&P 500 Index (ES) Futures Technical Analysis – Momentum Shifted to Downside on Monday

December E-mini S&P 500 Index futures are trading lower late Monday as investors worried that they might not see a coronavirus economic stimulus deal before the November 3 presidential election. While House Speaker Nancy Pelosi said Sunday that she was optimistic legislation could be pushed through before the election, but that an agreement would have to come by Tuesday for that to happen.

At 19:46 GMT, December E-mini S&P 500 Index futures are at 3420.00, down 42.25 or -1.22%.

A spokesperson told Fox on Monday that the White House was “cautiously optimistic” that Pelosi was moving toward making a deal.

Daily December E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum is trending lower. A trade through 3541.00 will signal a resumption of the uptrend. The main trend changes to down on a trade through 3198.00. This is highly unlikely but there is room for a normal 50% to 61.8% correction of the current rally.

The minor trend is down. This accounts for the shift in momentum. The minor trend changed to down when sellers took out the last swing bottom at 3431.50. The new minor swing top is 3508.50.

The short-term range is 3576.25 to 3198.00. The index is currently testing its retracement zone at 3431.75 to 3387.00. This area is controlling the near-term direction of the index.

The second minor range is 3198.00 to 3541.00. Its retracement zone at 3369.50 to 3329.00 is the second potential downside target.

Short-Term Outlook

Based on Monday’s price action, the direction of the market the next session will likely be determined by trader reaction to the short-term Fibonacci level at 3431.75. The near-term direction, however, will likely be determined by trader reaction to the 3431.75 to 3387.00 retracement zone. We have to leave some room due to the possibility of a support base forming.

Bullish Scenario

A sustained move over 3431.75 will indicate the presence of buyers. This move won’t get interesting unless buyers can overcome 3508.50.

Bearish Scenario

A sustained move under 3431.75 will signal the presence of sellers. This could lead to a labored break due to a series of retracement levels, but not necessarily a change in trend to down. The potential support levels include 3387.00, 3369.50 and 3329.03.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Fundamental Daily Forecast – Will Strengthen as LNG Demand Picks Up

Natural gas futures are trading nearly flat Monday after posting a whip-saw trade earlier in the session. The price action reflected the lack of clarity in the weather models and the timing of restored liquefied natural gas (LNG) movement in the Gulf area devastated by Hurricane Delta.

At 14:28 GMT, December natural gas futures are trading $3.281, up 0.010 or +0.31%.

Natural Gas Intelligence (NGI) reported that analysts at EBW Analytics Group attributed heavy selling in after-hours trading Friday to reports that clearing a sunken barge obstructing the Calcasieu Ship Channel could take three to four weeks, news that put a damper on the outlook for LNG exports out of the Cameron LNG terminal.

Bespoke Weather Services said the market “no longer seems concerned” about the situation of Cameron LNG despite seemingly nothing changing regarding the timeline for clearing the channel.

Short-Term Weather Outlook

According to NatGasWeather for October 19 to October 25, “Cool conditions linger across the Midwest and Ohio Valley in the wake of a weekend cold shot with highs of only 30s to 50s. Most of the rest of the US will be comfortable to warm w/highs of 70s and 80s besides locally hotter 90s over portions of California and the Southwest. Conditions will warm across the Great Lakes/Ohio Valley as the week progresses with highs of 60s & 70s, while still chilly over the Northern Rockies & Plains with 20s – 40s. Overall, national demand will be high today, then low Tuesday – Friday.”

US Energy Information Administration Weekly Storage Report

The EIA reported last Thursday that domestic supplies of natural gas rose by 46 billion cubic feet (Bcf) for the week ended October 9.

Total stocks now stand at 3.877 trillion cubic feet (Tcf), up 388 Bcf from a year ago, and 353 Bcf above the five-year average, the government said.

Natural Gas Intelligence (NGI) reported that “Ahead of the EIA report, a Wall Street Journal survey of 11 analysts expected injections to range from 47 Bcf to 65 Bcf, with an average build of 56 Bcf. A Bloomberg survey of seven market participants had a tighter range of projections, which produced a median of 53 Bcf. Reuters polled 14 analysts, whose estimates ranged from increases of 46 Bcf to 74 Bcf, with a median injection of 55 Bcf. NGI estimated a 54 Bcf injection.”

Based on the estimates, the report was construed as bullish, but the news wasn’t earth-shattering enough to suggest the notion of a prolonged rally.

Daily Forecast

The short-term weather outlook is confusing especially around the October 28 to November 1 time period, where temperatures could turn extremely cold or stay in an average range, depending on which forecast you want to follow.

This means the direction of the market will likely be determined by LNG demand. If producers can overcome the issues in the Gulf then we expect demand to strengthen, which should underpin prices and eventually fuel the start of a strong uptrend.

The combination of cold temperatures and strong LNG demand will be bullish.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Daily Forecast – IMF Doesn’t See Dramatic Price Recovery Anytime Soon

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading steady to lower on Monday shortly after the regular session opening, pressured by concerns over rapidly rising coronavirus cases globally and by supply worries after Libya announced plans to boost output.

At 13:13 GMT, December WTI crude oil is at $41.00, down $0.12 or -0.29% and December Brent crude oil is at $42.81, down $0.12 or -0.28%.

Crude oil prices are finding some support due to a weaker U.S. Dollar. Since crude oil is a dollar-denominated commodity, it tends to rise on foreign demand when the dollar weakens. The dollar is being pressured by renewed hopes for a U.S. fiscal stimulus package.

IMF Reveals 2021 Forecasts for Oil Prices and Middle East Economy

The International Monetary Fund (IMF) downgraded its outlook for Middle East and Central Asian economic recovery, predicting a 4.1% contraction for the region as a whole – 1.3 percentage points worse than its previous assessment in April – in its latest regional outlook report released Monday.

Jihad Azour, director of the IMF’s Middle East and Central Asia department, noted a large disparity in economic loss between oil importing and exporting countries as the region has been hit by the coronavirus pandemic and a plunge in oil prices.

Oil Prices Will Remain Under Pressure, IMF Says

Oil prices will be the most important factor for oil exporters’ recovery, particularly states like Saudi Arabia, Iraq, Iran, the UAE, Bahrain and Kuwait, for whom the commodity makes up the majority of revenue. While prices have recovered from their historic plunge in March of this year, international benchmark Brent crude is still trading nearly 40% below pre-pandemic levels.

And the IMF doesn’t see oil prices staging a dramatic recovery anytime soon, predicting prices in the $40 and $50 range in 2021. That’s still half the $80 per barrel figure OPEC kingpin Saudi Arabia needs to balance its budget, according to the fund.

“The projections for oil prices are in the corridor between $40 to $45 for … early next year, and will be between $40 to $50” next year overall, Azour said. “It think what is going to be also important to watch is the recovery in demand. That proved to be an important factor in what we saw this year, in addition to the supply that could come from alternative energies.”

Daily Forecast

The IMF also stressed diversification and continued coronavirus safety measures as key to strengthening the region’s economies, with a focus on providing opportunities for its youth population.

The reality is, at this time, there is no sign of the hoped for recovery. No signs of the coronavirus cases topping out, and no signs of a vaccine. All of these factors add up to lower demand.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Daily Forecast – Renewed Optimism Over Stimulus Package Proving Support

Gold futures are trading higher on Monday with the move being driven by a weaker U.S. Dollar after investors turned optimistic about a new stimulus deal ahead of next month’s U.S. presidential election following comments by U.S. House Speaker Nancy Pelosi.

Pelosi said Sunday that differences with the Trump administration persist over a far-reaching aid package, but she was optimistic that Congress could pass a bill before Election Day on November 3.

At 13:01 GMT, December Comex gold futures are trading $1915.40, up $9.00 or +0.47%.

After posting a relatively flat trade the last three sessions, gold appears to be ready to resume its recent upside bias amid early session news that the elusive fiscal stimulus package is still a possibility before the U.S. election.

In my opinion, this really isn’t news because the market has been pricing in a deal for about a month although no one is certain over the size of the deal at this time. Furthermore, I don’t think it’s going to be possible to get any stimulus money into the hands of the people who need it until after November 3.

I really don’t know if they are going to agree in principal and tweak the deal over the next couple of weeks, or if this will be a complete package. It’s difficult to assess at this time because policymakers have placed politics ahead of the American people.

We do know that additional stimulus will be bad for the U.S. Dollar, but good for gold prices. I think the terms of the deal, especially the size of it, could determine how high gold moves over the short-run.

It is of our opinion that positive news over stimulus would trigger a breakout over the recent main top at $1939.40 and likely fuel a rapid rally into $1970.10 to $1998.20. At that point, the market could become rangebound until another deal is reached.

The so-called “other deal” will likely be determined by whether Trump is re-elected or Biden wins the election. If Trump wins then expect more of the back and forth negotiations. If Biden wins then look for an even bigger stimulus package early next year, especially if the Democrats sweep the house and the Senate.

Daily Forecast

An agreement on a stimulus package will be good for gold over the short-term, but gains will likely be capped quickly, as the economy will likely demand more as rising coronavirus cases will likely continue to threaten to derail the economic recovery.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Mid-Session Technical Analysis for October 19, 2020

The Euro is trading sharply higher after posting a rapid turnaround following a flat overnight session. Traders are keying off of a weaker dollar, which is losing ground on renewed stimulus talks. Investors are also focusing on the looming U.S. election and worries over rising coronavirus cases.

Continued talks over the weekend between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have yet to see any concrete details, but Pelosi has set Tuesday as a deadline for progress and any deal would likely be around $2 trillion figure, so the greenback is under pressure from the debt and spending dynamic.

At 12:33 GMT, the EUR/USD is trading 1.1782, up 0.0066 or +0.56%.

Daily EUR/USD

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.1831 will change the main trend to up. A move through 1.1612 will reaffirm the downtrend.

The minor trend is also down. A move through 1.1688 will signal a resumption of the minor downtrend.

The short-term range is 1.2011 to 1.1612. Its retracement zone at 1.1811 to 1.1859 is the primary upside target.

The main support is the retracement zone at 1.1691 to 1.1616. The upper level essentially stopped the selling last Thursday at 1.1688.

Daily Swing Chart Technical Forecast

The current upside momentum looks strong enough to lead to a test of the short-term 50% level at 1.1811. Overtaking this level could trigger a change in trend over 1.1831, followed by the Fibonacci level at 1.1859.

On the downside, the strongest support is 1.1691 to 1.1688.

The new minor range is 1.1831 to 1.1688. Its pivot at 1.1760 is controlling the price action. We’re looking for the current upside bias to continue as long as the EUR/USD remains over the pivot.

The early price action suggests we’re in a headline driven market on Monday. This could lead to heightened volatility.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Fundamental Weekly Forecast – Combination of No Stimulus, Weak Risk Appetite Keeping Prices in Check

The Dollar/Yen edged lower last week as the tug of war continued between these two safe-haven assets. In watching the price action, one probably observed that the U.S. Dollar strengthened when the fiscal stimulus talks reached another stalemate, and the Japanese Yen rose on stock market weakness. We expect to see this type of price action to continue this week and possibly into the U.S. Presidential election on November 3.

Last week, the USD/JPY settled at 105.405, down 0.225 or -0.23%.

In other news, Bank of Japan (BOJ) Governor Haruhiko Kuroda stressed a week ago this readiness to take additional monetary easing steps, saying the central bank had not run out of tools to cushion the economic blow from the COVID-19 pandemic.

Kuroda said Japan’s economy had hit the bottom in April-June and that the general picture looked ‘much better” than a few months ago, with exports, output and capital expenditure ‘fairly robust,” Reuters reported.

But consumption, particularly for services, was quite weak and likely to stay so far some time, unless the world gets hold of an effective vaccine to contain COVID-19, he added.

“We will closely monitor the impact of COVID-19 and not hesitate to take additional easing measures as necessary,” Kuroda told an online seminar hosted by the Institute of International Finance.

“The BOJ hasn’t run out of policy tools. We have a lot of policy tools to counter (the damage from COVID-19). We are flexible, innovative when considering measures to take.”

Kuroda also said Japan’s inflation rate would likely remain negative for some time as COVID-19 suppressed consumer demand “considerably”. But he added that prices would likely rebound next year as the economy recovered.

He also defended the BOJ’s negative interest rate policy, saying the -0.1% rate was imposed on only a limited portion of commercial banks’ reserves parked with the central bank.

“We maintain 10-year JGB yields around zero. But at the same time, 20-, 30- 40- year JGB yields are quite positive,” Kuroda said. “We have been allowing longer-term interest rates to move in a positive range. That would certainly help pension funds, life insurance companies and institutional investors.’

Weekly Forecast

All eyes will remain on a possible U.S. fiscal stimulus deal and risk appetite. New stimulus is coming, but probably not ahead of the election. If the White House, Republicans and Democrats can’t reach an agreement then look for a smaller package shortly after the election on November 3.

If Joe Biden wins the election then look for an even bigger stimulus deal early next year.

Negative fiscal stimulus news will be supportive for the U.S. Dollar because this will mean fewer greenbacks floating around in the system. A weaker U.S. stock index will likely pressure the USD/JPY as this would boost the safe-haven appeal of the Japanese Yen.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD and NZD/USD Fundamental Weekly Forecast – Aussie, Kiwi Face Rate Cut Pressure

The Australian and New Zealand Dollars closed lower last week with both currencies pressured by potentially bearish actions by their respective central banks. Lower demand for higher-yielding assets and a stronger U.S. Dollar also weighed on the Aussie and the Kiwi.

The greenback was primarily supported by safe-haven demand after U.S. policymakers strongly suggested a much anticipated fiscal stimulus deal would not likely be agreed upon before the U.S. presidential elections on November 3.

Last week, the AUD/USD settled at .7077, down 0.0164 or -2.26% and the NZD/USD finished at .6605, down 0.0067 or -1.01%.

Australian Dollar

The Australian Dollar weakened last week after a top Reserve Bank of Australia (RBA) official said monetary easing would become more effective as the economy loosens its coronavirus restrictions, an indication another cut to the official cash rate was likely.

RBA Governor Philip Lowe also said the board was studying the benefits that might come from buying longer-dated government bonds as part of its monetary stimulus package to boost jobs and growth.

“When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing,” Lowe said in a speech in Sydney.

The solutions to the problems the country faced lay elsewhere,” Lowe added referring to fiscal policy, which he said, has provided “welcome support” to the economy.

“As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction that was the case earlier.”

Lowe emphasized that creating jobs was the RBA’s “main focus”, with data on Thursday showing the unemployment rate had ticked up to 6.9% in September.

The implications of larger balance-sheet expansion by other central banks were another consideration as the RBA works at potential policy options, Lowe added.

“These are three of the complex issues we have been considering at our recent Board meetings,” Lowe said. “The Board will continue to review these and other issues at our upcoming meetings.

Weekly Forecast

Lowe’s speech prompted economists at Commonwealth Bank of America to revise their call to now predict a cut to the cash rate next month and additional bond purchases to lower yields on 5-10 year government bonds. They previously saw 0.25% as the lower bound of the current easing cyclWith the futures markets trending toward a rate cut and bond purchases by the RBA, prices are likely to feel pressure until they hit a value zone that is attractive to buyers. This is not likely until after the November 3 RBA meeting since there is always the possibility of a surprise in its monetary policy announcements.

Meanwhile, gains could be capped in the NZD/USD because of safe-haven demand for the greenback, and worries that the Reserve Bank of New Zealand is comfortable with taking its benchmark interest rate into negative territory in early 2021.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Weekly Forecast – Rangebound Trade but COVID-19 Remains Wildcard

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished marginally higher last week in a rather tricky trade that saw traders basically absorbing dire forecasts of weak demand due to a possible second-wave of COVID-19 and warnings of increased supply.

The markets treaded water most of the week with all of its gains attributed to an impressive rally on Thursday that erased an early session setback.

Last week, December WTI crude oil futures settled at $41.12, up $0.21 or +0.51% and December Brent crude oil closed at $42.93, up $0.08 or +0.19%.

Essentially we saw two catalysts last week, the bearish catalyst was new coronavirus lockdowns that raised concerns about fuel demand. The bullish catalyst was a drop in crude, gasoline and distillate inventories.

Despite the volatile price swings and the higher weekly close, the markets essentially remained rangebound for a fifth consecutive week.

Oil Eases as New Lockdown Raise Concern About Fuel Demand

Oil prices eased at times last week as new restrictions to stem a surge in COVID-19 infections dimmed the outlook for economic growth and fuel demand.

In Europe, some countries were reviving curfews and lockdowns to fight a surge in new coronavirus cases, with Britain imposing tougher COVID-19 restrictions in London on Friday. The reinstatement of pandemic restrictions is expected to cripple short-term demand forecasts.

In other potentially bearish news, OPEC and its allies are due to taper production cuts in January by 2 million barrels per day (bpd), from 7.7 million bpd currently. Additionally, Baker Hughes reported another increase in drilling platforms.

US Crude, Fuel Stockpiles Drop Sharply Amid Hurricane – EIA

U.S. crude stockpiles fell sharply last week, as offshore oil production was shut due to Hurricane Delta, while distillate inventories posted their biggest drop since 2003 as refiners shut as well, the Energy Information Administration (EIA) said last Thursday.

Crude inventories fell by 3.8 million barrels in the week to October 9 to 489.1 million barrels compared with analysts’ expectations in a Reuters poll for a 2.8 million-barrel drop.

Gasoline stocks fell by 1.6 million barrels, the EIA said, in line with expectations. Distillate inventories fell by a record 5.5 million barrels, according to the data.

Weekly Forecast

An international Energy Agency (IEA) forecast released last week sums up exactly why we believe in the rangebound trade continuing over the near-term.

The experts at the IEA provided a balanced assessment of the market saying that the global oil stocks which rose during the height of the pandemic are being steadily reduced. However, they also added that a second wave of the coronavirus is slowing demand and will complicate efforts by producers to balance the market.

The IEA comments were not too bearish and not too bullish so we expect more two sided rangebound trading.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Weekly Forecast – Bullish Traders Patiently Waiting for Catalyst

Gold futures posted their first weekly decline in three weeks, as fading chances of a U.S. stimulus package before the November 3 presidential election dented the dollar-denominated metal’s appeal as an inflation hedge, while increasing the appeal of the safe-haven U.S. Dollar.

While sentiment for gold remains bullish over the long-run, without a strong short-term catalyst, it looks like it is going to have trouble sustaining a rally. The short-term catalyst seems to be another fiscal stimulus aid package. Without the stimulus bill, gold prices could drift sideways to lower over the near-term.

Last week, December Comex gold futures settled at $1906.40, down $19.80 or -1.03%.

One thing we did learn late last week is that better than expected economic data could help support gold if it weakens the U.S. Dollar. On Friday, U.S. retail sales data came in better-than-expected, pressuring the greenback while underpinning gold. However, gold did give back some of those gains after U.S. industrial production fell more than expected.

As far as a financial aid deal is concerned, Democrats and Republicans seemed to agree on a U.S. stimulus deal before Election Day even as coronavirus cases continue to rise and a labor market recovery stalls.

The latest COVID-19 news reveals that fresh restrictions to combat COVID-19 have been introduced across Europe, and the U.S. Midwest is battling spikes in new cases, threatening to derail the country’s economic recovery from the coronavirus shock.

This news is potentially bullish for gold prices if it encourages U.S. policymakers to move faster toward passing a stimulus bill, but so far it hasn’t been able to appeal to their sense of urgency.

Weekly Forecast

Despite the lower weekly close, the sideways trade suggests gold investors are still anticipating a stimulus deal despite the current stalemate in Washington. However, they probably accepted that it won’t be coming before the November 3 election.

We’ve seen weakness, but we haven’t seen a price crash which probably means the longer-term bulls are buying on weakness or the dips. This further supports the notion that all it is going to take is a catalyst to trigger a breakout to the upside.

Investors are fairly certain the stimulus is coming. They just don’t know when or how big the financial aid package will be. If you’re a short-term trader, it may be a good idea to keep your powder dry until after the election. If you’re a long-term investor then continue to accumulate gold when it trades at a value area.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Dollar Index (DX) Futures Technical Analysis – 94.110 Potential Trigger Point for Upside Breakout

The U.S. Dollar Index edged lower against a basket of major currencies on Friday, giving back some of the week’s gains built on increased caution over a global surge in coronavirus cases and fading prospects for a U.S. stimulus package before the November 3 election.

The greenback clawed back some of its earlier losses after better-than-expected U.S. retail sales data helped dampen some of the concerns about the health of the U.S. consumer. U.S. retail sales increased more than expected in September.

On Friday, December U.S. Dollar Index futures settled at 93.679, down 0.185 or -0.20%.

Also in the United States, relief plans remained bogged down in a three-way negotiation between the White House, Senate Republicans and House Democrats. The news suggests Senate Republicans may already be distancing themselves from Trump as the latest polls shows the President trailing Joe Biden in his attempt to get re-elected.

Daily December U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum is trending lower. The main trend will change to down on a move through 93.000. A move through 94.800 will reaffirm the uptrend.

The minor trend is down. This is controlling the momentum. A trade through 93.975 will change the minor trend to up. A move through 94.090 will reaffirm the uptrend.

The first minor range is 91.750 to 94.800. Its 50% level at 93.275 is support.

The second minor range is 94.800 to 93.000. Its retracement zone at 93.900 to 94.110 is the first upside target. Overtaking 94.110 could trigger the start of a surge to the upside.

The first major upside target is the short-term 50% level at 94.765. This forms a resistance cluster with the 94.800 main top.

Short-Term Outlook

Based on Friday’s price action, the early direction on Monday is likely to be determined by trader reaction to the minor 50% level at 93.900.

Bullish Scenario

Overtaking 93.900 is likely to trigger a quick rally into a series of levels at 93.975, 94.090 and 94.110. Look for a possible acceleration to the upside over 94.110.

Bearish Scenario

A sustained move under 93.900 will signal the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into 93.275.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Fundamental Weekly Forecast – Time Running Out for Demand to Alleviate Storage Concerns

Natural gas futures finished higher last week in a relatively choppy trade. The market gapped higher on Monday in reaction to the damage to platforms from Hurricane Delta. Traders initially thought there would be prolonged production shutdowns, but that wasn’t the case, and prices retreated from the gap high.

Prices edged lower most of the week as weather forecasts flipped from cold to average temperatures, but losses were primary offset by fresh demand for liquefied natural gas.

By the end of the week, traders were monitoring the October 28 to November 1 time period for a possible increase in heat-related demand, but there was enough uncertainty being fueled by the U.S and European weather models to cap gains.

Last week, December natural gas futures settled at $3.271, up 0.067 or +2.09%.

US Energy Information Administration Weekly Storage Report

The EIA reported last Thursday that domestic supplies of natural gas rose by 46 billion cubic feet (Bcf) for the week ended October 9.

Total stocks now stand at 3.877 trillion cubic feet (Tcf), up 388 Bcf from a year ago, and 353 Bcf above the five-year average, the government said.

Natural Gas Intelligence (NGI) reported that “Ahead of the EIA report, a Wall Street Journal survey of 11 analysts expected injections to range from 47 Bcf to 65 Bcf, with an average build of 56 Bcf. A Bloomberg survey of seven market participants had a tighter range of projections, which produced a median of 53 Bcf. Reuters polled 14 analysts, whose estimates ranged from increases of 46 Bcf to 74 Bcf, with a median injection of 55 Bcf. NGI estimated a 54 Bcf injection.”

Based on the estimates, the report was construed as bullish, but the news wasn’t earth-shattering enough to suggest the notion of a prolonged rally.

Short-Term Weather Outlook

According to NatGasWeather for October 16 to October 22, “A strong early season cold shot will sweep into the Midwest, Plains, and east-central U.S. the next several days with rain, snow and chilly lows of 15-38 Fahrenheit for stronger national demand.

The rest of the U.S. will be comfortable to warm with highs of 60s to 80s besides hotter 90s from California to Texas. Demand will ease this week as cold shots impact the Rockies and Plains, while comfortable most elsewhere with highs of 60s to 80s. Overall, national demand will be high through Monday, then low Tuesday – Friday of this week.”

Weekly Forecast

December natural gas futures posted another week of volatile two-sided trading as traders assessed the impact on wavering weather outlooks and LNG demand uncertainty. Concerns over storage also pressured prices.

The direction of the market this week is likely to be determined by weather and LNG export demand. If both come in on the high side then look for prices to rally as this news would help alleviate some of the concerns over storage containment.

Another price driver will be the forecast for October 28 – November 1. If the forecasts call for cold temperatures at this time and beyond then look for prices to pop higher. If the forecasts continue to conflict, then look for a sideways to lower trade.

Essentially, in generate a bullish outlook beyond November 1, we’re going to need to see rising LNG demand coupled with above average heating demand.

For a look at all of today’s economic events, check out our economic calendar.

E-mini S&P 500 Index (ES) Futures Technical Analysis – Trader Reaction to 3486.25 Sets the Tone on Monday

December E-mini S&P 500 Index futures edged lower on Friday, diverging from the benchmark cash index as investors remained disappointed by the lack of progress toward a fiscal stimulus deal. There was also an air of caution over the lack of clarity regarding the timeline for the development of a coronavirus vaccine. Underpinning prices however was a much better-than-expected retail sales report.

On Friday, December E-mini S&P 500 Index futures settled at 3462.25, down 13.25 or -0.38%.

In other news, third-quarter reporting season burst from the starting gate this week, with 49 of the companies in the S&P 500 having reported. Of those, 86% have cleared the low bar set by expectations, according to Refinitiv, Reuters reported.

Daily December E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 3541.00 will signal a resumption of the uptrend. The main trend will change to down on a move through 3198.00. This is highly unlikely, but the market is in a position to change the minor trend to down.

The minor trend is also up. A trade through 3431.50 will change the minor trend to down. This will also shift momentum to the downside.

The minor range is 3541.00 to 3431.50. The close under its 50% level or pivot at 3486.25 makes this level new resistance.

On the downside, the first target is the short-term Fibonacci level at 3431.75. This is followed by the short-term 50% level at 3387.00.

Short-Term Outlook

Our focus will be on 3486.25 on Monday because of the possibility of a secondary lower top. This would suggest the presence of counter-trend sellers.

If the selling pressure continues on Monday then look for the move to extend into the support cluster at 3431.75 to 3431.50. Since the main trend is up, we could see a technical bounce on the first test of this area, but if 3431.50 fails as support then look for the selling to possibly extend into the 50% level at 3387.00. A failure at this level will suggest a bigger break is coming.

Overcoming 3486.25 will signal the presence of buyers. This could create the momentum needed to challenge the top at 3541.00.

For a look at all of today’s economic events, check out our economic calendar.

AUD/USD and NZD/USD Fundamental Daily Forecast – Rate Cut Chatter, Lower Risk Appetite Key Bearish Catalysts

The Australian and New Zealand Dollars finished mixed on Friday with the Aussie edging lower and the Kiwi inching higher. Both markets posted inside moves which suggest investor indecision and impending volatility.

Australian Dollar traders appeared to be taking a breather after a steep sell-off the previous session. That move was fueled by worries over a potential rate cut by the Reserve Bank of Australia (RBA) or the announcement of aggressive bond buying at its early November policy meeting.

New Zealand Dollar traders were likely squaring positions ahead of the week-end elections although the latest polls didn’t seem to be indicating concerns over possible surprises. Like the Aussie traders, Kiwi traders are primarily focused on the direction of interest rates with the Reserve Bank of New Zealand (RBNZ) floating around the idea of negative interest rates for early 2021.

On Friday, the AUD/USD settled at .7077, down 0.0018 or -0.28% and the NZD/USD finished at .6605, up 0.0008 or +0.12%.

No Follow-Through to Downside after Aussie Hits One-Week Low

Although the AUD/USD finished lower on Friday, there was no follow-through to the downside following the previous session’s steep sell-off. That move was fueled after the head of the central bank hinted of a possible rate cut or bond purchases.

Governor Philip Lowe in a speech in Sydney said the RBA is assessing whether buying longer-dated bonds would help the economy and considering an interest rate cut. This marks a major change in policy because the RBA currently intervenes to keep the three-year yield at 0.25% but doesn’t control yields further out the curve.

Risk Off Tone, Stimulus Uncertainty, Virus Concerns Support Dollar, Weigh on Aussie, Kiwi

The U.S. Dollar edged higher against the Australian and New Zealand Dollars on Friday on increased caution over a global surge in coronavirus cases and fading prospects for a U.S. stimulus package before the November 3 election.

The Aussie and Kiwi were headed for another steep drop on Friday, but an unexpectedly strong 1.9% rise in retail sales last month suggested the economy was carrying more momentum into the fourth quarter than anticipated, defying fears that the expiration of enhanced unemployment benefits in the summer would harm the economy. This news helped lift some of the pressure off the U.S. Dollar.

Short-Term Outlook

With Aussie traders adjusting their long positions ahead of the widely expected rate cut from 0.25% to 0.10% at the November meeting, and Kiwi investors still getting used to the idea of negative rates, at a minimum, we’re looking at gains in both currencies being capped over the near-term.

If there is pressure on the AUD/USD and NZD/USD then it’s going to come from the stronger U.S. Dollar. The greenback’s strength will be fueled by a weaker stock market or other signs of lower demand for riskier or higher yielding assets.

For a look at all of today’s economic events, check out our economic calendar.

USD/JPY Fundamental Daily Forecast – Traders Eyeing Risk Appetite for Direction

The Dollar/Yen inched lower on Friday while posting a second consecutive inside move. The price action suggests investor indecision and impending volatility. Fundamentally, it may mean it’s a toss-up between those who favor the U.S. Dollar for safe-haven protection and those who want to park their assets in the Japanese Yen for safety.

On Friday, the USD/JPY settled at 105.405, down 0.010 or -0.01%.

The tight price action on Friday reflected the tone for the week, whereby, the dollar and the Japanese Yen both posted weekly gains against the major currencies as investor appetite for safe-haven assets, or 0.7% and 0.4% respectively.

Driving investors into the safe-haven currencies was growing market caution over a global surge in coronavirus cases and fading prospects of a U.S. stimulus package before the November 3 election.

Meanwhile, fresh curbs to combat COVID-19 have been introduced across Europe while the U.S. Midwest is also battling record spikes in new cases as data shows the country’s economic recovery is losing steam, Reuters wrote.

US Retail Sales Improved in September

The government reported on Friday that U.S. retail sales accelerated in September, rounding out a strong quarter of economic activity, Reuters reported.

Retail sales jumped 1.9% last month as consumers bought motor vehicles and clothing, dined out and splashed out on hobbies. That followed an unrevised 0.6% increase in August.

Economists polled by Reuters had forecast retail sales would rise 0.7% in September. Some said September’s surge was likely exaggerated by difficulties stripping seasonal fluctuations from the data after the shock caused by COVID-19. Unadjusted retail sales fell 2.8% after dropping 1.0% in August.

Excluding automobiles, gasoline, building materials and food services, sales increased 1.4% last month after a downwardly revised 0.3% drop in August.

US Industrial Output Declines Unexpectedly in September

Industrial Production fell for the first time in five months in September, surprising economists who had expected more steady growth from the factory sector. Industrial output fell 0.6% in September, the first decline after four straight months of gains, the Federal Reserve reported Friday. The decline was well below Wall Street expectations of a 0.4% gain, according to a survey by MarketWatch.

Short-Term Outlook

We expect the FX markets to continue to be dominated by risk considerations, which means the U.S. Dollar and Japanese Yen are likely to maintain their safe-haven appeal.

The direction of the global equity markets could ultimately determine the next substantial move in the USD/JPY. Last week, the inability to reach a fiscal stimulus package seemed to give the USD/JPY a boost, while weakness in the equity markets pressured the Dollar/Yen. We expect these reactions to continue over the short-run.

With the chances of a stimulus deal by November 3 are nearly impossible, we think the price action in the USD/JPY is likely to be largely influenced by demand for riskier assets over the near-term.

For a look at all of today’s economic events, check out our economic calendar.