GBP/USD Big Swings as Volatility Kicks In

The GBP/USD is bullish and we can see big swings happening. This is expected as the GBP isvery volatile during the crisis period.

As already explained, we have a triple crisis. US elections, BREXIT and COVID-19. Headline risk is big for the pound. Judging from the latest movements, I expect the GBP to go further up.

1.2900-20 is the POC zone. Any retracement might be used for a fresh buying. If the price closes above 1.3045 we will possibly see a continuation up. Targets are 1.3109 and 1.3148. For me, today is buying the dip.

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

 

Stock Pick Update: November 4 – November 10, 2020

In the last five trading days (October 28 – November 3) the broad stock market has extended its short-term downtrend, as it fell below 3,250 mark on Friday. But then on Tuesday, the market has retraced all of its decline ahead of the U.S. Presidential Election. The S&P 500 index set new record high of 3,588.11 on September 2. Then it fell below February 19 high of 3,393.52 again. In late September it set a local low of 3,209.45 before going back above 3,500 mark. On October 12 it reached 3,549.85. So far, it looks like a medium-term consolidation following 63.7% rally from March 23 corona virus low at 2,191.86.

The S&P 500 index has gained 0.80% between October 28 and November 3. In the same period of time our five long and five short stock picks have gained 0.24%. So stock picks were relatively slightly weaker than the broad stock market. Our long stock picks have gained 3.90% . However, short stock picks have resulted in a loss of 3.42%.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • November 3, 2020

Long Picks (October 28 open – November 3 close % change): D (+2.09%), FB (-4.84%), WYNN (+5.46%), BKR (+15.24%), ARE (+1.53%)
Short Picks (October 28 open – November 3 close % change): PXD (+1.27%), DRE (+8.66%), ITW (+7.09%), CMS (+0.72%), CMCSA (-0.63%)

Average long result: +3.90%, average short result: -3.42%
Total profit (average): +0.24%

  • October 27, 2020

Long Picks (October 21 open – October 27 close % change): PPL (+1.96%), WDC (-3.40%), WYNN (-0.25%), XOM (-2.06%), LIN (-3.02%)
Short Picks (October 21 open – October 27 close % change): WMB (-1.12%), SHW (-0.23%), TROW (-2.61%), WEC (+1.63%), NVDA (-1.68%)

Average long result: -1.35%, average short result: +0.80%
Total profit (average): -0.27%

  • October 20, 2020

Long Picks (October 14 open – October 20 close % change): CSCO (-1.63%), NI (+2.03%), CMG (+1.38%), XOM (-1.06%), SHW (-3.41%)
Short Picks (October 14 open – October 20 close % change): WMB (+1.33%), APD (-1.83%), JPM (+0.07%), NVDA (-4.51%), WEC (+1.47%)

Average long result: -0.54%, average short result: +0.69%
Total profit (average): +0.08%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, November 4 – Tuesday, November 10 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (November 4) and sold or bought back on the closing of the next Tuesday’s trading session (November 10).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s .

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Utilities, 1 x Materials, 1 x Industrials
  • sells: 1 x Technology, 1 x Consumer Discretionary, 1 x Real Estate

Contrarian approach (betting against the recent trend):

  • buys: 1 x Technology, 1 x Consumer Discretionary
  • sells: 1 x Utilities, 1 x Materials

Trend-following approach

Top 3 Buy Candidates

PEG Public Service Enterprise – Utilities

  • Stock remains above month-long upward trend line – uptrend continuation play
  • The resistance level of $62 and support level of $57

IFF Intl Flavors & Fragrances – Materials

  • Short-term uptrend continuation play and a possible breakout about downward trend line
  • The resistance level of $114
  • The support level remains at $100

LMT Lockheed Martin Corp. – Industrials

  • Stock broke above downward trend line, possible short-term uptrend continuation
  • The resistance level is at $365-375
  • The support level is at $350

Summing up the Utilities, Materials XLB and Industrials sectors were relatively the strongest in the last 30 days. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today .

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

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Gold Slides After Elections, but Before Results

In Monday’s analysis , I wrote that the market situation is likely to become more specific right before, during, and perhaps shortly after the U.S. presidential elections . And by “specific”, I mean that the markets could begin moving against their previous trends.

Well, that’s precisely what we’ve witnessed so far. The overnight volatility is significant as the markets try to estimate the election outcome, with the odds keep changing quickly. Let’s start today’s market examination with the USD Index.

Yesterday, I indicated that I wouldn’t be surprised to see a corrective move lower that would trigger a brief move higher in the precious metals and mining stocks. I’ve also indicated that such a move would only be temporary, and most likely, it won’t last more than several days.

That’s what we have witnessed. Indeed, the USD Index has moved lower, almost touching the previously broken red resistance line. Yes, it rallied back up but then declined once again in today’s pre-market trading. Given the current political uncertainty, this is a relatively normal post-breakout behavior. The key point is that the USDX didn’t invalidate the short-term, let alone the medium-term breakout. This means that – as I indicated yesterday – these moves are not a game-changer, but instead, they are a relatively normal uncertainty-based phenomenon.

Gold moved higher yesterday, which erased those gains in the last few hours. So, is the uncertainty-based rally already over? It’s unclear. Given how great the uncertainty is, and regardless of the outcome, it’s likely to be taken to the Supreme Court (or at least heavily protested), the uncertainty might not disappear today.

And what about gold miners ?

Miners rallied, almost touching their declining resistance line and the 50-day moving average.

On Thursday, after gold’s significant Wednesday decline, I’ve indicated the following :

Miners have been undermining gold, which is bearish, and they have also broken below the recent lows, which is also bearish. Moreover, miners have just declined on strong volume after opening the day with a price gap, which at first sight, is bearish.

The theory is that such sessions are particularly bearish, as they supposedly show the bears’ strength. But, before applying any trading tip into practice, it’s important to check if it had indeed worked on a given market, especially in the recent past. And the aforementioned did work… In the opposite way!

For the third time, miners are declining substantially during one day on a strong volume. We saw the same thing happening in mid-August and late-September. None of them were followed by lower miner prices. Instead, we’ve witnessed corrective upswings that didn’t change the overall downtrend.

So, from here on in, will miners rally or decline? Overall, the very near term (until the elections in the U.S. and a day-two after that) is unclear. At this point, a temporary rebound here would not surprise me at all, and if we see one, I expect it to be followed by a major slide. That’s precisely what happened right before and after the elections in 2016.

The summary above remains 100% valid. Miners moved higher, and given today’s pre-market move lower in gold, it seems that they will decline today. However, given how quickly things are changing regarding the political outlook , it wouldn’t be surprising to see a quick turnaround in gold and a daily rally before it finally plunges. So, it’s not a sure bet that miners have formed their top yesterday.

Back in 2016, right after the U.S. presidential elections, miners corrected to almost 38.2% Fibonacci retracement level based on the preceding decline, and they moved briefly above their 50-day moving average. Both levels are close to each other this time as well, with the retracement being slightly higher.

Yesterday’s move to $39.62 was below both levels. If GDX is to move above the 50-day M.A. once again, it would have to exceed $40.02, at least temporarily.

Back in 2016, GDX declined from about $25 to about $20 (20% decline) in few days. Could this happen again? It seems quite possible. This time, GDX is close to $40, so if it declined 20%, it would trade at about $32, which is the upper border of our target are and the February high.

There’s one more thing that tells us that while we might have seen the top yesterday, it was not necessarily the case.

Namely, silver didn’t outperform gold yesterday, and miners were not week relative to it (on a day-to-day basis). These are signals that very often herald short-term turnarounds.

Their absence in yesterday’s trading is a clue pointing to the possibility that PMs and miners will move higher before topping. To be clear, we’re not talking about weeks here, but rather days, or perhaps hours. If silver comes back up strongly today while miners underperform, it will be an apparent signal that the short-term top is already in. Of course, the above is not a sure bet, as PMs and miners could decline right away based on their medium-term breakdowns, but it’s not 100% clear that yesterday was the ultimate short-term top.

If you’d like more details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

 

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Market Know Who Will Be The Next President

No Blue wave, no red wave, just black uncertainty. That is the first outcome of the Election Day. Its simply too close to call and we still don’t know who will be the next POTUS. Markets have their winner though and this is Donald Trump. Indices clearly surged, when investors found out that Donald Trump has much bigger chances for reelection then they previously thought.

Nasdaq surged overnight and is currently testing the 11560 points as a resistance.

DAX is on its way to test the neckline of a big H&S pattern.

FTSE is climbing higher after a bullish bounce from the lower line of the wedge.

Oil is still in the positive territory after a false breakout from the symmetric triangle.

GBPUSD is creating a nice head and shoulders pattern, with price still above the neckline.

EURPLN is back below the 4,59, that looks rather bearish.

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

US Elections: Bye Bye ‘Blue Wave’?

Expectations for a landslide win for Democrats, as had been priced into US equities in the first two trading days of the week, and indeed over recent weeks barring the selloff in late October, have not been vindicated. With both President Trump and former vice-president Joe Biden racking up easy wins early on election night, the jury is still out at the time of writing for key battleground states such as North Carolina, Georgia, Pennsylvania, Wisconsin, and Michigan.

Judging by the initial market reaction, investors seem to be expecting the status quo be maintained, not just in the makeup of the US government, but also in stock markets. The US Senate could still be a deeply divided chamber, which could slow any passage of fresh US fiscal stimulus. Such prospects are prompting equities to fall back on a stalwart to push benchmark indices higher. Nasdaq 100 futures hit limit up, briefly halting trading, before paring gains. The Nasdaq 100 Minis are surpassing gains in the futures contracts for either the Dow Jones or the S&P 500.

The smattering of data in hand isn’t stopping some segments of the markets from trying to pre-empt the final result. The Dollar index’s initial attempt to reclaim the psychologically-important 94.0 handle was also indicative of the dampened expectations that the US Senate will adopt an obvious blue hue. The Greenback is advancing against all of its G10 peers, and its gains are in turn suppressing Gold prices.

To be clear, these moves in the DXY and Nasdaq 100 futures are not enough to break out of recent trends. This presidential race could still throw up a host of outcomes. Biden could still be declared the eventual winner. It’s also entirely possible that President Trump could still get a second term, and avoid becoming the first one-term US President since George H.W. Bush in 1992. Such odds set up a potentially blockbuster finale to the US elections, with these slower-counting states set to have a big say on who will hold the POTUS title over the next four years. And whoever wins the upcoming presidential elections will have a major say on how various asset classes perform over the next four years.

Until we reach a conclusive end the 2020 US presidential election, investors must continue braving this fog of political uncertainty. If there are growing signs pointing to a contested outcome, riskier assets may struggle to hang on to recent gains, to the benefit of safe haven assets.

But for now, the wait continues.

Open your FXTM account today


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

OIL is Rejecting at the Confluence Zone

OIL is bearish and we can see that retracement is hitting the POC zone. That’s means one thing- we should be going down.

The POC zone is within 38.67-39.20. Watch for rejections within the zone. Targets are 37.70, 37.25 and 36.40. A continuation below 35.40 should be followed by 34.39. If the market breaks above 39.90 we could see a move towards 40.68 where OIL should be sold again. 41.66 is the final line where bears are safe. Sellling the rallies is in progress.

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

 

Nasdaq Charts Reveal ABCDE Triangle during 2020 US Elections

The Nasdaq 100 (NQ100) made a bullish bounce at the support zone. The bulls continued up higher during the 2020 US Presidential elections.

This article reviews the expected price path of least resistance. We also analyse the wave patterns and outlook.

Price Charts and Technical Analysis

NASDAQ 100 daily chart

The NQ 100 bullish breakout (green arrow) is nearby. But a bearish bounce (orange arrow) is expected to take price action back down again. This would confirm a contracting triangle chart pattern.

The wave outlook would then indicate an ABCDE (purple) pattern. This would be within a wave 4 (pink). The breakout above the resistance confirms a wave 5 (pink).

The support zone remains strong and large. Only a break below the 61.8% Fibonacci retracement level invalidates (red x) the bullishness.

On the 4 hour chart, we see three completed price swings that confirm an ABC (purple) pattern. The main question is whether the current bullish swing will confirm a full uptrend OR whether price action will build an ABC (orange) pattern.

The main decision zone is the resistance (red box) and the deep 78.6% Fibonacci levels. An ABCDE pattern remains the favorite outlook.

NASDAQ 100 4 hour chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

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

 

SPY Channeling Lower Ahead of Nov 3 – Watch for this Support Today

From a simple technical standpoint, we’ve seen a number of recent breakdowns in the SPY related to Fibonacci Price Theory and Price Gap Theory.  One of the most critical components of the recent 60+ days price activity in the SPY is the failed new high on October 12.  This failed attempt to rally above the previous high price level, near 358.82, suggests a broader market price decline has setup (a downtrend).

SPY 240 MINUTE CHART

After the failed new high peak on October 12, a series of new downside price gaps can be seen in the SPY chart below as price accelerated downward.  These unfilled price gaps represent price acceleration to the downside and will eventually exhaust – creating a new momentum base/bottom.

I believe the support level near 319.85 is a critical level for price going forward.  The downward price trend suggests this 319.85 level could be targeted very quickly.  The November 3 election day, and the post-election price volatility, could put this critical price support level near the top of everyone’s charts over the next few days.

SPY DAILY CHART

My researchers and I believe the upside “island price level” that has set up on November 2 is likely to prompt a downward price move near resistance at 330.25.  This type of upward gapping price “island” is indicative of a Three River Evening Star type of setup – which is typically indicative of major resistance and suggests further downside price action may unfold.

You can clearly see the Doji bar on the right side of the following Daily SPY chart below the most recent downside price gap near 333.10. The rejection of the rally in price on this bar suggests a real battle for control of trend is taking place. When a Doji forms above the previous candle’s real body, it suggests key resistance is found near the real body of the Doji.

Our researchers believe broader market weakness may become a real factor after the elections pushing price lower to retest the 319.85 support level.  Skilled traders should be warned that the 319.85 level represents a key low price level that created the Monthly Dark Cloud Cover pattern we have been suggesting all readers pay attention to.  If price blows below this 319.85 level, we may enter a new phase of downward price trending.

Ultimately, we believe the markets will attempt to find support and stage another attempt at new all-time highs – but that may not happen before a wash-out low price rotation takes place after the US elections and after the new COVID-19 issues subside.  Right now, traders need to stay very cautious of any potential breakdown risks.

Learn how my team called the Dark Cloud Cover pattern over 30 days ago and how we can help you find and execute better trades.  We can help grow your trading account with our Swing Trading service and protect your investment account with our long-term market signals service. Visit www.TheTechnicalTraders.com today to earn more.

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research.  It is provided for educational and informational purposes only.

 

Traders Don’t Wait for Results, Buying Fiesta Has Already Started!

Happy US Election day everyone! The day we have all been waiting for is finally here and I have to tell you that traders seem very optimistic about the results. Actually, to be honest with you, I don’t think that traders actually care who is going to win. Are we going to experience a blue or red wave, I recon that traders are just happy that this uncertainity will end soon and we will be able to come back to hard data, not speculations.

In this Trading Sniper video, we will start with the SP500, where everything is going according to the plan. What plan you may ask? Well the plan that the technical analysis was giving us hints about. The price perfectly bounced from the 23,6% Fibonacci and went significantly higher, creating a nice inverse head and shoulders pattern. As long as the price stays above this Fibo, the sentiment is definitely positive.

I need to also say few words about DAX. The price is continuing an upswing started by the hammer canlde bouncing from the 38,2% Fibonacci. The best thing about those setups is that we were predicting those movements on Friday and Monday in our analytical videos! The next target is on the neckline of the H&S formation. Chances that the price will get there are relatively high.

We will finish with a strong reversal on Oil. It seems that the sell signal coming from the breakout of the lower line of the triangle is no longger relevant. The price reversed sharply and is on its way to come back inside of the triangle. What is remarkable here are two candles from Friday and Monday, which create together a bullish engulfing pattern. This formation is usually a pretty strong signal to buy. If we combine that with a false breakout we have a very explosive bullish mixture.

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

Dutch Language in FBS Personal Area

The feedback from FBS clients states that a new language is highly appreciated among the audience. It allows Dutch-speaking traders to use the PA in the local language and makes trading even more convenient. Thus, the trading process has become easier than it was before.

FBS is constantly working on the quality of its products. The company has a deep understanding of how to create a lovable user experience for the clients. That is why from now on, even more traders can enjoy trading in their local language the way they like – both mobile and desktop versions of the PA are localized in Dutch.

FBS Personal Area is aimed to connect a trader with a trading platform. In the PA, traders can create new accounts, manage their funds, check the transaction history, provide personal details for secure trading, and even more.

Moreover, FBS has its own application called FBS – Forex Broker, where clients can use all the desktop PA functions but do in on the go. The smart app is available for Android users. Get it on Google Play and check out the opportunities it gives now Dutch users as well.

FBS is an acknowledged, CySEC licensed international online Forex broker and the official trading partner of FC Barcelona. FBS is a broker with an international outlook that serves clients in Asia, Latin America, Europe, and the MENA. Its primary focus lies in offering financial products for currency, metals, and indexes trading for clients with different goals and backgrounds. The company features a low barrier to entry and top-ranking apps. Over 11 years in the field, the broker won 50 international awards, including Best International Forex Broker, Best Forex Brand, and Most Progressive Forex Broker Europe.

USD/JPY Two Important Zones for Both Buyers and Sellers

The USD/JPY is ranging and volatility is expected during and after the US elections. At this point its clear that BOJ protects the 104.00 level.

Buying the dip within 104.00-20 zone is the current scenario, while sellers are selling within 104.85-95. A break above 105.00 should target 105.20 and 105.69. However if BOJ ceases to protect 104.00 we hould see a breakout to 103.62 and later towards 103.00. Pending short orders IMO should be placed below 104.00, while ppending longs above 105.00.

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

 

S&P 500 Creating Bounce Within ABCDE Pattern of Wave 4

The S&P 500 showed a bullish daily candle yesterday. This occurred after a Doji candle appeared at the previous bottom and 144 ema close.

This article why a bullish bounce is expected. But it will also review the potential for a larger ABCDE triangle (orange).

Price Charts and Technical Analysis

S&P 500

The S&P 500 is either completing an ABC or ABCDE. This depends on how price action responds to the resistance trend line. A bearish bounce confirms the wave D and E (orange).

The ABCDE could be a triangle pattern within a corrective wave 4 (purple). Price action completed a strong push up within wave 3 (purple). The wave 4 is only invalidated if price action remains above the 50% Fibonacci level.

The triangle pattern remains valid as long as the tops and bottoms are not broken. Once wave E is completed, price action is expected to bounce at support and break above resistance.

On the 4 hour chart, price action is testing the resistance (purple lines). Bullish breakouts could confirm (green checks) the uptrend whereas a break below the bottom invalidates the bullish bounce (red x).

The bullish breakouts would confirm the end of wave 5 (pink) and wave C (orange). A deeper retracement remains possible (red arrow) but the support zone (blue box) remains likely (blue arrow).

S&P 500 4 hour chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

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

Silver Junior Miners Reach Flag Apex Just Before US Elections

Heading into what will likely become one of the biggest events in American political history on November 3, the US stock markets are holding up quite well on Monday, November 2.  My team and I have published a number of articles recently suggesting we believe wild price swings and increased volatility is to be expected before and after the US elections.  We have even suggested a couple of stock trades that we believe should do fairly well 60+ days after the elections are complete.  Right now, we want to bring your attention to the Silver Junior Miners ETF (SILJ).

The current Pennant/Flag formation that is setting up in SILJ on the following Monthly chart has peaked our attention.  Diminishing volume and moderately strong support above the $12 price level suggest key resistance near $15.05 will likely be retested as metals and miners continue to attract safe-haven capital after the elections.  The Apex of the Pennant/Flag formation appears to be nearly complete – a breakout or breakdown move is pending.  We believe the uncertainty of the elections will prompt a possible breakout (upside) price trend in the near future.

When we apply a Fibonacci price extension (100% measured move) to the rally from the COVID-19 lows to the recent highs and extend that range from the September 2020 lows, we can identify a $20.35 and $25.32 upside price target for any potential breakout move.

The key to understanding the potential of this setup is to ask yourself if you believe an increased wave of fear and uncertainty will exist shortly after the US elections and to ask yourself if the renewed surge in COVID-19 cases will drive investors away from stocks and into safe-haven investments?  If you believe this is true, then metals and miners should be on your radar.

One thing we would like to make very clear to you is that metals and miners tend to contract as stock markets collapse.  This is an impulse contraction in price because of risks and fear, but it is very real.  From July 2018 to June 2019, SILJ contracted almost 40%.  This is an important risk component to consider when reviewing the current setup in SILJ.  In July through August 2018, the price of silver was kept down given that that the US Federal Reserve continued to raise interest rates – eventually prompting a -20% price collapse in the SPY starting near October 1, 2018.  SILJ lead this move lower and didn’t actually bottom until June 2019 – when the SPY had recovered to near all-time highs. Thus, this setup in SILJ does include a fairly strong measure of risk for any moderate downside move if the markets fall precipitously after the US elections.

This Weekly SILJ chart, below, highlights what we believe is a clear breakout resistance level near $15.05.  Our research team believes that this critical resistance level, once breached, will likely prompt a moderately strong upside price trend in SILJ.  Failure to breach this level will likely result in a continued flagging price formation attempting to retest the $11.00 support levels.

Please review the data we’ve provided within this research post before making any decisions.  There is a moderately high degree of risk associated with this current Pennant/Flag setup.  Having said that, we do believe that a breakout or breakdown move is very close to initiating and we believe the critical level to the upside is the $15.05 resistance level.  Traders should understand and acknowledge the risks associated with this setup, and also understand that any breakdown price event could be moderately dangerous with quick price action to the downside.

We believe there are a number of great opportunities setting up in the markets right now.  Various sectors and price setups have caught our attention – this SILJ setup being one of them.  We believe the next 6+ months will present some great trading opportunities for those individuals that are willing to “wait for confirmation” of the trade entry.  The one thing we’ve tried to make very clear within this article is this “setup” is not a trade entry trigger.  There is far too much risk at this point for us to initiate any entry or trade, and we will make the call to trade once we have the signals we seek.  Confirmation of this trade setup is pending – but it sure looks good at this point.

Are you ready to find and execute better trades in 2021 and beyond?  Can our research and trading team help you develop greater success?  We follow the markets and share our proprietary research so you can become a better trader. Visit www.TheTechnicalTraders.com how we can help you cut your trading research, teach you how to spot the opportunities and setups we see, and generally stay ahead of the market.

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for readers to take any action regarding this research.  It is provided for educational and informational purposes only.

 

Gold Investors Should Look at Past Elections

So, today is the day! It’s Election Day. For quite some time, national polls indicate that Biden has a significant advantage . He is also polling scarcely close ahead of Donald Trump in key battleground states, but, in some states, the lead has recently narrowed. So, in many places, the race is still too close to call, making them toss-up states. Hence, although according to political pundits, polls, and bets Biden will become the next POTUS, anything could happen .

And we mean – anything. Everyone knows that back in 2016, Hillary Clinton also led in the polls. However, Trump won the election, to everyone’s surprise. Of course, the polling methodology has been improved since. But now, Biden has a much wider advantage than Hillary did in 2016, and he is much more conservative and more moderate in his approach than Clinton (historically, more moderate presidential candidates generally do better in presidential elections).

Additionally, the election results might not be known right away, and there are indications that they might be contested. Who knows what could happen if that’s the case? According to some analysts, contested elections should increase the geopolitical uncertainty and boost the safe-haven demand for gold. On the other hand, some analysts also believe that the contested elections would put downward pressure on the stock market, dragging gold down in the process. The fact of the matter is that contested elections would undoubtedly delay the fiscal stimulus package, which should be negative for gold prices.

So, who is right? It is true that recently, gold has been moving in tandem with the stock prices, responding to the stimulus expectations. But, in times of stress and reduced faith in the American institutional system, gold could decouple from equities and behave more like a safe haven asset.

In any case, tomorrow, the elections will already be behind us. Hopefully, we will get the results quickly. No matter who wins, the new administration and the new Congress will have to deal with the second wave of the coronavirus and fragile economic recovery.

Oh, by the way, as the chart below shows, the US reported 101,273 new Covid-19 cases on Saturday, the daily record not only for America, but for any country! And according to some epidemiologists, the worst is yet to come –that is, if the upward trend in cases continues, which could overwhelm the health system.

No matter whether red or blue, the new government is likely to pump more liquidity into the economy. So, gold could thrive under either Trump or Biden, although we could see increased volatility in the short-term precious metals market.

Implications for Gold

What does all the above mean for the gold market? Well, investors should look past the elections already. They matter less than many people believe. The 2016 presidential election is the best example of that. The price of gold indeed declined in the aftermath of Trump’s victory, but the downward trend was eventually reversed.

So, yes, you should be prepared for elevated volatility this week. After all, we are about to witness not only the elections, but also the FOMC meeting and equally important economic reports, including the nonfarm payrolls .

However, as I have repeated many times before, gold’s responses to geopolitical events are relatively short-lived . In the long run, what drives gold prices are the fundamental factors. And the fundamental outlook remains positive for the yellow metal . Both the monetary policy and the fiscal policy are extremely dovish. The public debt is ballooning, while the US dollar is weakening. The real yields remain negative.

Yes, as the chart below shows, the real interest rates have stabilized or even increased slightly since August, which explains gold’s struggle in recent months.

Nevertheless, the Fed will maintain its policy of ultra-low nominal interest rates for years, while inflation will accelerate at some point, possibly when the economic recovery sets in for sure. This means that the real interest rates should remain very low or even decrease further, supporting the gold prices in the process.

If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

Stocks and the Dollar Weigh In

It’s evident that stocks have once again invalidated the breakout above their early-2020 high. They have also closed the week below the lowest weekly September close. Back in September, the S&P 500 index reversed on a weekly basis and rallied once again. This is similar to what happened in 2018 (August) when stocks first broke to new highs. Back then, the volatility was lower, and therefore it’s no wonder that the breakout held and this time (in September) it was temporarily invalidated.

Back in 2018, stocks moved to a new high (not significantly higher), and this time they didn’t manage to do so, but were quite close (the rally seems to have burned itself out in August).

The key take-away from this similarity is that once stocks slide below the September lows in intraday terms, they are likely to decline further. Perhaps much lower.

Back in 2018, stocks consolidated around the previous lows, and then they declined even more profoundly in the final part of the year. Could the same happen this time as well? Well, it could happen, but with so much money being injected into the system from various directions, we don’t want to say that it’s inevitable.

What is very likely in my view, however, is that stocks will slide, and when they do, they will take the precious metals sector with it. Especially silver, and mining stocks.

Moreover, let’s keep in mind that the situation continues to be excessive on the forex market.

Remember when in early 2018 we wrote that the USD Index was bottoming due to a very powerful combination of support levels? Practically nobody wanted to read that as everyone “knew” that the USD Index is going to fall below 80. We were notified that people were hating on us in some blog comments for disclosing our opinion – that the USD Index was bottoming, and gold was topping. People were very unhappy with us writing that day after day, even though the USD Index refused to soar, and gold was not declining.

Well, it’s exactly the same right now.

The USD Index was at a powerful combination of support levels. One of them is the rising, long-term, black support line based on the 2011 and 2014 bottoms. The other major support level and a long-term factor is the proximity to the 92 level – that’s when gold topped in 2004, 2005, and where it – approximately – bottomed in 2015, and 2016.

The USDX just moved to these profound support levels, broke slightly below them, and now it has clearly invalidated this breakdown. For many weeks, we’ve been warning about the likely USD Index rally, and we finally saw it.

Quoting my previous comments:

The USD Index moved briefly below the long-term, black support line and then it invalidated this breakdown before the end of the week. This is a very bullish indication for the next few weeks.

Before moving to the short-term chart, please note that the major bottoms in the USD Index that formed in the middle of the previous years often took the form of broad bottoms.

Consequently, the current back and forth trading is not that surprising. This includes the 2008, 2011, and 2018 bottoms.

A crucial aspect is that the rally that we’ve witnessed so far is just the tip of the bullish iceberg. The breakdown below the key support levels was invalidated, which is a strong bullish indicator. Since it happened on a long-term chart and the temporarily broken lines were critical, the implications are incredibly important as well– and they should be visible from the long-term perspective.

So, how high could the USD Index rally now be? At least to the 100 level (approximately). This way, the upcoming rally would almost match the rally that started after the previous major invalidation – the 2018 one.

Still, we wouldn’t rule out a scenario in which the USD Index rallies above its 2020 highs before another major top. After all, the USD Index is after a very long-term breakout that was already verified several times.

There isn’t a market that moves on its own in today’s globalized world economy. Most recently, gold has been correlated negatively with the USD Index and positively with the stock market. Right now, the implications of the general stock market and the USDX movements remain bearish for the next several weeks. However, precious metals could move higher in the next few hours or days.

If you’d like to read more details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Market Action Before US Elections

Nasdaq bounces from the lower line of a big symmetric triangle pattern.

SP500 finds support on the 23,6% Fibonacci and tests it with a nice daily hammer.

DAX has even a better situation, also with hammer but here on the 38,2% Fibonacci, which tends to be more reliable.

EURUSD tests the broken 1.17 as a closest resistance. Sellers are winning.

EURAUD is coming back inside the sideways trend area. Apparently the bullish breakout was fake.

Gold is bouncing from the 1893 USD/oz resistance.

EURPLN comes back a bit and test the broken 4,59 as a closest support. That looks like a great place for a price action traders.

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

Determining the Next Big Move

Crude oil started this week with a bearish price gap and a breakdown below the September and October lows. This is an extremely valuable indication. The black gold seems to have finally decided what the next big move is going to be, and by breaking lower, it effectively “agreed” with our expectations.

On its own, the breakdown is very bearish. However, what preceded is equally important, as it shows that this move has much more potential than just a few-dollar drop.

First of all, crude oil stopped rallying after correcting approximately 61.8% of the previous 2020 decline, which means that it was quite likely a real top instead of a fake one that will be broken shortly.

Second, the initial decline was followed by a zigzag, which is a classic corrective pattern. Since the preceding move lower was to the downside, the end of the correction insinuates another decline.

Third, the Stochastic indicator is on a sell signal.

Finally, it’s all similar to what we’ve witnessed in Q1 2020, not just the breakdown in crude oil, but the fact that it had first corrected slightly above the 61.8% of the preceding decline and that stocks were forming a double-top pattern.

Of course, we’ll be aware of the final point (stock’s double top) only after they decline further. However, the shape of the price moves (lower part of the above chart) is already similar.

Furthermore, the Covid-19 cases are soaring once again as well. Even though the fear of the unknown is not present this time, the scale of the phenomenon is much greater, and thus, the emotional reaction is also getting more serious. The charts above reflect that perfectly. Just as it was the case in January and February, crude oil is the first to show weakness, but it’s definitely not the last to do so.

The USD Index has already confirmed its breakout and is rallying almost daily, so things do really look like they did in the first quarter of the year.

To summarize, for the upcoming weeks, the outlook for crude oil remains bearish.

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Thank you.

Przemyslaw Radomski, CFA
Editor-in-chief

* * * * *

The information above represents analyses and opinions of Przemyslaw Radomski, CFA & Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Przemyslaw Radomski, CFA and his associates cannot guarantee the reported data’s accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Buckle up for a Wild Market Ride

Multiple factors deterred investors from taking risk including renewed lockdowns across several nations in Europe, growing fears of a double-dip recession and most importantly, the chances of contested US presidential elections.

The world may stay awake Tuesday night and Wednesday morning to discover who will lead the US for the next four years. However, the increase in mail-in ballots and the time it takes to count them may delay the announcement for several days and possibly weeks if early counted votes are indecisive. That’s why investors need to be prepared for a wild ride in market volatility.

With Democratic challenger Joe Biden eight to ten points ahead nationally and continuing to lead narrowly in key swing states, the former vice-president appears to be in a stronger position heading into tomorrow’s Election Day. However, memories of the 2016 presidential election remain fresh in investors’ minds when Trump battled against the odds and won the presidency despite losing the popular vote.

While a Biden victory is now considered a more bullish scenario for US and global equity markets with massive fiscal stimulus and less disruptive trade relations accompanying his presidency, the challenger’s policies may hit a roadblock if Democrats cannot take hold of both houses of Congress.

However, a ’blue wave’ can initially take markets to new heights. Our base-case scenario for a blue sweep is value stocks outperforming growth, emerging markets outpacing developed ones and a weaker dollar due to the massive fiscal deficit and debt issuance. The performance of the big tech names is likely to be very interesting under that scenario as higher taxes and more regulation should act as a drag, but on the other side of the equation, we still have a virus showing no signs of slowing down and hence tech companies will continue to benefit.

A Biden win and a Senate under Republican control is likely to be the worst outcome for investors, at least in the short run. Expect to see a further steep correction in US equities with a possible 10 to 15% drop. That would be mainly due to delays in passing new bold stimulus plans. However, that also largely depends on the virus trajectory. If a vaccine becomes available by year-end or early 2021, the US economy can continue to recover but at a slower pace than if supported by fiscal measures.

The least anticipated outcome is a Trump win and Republicans continue to hold the Senate. That could be the second-best case scenario, in which US equities continue to rise but the strategies would differ, in that growth continues to outperform value and the beaten-down energy sector likely recovers while alternative energy takes a back seat for a while. Oil prices would be volatile in the weeks ahead.

Whatever the outcome of the election, let’s hope the results will be known on the night itself or Wednesday. Otherwise, volatility will remain elevated with voting closer than the polls predicted and the increased potential for a refusal of the results, which would mean several weeks or months of intense uncertainty.

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GBP/USD Going Towards the D L5

The GBP/USD is in downtrend and we can expect a further continuation down if 1.2860 fails.

A retracement up to 78.88.6 fib is where the POC zone is. D H3 camarilla pivot adds to the confluence. We should see a rejection down towards the D L3. Below D L4 -1.2879, next is 1.2860. The final target is 1.2822. The pair is strongly bearish and only a move above 1.2984 will negate this scenario.

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

 

November Monthly – Forex

The underlying drivers of the $6.6 trillion-a-day turnover in the foreign exchange market are about the broad monetary and fiscal policies in both absolute and relative terms. The policy mix in the US will remain the same in 2021 of easy monetary and accommodative fiscal policy. Meanwhile, the mid-October deadline for the UK-EU trade talks was extended.

The rhetoric is not nearly as bellicose as it was, and the atmosphere appears to have improved. The new deadline is the mid-November EU summit, to give the 27 EU countries and the EU Parliament time to ratify an agreement.

The optimists hope that an effective vaccine can be announced in the coming weeks. However, the most immediate concern is the surge in the virus in Europe and the United States. Low nominal and often negative real rates coupled with government borrowing has helped support aggregate demand with few exceptions.

Regardless of the scale, countries, companies, households, and individuals are vulnerable to another shock. The bar is low, and the pandemic’s extension well into next year would likely be sufficient. The month-long new social restrictions in Europe, for example, way cut quarterly growth by around 0.5%. At the same time, the game of great powers continues, and potential flashpoints in Asia, the Caucuses and Northern Africa have not been resolved.

Based on the projected policy mixes and other considerations, we expect the dollar to depreciate on a trend basis. The dollar was little changed at mid-year against the euro and yen and was about 1.4% higher against the Chinese yuan. Now, through ten months, the euro is about 5.3% higher, the yen 3.6%, and the yuan has appreciated by almost 3.8% against the dollar. However, this may be somewhat misleading.

The dollar has been range against both the euro and yen. Since the last week of July, the euro has been confined to roughly a $1.16 to $1.20 trading range. The 50-day moving average is flat near the middle of the range. The contagion, the new restrictions, and the ECB’s commitment to ease in December warn of downside risks in the euro.

For nearly as long, the dollar has been in a JPY104-JPY107 range, as well. The recent range is even smaller, as the dollar has been below JPY106 since the middle of September, with a brief exception earlier in October. Nevertheless, October was the fourth consecutive month that the dollar recorded lower highs and found bids near JPY104.00. A move back toward JPY106 is likely in the weeks ahead.

The Chinese yuan has been trending higher. Indeed, it has only declined in four of the past eighteen weeks. After falling by about 6.25% to levels not seen since mid-2018, the dollar consolidated in late October. If the managed currency has strengthened, it must be assumed that Beijing allows it. Some currency strength is consistent with the “dual circulation” drive, but more importantly, maybe a signal for global investors.

As China’s markets are integrated into global benchmarks, and its sheer size will boost its weight over time. This is going on while trade tensions remain elevated. Both impulses, the decoupling on trade and China’s inclusion in international capital markets, will likely continue regardless of the US election results.

This is a different kind of internationalization of the yuan than an offshore currency (CNH) and bond market (Dim Sum) entailed. Attractive economic fundamentals, coupled with improved access, and inclusion in industry benchmarks, encourage capital inflows from foreign investors. In turn, the combination of the large current account surplus and the portfolio capital inflows should exert upward pressure on the exchange rate.

Beijing uses such periods of upward pressure on the yuan to relax some rules that discourage capital outflows, like the quota for the Qualified Domestic Institutional Investors for overseas investments or the reserve requirement on forwards. In late October, the PBOC adjusted how the dollar’s reference rate was set, making it somewhat more transparent. In the weeks ahead, Beijing’s intentions may become clearer, and investors will have a better idea of the extent of that of the yuan’s appreciation that will be sanctioned. The currency may become more volatile than it has been.

Dollar

The dollar generally trended lower from late September through the first of October against most of the major currencies and but turned higher against as the virus surged in Europe and policymakers from Australia and Europe signaled a policy response, while the Federal Reserve expounded on its new average inflation target without committing to fresh actions. More fiscal stimulus is likely to be forthcoming. The election will determine the extent and priorities. Next year, as was the case this year, the US will again likely have the largest budget deficit among the high-income countries. The Federal Reserve meets on November 5. It does not seem prepared to take new measures.

The possibility of yield curve control appears to have been eclipsed by signals suggesting officials, at some point, may extend the duration of the $80 bln a month of Treasuries currently being purchased. The decision does not appear imminent. The Bank of England, the Reserve Bank of Australia, and the European Central Bank are likely to move before the Federal Reserve. This implies that the dollar may be stronger than we previously anticipated into early next year. However, when the situation stabilizes, we still expect the twin-deficit meme to frame a trend lower for the dollar.

Euro

After falling to nearly $1.16 in late September, the euro trended higher to around $1.1880 in the third week of October. The surging pandemic, which led to new social restrictions that even if they last a month, will sap the recovery that had already appeared to be stalling. As a rough estimate, a month-long closure may reduce Q4 GDP around 0.5-0.7 percentage points. The ECB has all but formally committed itself to ease policy in December, which could very well include a rate cut in addition to new low rate loans and more bond-buying for longer. The much-heralded joint fiscal initiative (750 bln euro, Recovery Fund) appears bogged down in political negotiations at the European Parliament.

Even after the technical details are agreed upon, the use of the funds to enforce the “rule of law” practices will still encounter objections (e.g., Hungary, Poland). The summer’s bullishness toward the euro that had lifted it to $1.20 has been undermined by the virus. Speculators in the futures market have trimmed their net long euro position, but it remains at a record high but this recent period. We see these recent developments as tempering the pace of the euro’s uptrend we expect, but at this juncture, we do not see it changing the trend.

(end of October indicative prices, previous in parentheses)

  • Spot: $1.1645 ($1.1720)
  • Median Bloomberg One-month Forecast $1.1725 ($1.1785)
  • One-month forward $1.1655 ($1.1735) One-month implied vol 7.9% (6.5%)

Yen

The Bank of Japan now projects the world’s third-largest economy will contract by 5.5% in the current fiscal year that runs through March 2021. Previously it forecast a 4.7% contraction. Part of the growth was shifted to FY2021, which is now expected to expand by 3.6% rather than 3.3%. Prime Minister Suga appears to be preparing for a third supplemental budget for this year that could be formally announced in the weeks ahead.

Talk is of a JPY10 trillion package, of which nearly three-quarters may come from re-directing unspent funds from past budgets. The US 10-year premium over Japan has trended higher since early August when it was below 50 bp. Although it is near 80 bp now, it has rarely been lower over the past 30 years. Moreover, for yen-based investors hedging the dollar currency risk is expensive. After spending most of the August-September period inversely correlated with the S&P 500 on a purely directional basis, the dollar-yen exchange rate spent most of October positively but albeit slightly, correlated.

  • Spot: JPY104.65 (JPY105.50)
  • Median Bloomberg One-month Forecast JPY104.85 (JPY105.70)
  • One-month forward JPY105.00 (JPY105.60) One-month implied vol 8.0% (5.7%)

Sterling

After falling by about 3.35% in September, sterling rebounded by about 1% in October. Sterling proved resilient in the face of the brinkmanship tactics that had seemed to end the talks in the middle of the month and rallied when the talks resumed. While many are still hopeful of an agreement, it is not at hand yet, and might not be until closer to the next brink (middle of November).

The implied volatility curve peaks in November and then gradually falls almost two percentage points over the next year. We remain concerned that many businesses are unprepared, and even with an agreement, disruptions can be significant. For businesses that rely on product either directly from the UK or EU goods via the UK, inventory management for some industries may be a way to minimize disruption.

The Bank of England meets on November 5 and if it does not extend is Gilt buying, the market will be disappointed. The bank rate is set at 10 bp, but the bills and Gilt yields through five-years remain below zero. A ten basis point rate cut is also a possibility. The BOE has purposely not ruled out adopting a negative interest rate target but has clearly signaled it is not ready. The UK’s budget deficit is expected to be near 14% of GDP this year, among the largest in the G7. Improvement depends on the course of the virus.

  • Spot: $1.2950 ($1.2920)
  • Median Bloomberg One-month Forecast $1.2975 ($1.2950)
  • One-month forward $1.2950 ($1.2930) One-month implied vol 11.3% (10.7%)

Canadian Dollar

The New Democrat Party came to the minority Trudeau government’s support twice in recent weeks. Neither the Liberals nor Conservatives are prepared to go to the polls. However, minority governments do not typically last more than a couple of years in Canada and the current government has begun its second year. There is political pressure for Trudeau to re-introduce a new fiscal anchor, but the pandemic does not make it practical. Finance Minister Freeland is expected to provide her first fiscal update in November.

The last estimate in July put the deficit at near 16% of GDP, but the new initiatives suggest it may be closer to 18%-19%. The Bank of Canada pledges to keep the target rate at 0.25% until the economic slack is absorbed, which it does not anticipate until 2023. It no longer will buy mortgage-backed securities. Perhaps, most importantly, the Bank of Canada will reduce its government bond-buying program to CAD4 bln from CAD5 bln and shift its attention to longer-term bonds.

  • Spot: CAD1.3320 (CAD 1.3320)
  • Median Bloomberg One-month Forecast CAD1.3285 (CAD1.3275)
  • One-month forward CAD1.3300 (CAD1.3325) One-month implied vol 8.3% (6.2%)

Australian Dollar

The Australian dollar underperformed last month. Although the loss was small (~0.5%), it was the only major currency that falls for the second consecutive month. In addition to the virus, which is daunting enough, Canberra also must cope with expressions of China’s displeasure that has impacted trade. The Reserve Bank of Australia has downplayed the efficacy of negative interest rates but has mused aloud about other measures it can take to provide more stimulus.

The next RBA meeting is November 3, and many participants expect a move. It targets a 25 bp cash rate and three-year bond (yield curve control). However, the three-year yield is about 11 bp, and the effective cash rare is 13 bp. The RBA indicated that targeting a longer-dated rate was a possibility. Although it also cited the possibility of buying foreign bonds, this may be too controversial to venture now.

  • Spot: $0.7030 ($0.7160)
  • Median Bloomberg One-Month Forecast $0.7115 ($0.7175)
  • One-month forward $0.7030 ($0.7165) One-month implied vol 12.0% (10.0%)

Mexican Peso

The Mexican peso was the strongest currency in October, appreciating nearly 6% against the dollar to pare its year-to-date loss to about 9.3%. The peso’s gains are driven by a large trade surplus, strong worker remittances, and portfolio flows attracted by relatively high-interest rates. The central bank has been signaling that after nearly halving its target rate to 4% and inflation probing the upper end of its 3% +/- 1% target, it was running out of room to cut interest rates further.

However, with President Andres Manuel Lopez Obrador (AMLO) reluctant to use fiscal stimulus, which entails borrowing and boosting debt, it leaves monetary policy as the main tool. The central bank’s decision is finely balanced. Two of the board’s five members thought there is no room to cut rates, and two saw additional scope, leaving one as the tie-breaker.

  • Spot: MXN21.18 (MXN22.11)
  • Median Bloomberg One-Month Forecast MXN21.60 (MXN22.07)
  • One-month forward MXN21.25 (MXN22.19) One-month implied vol 20.5% (18.2%)

Chinese Yuan

The yuan has been adjusting higher for several months. It finished October near its best level in two years. The increasing integration of China into the global capital markets means that strong portfolio capital inflows compound the yuan’s upside pressure stemming from the growing trade surplus. Beijing’s strategy appears to be two-fold: accept some appreciation of the yuan and reduce some (not all) regulatory hurdles to capital outflows.

We suspect many market participants do not trust the price action and focus instead on the precise mechanism by which the PBOC has managed the pace of the yuan’s appreciation. The median year-end forecast in the Bloomberg survey is for CNY6.75. This may overstate the case. If, on the other hand, the integration into the global capital markets has required a change in Beijing’s strategy, there could be potential toward CNY6.6500 before year-end.

  • Spot: CNY6.6915 (CNY6.7900)
  • Median Bloomberg One-month Forecast CNY6.7210 (CNY6.8125)
  • One-month forward CNY6.7150 (CNY6.7935) One-month implied vol 6.6% (5.9%)

This article was written by Marc Chandler, MarctoMarket.