Analysts at MUFG Bank, see the likelihood of the pound suffering a setback in the run up to the election has now been reduced although certainly not eliminated. They consider It will still be difficult for the GBP/USD pair to break above 1.3000 until there is more clarity.
“Our short GBP position is to take advantage of a potential pick up in political uncertainty in the run up to the election. The Tories already have a large lead over the Labour party in the opinion and it is unlikely to widen much further. Market participants will be reluctant to lift cable above the 1.3000-level until there is more clarity after the election. It leaves the balance of risks more skewed to the downside for the GBP in the run up to the election given there is higher likelihood that the polls could begin to narrow and creating more political uncertainty.”
“The incoming economic data flow from the UK has taken a negative turn recently which if it continues will further encourage building BoE rate cut expectations. The GBP could also be challenged by more risk-averse trading conditions which started to creep in last week.”
“Public opinion polls would need to shift decisively to trigger a more volatile GBP. It has not happened yet broadly, although we note Britain Elects Poll Tracker shows the gap closing. Downside risks for GBP would increase if the gap starts to narrow across a wider number of polls, which would increase political uncertainty. It would open up GBP more to weakness coming through from the UK economy. Key support for cable is located at 1.2800, and then at 1.2700, the 200-day moving average.”
The path of least resistance is higher in the view of Rabobank analysts, as the herd of systematic funds begin accumulating a “long” oil position and risk parity funds increase position sizing in 2020.
“Looking forward we see the path of least resistance for oil markets as higher given that we expect the herd of systematic funds to begin accumulating significant oil length in the months ahead. The forward “carry” signal remains strongly “bullish” and momentum and trend signals are in the process of moving from “short” to “long.” Seasonal algorithms will then flip from “short” to “long” early in 2020 providing a another wave of speculative buying.”
“We also expect position sizing from the “Managed Money” crowd to grow larger in 2020 as the oil market shifts into a higher price and lower volatility regime. Our base case remains for Brent to trade in the low 70s in 2020.”
Analysts at MUFG Bank explained that improving Eurozone data flow and diminishing downside risk has been offering little support to the euro so far. They expected broad-based weakens in the euro to continue in the near-term.
“The EUR continues to trade heavy in the near-term. Last month’s relief rally on the back of progress towards a partial US-China trade deal and the pushing back No Deal Brexit risk has proven short-lived. EUR/USD failed to break above its 200- day moving at 1.1180 and has since fallen back below the 1.1000-level. The next target on the downside will be the early October low at 1.0879. Recent price action for the EUR has been poor as it has failed to derive much support from both an improvement in the economic data flow from the euro-zone and an easing of downside risks to the growth outlook.
“The key question going forward is will this data improvement help stabilise the euro, or even help it turn higher? We certainly believe the change in data flow, while not yet compelling and certainly from a low base will be enough to curtail euro selling.”
“The EUR’s failure to strengthen on the back of the improving euro-zone economic data flow and easing of downside risks to the growth outlook is a bad sign for nearterm performance. It leads us to believe that downward momentum will remain in place in the near-term. A decisive break below the 1.1000-level for EUR/USD would open up the door to a potential retest of the early October low at 1.0879.”
“The ECB’s pledge for looser policy for longer remains a heavy weight on the EUR.”
- USD/CAD is ending the week virtually unchanged near 1.3230 level.
- The level to beat for bulls is the 1.3280 resistance.
USD/CAD daily chart
USD/CAD four-hour chart
USD/CAD 30-minute chart
Additional key levels
Analysts at ING, see the USD/JPY pair trading with a neutral bias the next week and expect it to move in the 108.10/109.50 range. Their one-month target is 108.00.
“After some recent sharp dislocation, the Japanese Government Bond market looks a little more under control – helped by a rally in US Treasuries. The BoJ probably doesn’t mind the JGB sell-off too much, given its preference to steepen the yield curve and help the local banking system. Barring a surprise break-down in US-China trade negotiations, we see the coming week as a reasonably benign one – meaning that USD/JPY should be range-bound to slightly higher. True the US data has been softening a little, but the industrial slow-down is well-priced and, so far, the US consumer (like consumers elsewhere in the world) is holding up quite well.”
“Locally Japan sees October trade data and also the national CPI figure for October. The latter is rarely a market mover and the core rate, expected at 0.4% YoY, is still miles away from the BoJ’s target. Equally, the market doesn’t really believe the BoJ’s threats to take rates more negative – in fact, the BoJ has led the way in the tiering of deposits to protect the banking system from negative rates. In all, we expect a range-bound USD/JPY and the JPY to maintain funding currency status.”
- Cable rose on Friday for the second day in a row and hit weekly highs versus US dollar.
- UK elections expectations continue to support the pound in the short-term as greenback loses strength amid lower yields.
The GBP/USD pair continued to rise on Friday and reached at 1.2918, the highest level since November 4. Near the end of the week, it was hovering above 1.2900, consolidating weekly gains.
All about the elections
“The slew of data in the UK this week failed to drive any move in sterling as markets continue to focus solely on the upcoming general election. In the past few days, the Brexit Party pledged not to contest Conservative Party seats while presenting a candidate in all Labour-held seats. When adding a rising lead of Boris Johnson’s Conservatives in latest opinion polls, investors have been able to cement their expectations around a (market-friendly) Tory majority win”, explained ING analysts. They see the pound supported in the near future with the downside limited.
The greenback is about to end the session on a weak note on the back of a sharp downside correction in US yields. The 10-year was near 2% a few days ago and dropped toward 1.80%. US data and many speeches from Federal Reserve officials failed to offer support to the US dollar. The DXY turned to the downside from one-month highs falling back below 98.00.
The economic calendar looks light for next week. “Data-wise, PMIs may point to further manufacturing weakness but should once again have a limited market impact; on the political side, the first television debate between Mr. Johnson and the Labour leader, Jeremy Corbyn, will be the highlight of the week”, explained ING analyst. US/China trade deal headlines will likely continue to be a key driver of market sentiment.
From a technical perspective, GBP/USD has lost upside momentum on the daily chart – a bearish sign, notes Yohay Elam, analyst at FXStreet. “It is also capped by downtrend resistance and experiences lower highs. On the other hand, sterling continues trading above the 50, 100, and 200-day Simple Moving Averages. Overall, bears are gaining ground but are far from taking over.”
Industrial production declined by 0.3% during October. While the strike at General Motors and utilities accounted for most of the pullback, mining continues to retrench and the underlying trend in manufacturing output remains subdued, explained analysts at Wells Fargo.
“Industrial production fell 0.8% was the steepest one-month drop in more than 10 years. All major segments of the industrial sector got in on the action, with utilities, mining and manufacturing production declining last month. After an unusually hot September, the return to more normal temperatures led to utilities output, which accounts for about 10% of industrial production, falling 2.6% in October.”
“We saw the effect of the GM strike in September, but it more clearly reared its head in the October manufacturing figures. Total factory output, which comprises about three quarters of industrial production, fell 0.6%, as the GM stoppage lasted almost the entirety of October.”
“In a separate report earlier this morning, the Empire State Manufacturing Survey showed factory activity in New York State has been little changed. The New York Fed’s gauge of manufacturing activity, the first of the November purchasing managers’ indices, shed 1.1 point to land at 2.9. That kept the index in its fairly tight range since July of 2-5, hinting that while factory activity remains tepid, conditions are not worsening materially.”
Previewing next week macroeconomic events in the United Kingdom, "Next week is pretty light in terms of market-moving events," note ING analysts.
"Data-wise, PMIs may point to further manufacturing weakness but should once again have limited market impact; on the political side, the first television debate between Mr Johnson and the Labour leader, Jeremy Corbyn, will be the highlight of the week."
"The general perception of who comes out as the “winner” may affect some markets expectations, although more opinion polls are probably going to be the major driver of the pound in the next few weeks.",
"The slew of data in the UK this week failed to drive any move in sterling as markets continue to focus solely on the upcoming general election. In the past few days, the Brexit Party pledged not to contest Conservative Party seats while presenting a candidate in all Labour-held seats. When adding a rising lead of Boris Johnson’s Conservatives in latest opinion polls, investors have been able to cement their expectations around a (market-friendly) Tory majority win."
- After ranging throughout the week, crude oil is accelerating towards the 58.00 handle.
- The level to beat for bulls is the 58.00 resistance.
Crude oil daily chart
Crude oil four-hour chart
Crude oil 30-minute chart
Additional key levels
- 10-year US Treasury bond yield posts modest gains on Friday.
- Cautious optimism on US-China trade deal weighs on safe havens.
- US Dollar Index stays in red near 98.
The precious metal struggled to find demand on Friday as the upbeat market mood on renewed hopes of the United States and China reaching a trade deal to avoid a tariff hike in December caused investors to move away from safe havens. Nevertheless, the broad-based USD weakness didn't allow the XAU/USD pair to fall sharply.
As of writing, the pair was down 0.3% on the day at $1,466 but was on track to post small weekly gains.
Trade headlines continue to impact risk perception
The United States' Commerce Secretary, Wilbur Ross, on Friday said that there was a very high probability that the US would reach a trade deal with China. "We're much farther along with details of the trade deal with China, there are many active calls," Ross told Fox Business Network. "There will be another trade call with China on Friday."
Reflecting the recovering sentiment, the 10-year US Treasury bond yield is up around 0.5% on the day and Wall Street's main indexes are adding between 0.55% and 0.65%.
On the other hand, today's disappointing macroeconomic data releases weighed on the greenback. The Federal Reserve's monthly publication revealed that the Industrial Production and the Manufacturing Production in October decreased by 0.8% and 0.6%, respectively. The US Dollar Index lost its traction and was last down 0.15% on the day at 98.
Technical levels to watch for
According to the latest GDPNow report published by the Federal Reserve Bank of Atlanta, the real gross domestic product (GDP) in the United States (US) following this week's macroeconomic data releases is expected to expand by 0.3% in the last quarter of the year.
"After this morning's retail trade releases from the U.S. Census Bureau, and this morning's industrial production report from the Federal Reserve Board of Governors, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth decreased from 2.1 percent and -2.3 percent, respectively, to 1.7 percent and -4.4 percent, respectively," the Atlanta Fed explained in its publication.
- USD/JPY is trading at daily highs into the London close this Friday.
- The level to beat for bulls is the 108.90/109.03 resistance zone.
USD/JPY daily chart
USD/JPY four-hour chart
USD/JPY 30-minute chart
Additional key levels
Previewing next week's key macroeconomic events, "We expect the FOMC minutes from the October meeting to elaborate on the Committee's decision to ease while also setting a high bar for additional accommodation," noted TD Securities analysts and elaborated:
"We anticipate discussions to touch upon what "material reassessment" of the outlook would lead the FOMC to shift its policy stance. The minutes may also provide further insights into the Framework Review debate."
The Federal Open Market Committee's (FOMC) October meeting minutes will be released on Wednesday, November 20th, at 19:00 GMT.
According to the Federal Reserve Bank of New York's latest Nowcasting Report published on Friday, the United States' (US) economy is expected to expand by 0.4% in the last quarter of the year.
"News from this week's data releases decreased the nowcast for 2019:Q4 by 0.3 percentage point," the NY Des said in its publication. "Negative surprises from capacity utilization and industrial production data drove most of the decrease."
In the meantime, the US Dollar Index stays in the negative territory near the 98 handle, looking to register a weekly loss of around 0.4%.
Commenting on the Federal Reserve's monthly data that showed both the Manufacturing Production and the Industrial Production in the United States declined in October, "US industrial output plunged again in October as the combination of weak global activity, trade uncertainty and a strong dollar weighed on activity," said ING analysts. "Unfortunately, business surveys suggest there is more pain ahead for the sector."
"US industrial production fell 0.8% month-on-month in October – the biggest decline in output since May 2009 – as manufacturing, utilities and mining all posted declines. This is the third monthly output drop in the last four months with output now down 1.1% year-on-year."
"Manufacturing remains a clear concern as weakness in global growth, trade uncertainty and the strong dollar all weigh on sentiment and demand in the sector. Output fell 0.6% here after a 0.5% fall in September, bringing the year-to-date drop in output to -2.2%. In fact, output remains 5.5% below the peak seen in December 2007."
"The legacy of the GM strike is still in the data with output of motor vehicles down 7.1% MoM, but even when this component is excluded non-motor vehicle manufacturing output still fell 0.1% MoM."
- DXY is ending the week with a slump to the 98.00 handle.
- The next relevant support is seen at the 97.80 level.
DXY daily chart
DXY 4-hour chart
DXY 30-minute chart
Additional key levels
- Euro erases most of weekly losses against Japanese yen, rising almost 80 pips from yesterday’s low.
- Yen among worst performers amid rising equity prices and a stabilization in US yields.
The EUR/JPY pair is rising sharply on Friday, following five consecutive days of losses. An improvement in risk sentiment helped the pair moved off monthly lows and regained 120.00.
Euro finds support as Yen weakens
Wall Street indexes are higher today, trading at daily highs at moment with gains around 0.40%. At the same time US yields remain steady, following days of sharp declines. Those moves weakened the demand for the Japanese yen that is among the worst performers.
The euro found support today and the rebound of the EUR/USD back above 1.1050 added more momentum to EUR/JPY. The pair is having the best performance in more than a month and in a few hours trimmed most of this week losses.
Yesterday EUR/JPY bottomed at 119.22, the lowest level in a months. Since then it has risen almost a hundred pips. It is trading at 120.15, testing the 20-day moving average and also Wednesday’s high. If the pair consolidates at current or higher level it could signal that a short-term bottom is in place. Above 120.15/20 the next resistance level might be seen at 120.35 followed by 120.55.
On the flip side, if the pair fails to break above 120.15 in the coming session, a correction seems likely. The critical immediate support might be seen at 119.80; a break lower would clear a slide to the next support at 119.55 (Nov 13 low).
While speaking at a conference in Rome earlier in the day, "European single currency needs to interact with a single fiscal policy," European Central Bank governing council member Ignazio Visco argued, as reported by Reuters.
"The small and uncertain benefits of a debt restructuring mechanism must be weighed against the huge risk that the mere announcement of its introduction may trigger a perverse spiral of expectations of default, which may prove to be self-fulfilling," Visco further added in his prepared remarks, which were largely ignored by market participants.
According to a Panelbase poll published on Friday, British Prime Minister Boris Johnson's Conservative Paty widened the gap with the Labour Party to 13 points this week, as reported by Reuters.
Panelbase sees the Conservative Party getting 43%, 3 points higher than the 40% announced last week, while Labour stays unchanged at 30%.
The British pound's reaction to the poll was muted with the GBP/USD pair clinging to small daily gains above the 1.2900 handle and remaining on track to end the week modestly higher.
Data released today showed retail sales rebounded in October with a 0.3% increase. Analysts at Wells Fargo explained control group sales continued to rise at a solid pace, but have cooled from their breakneck pace earlier this year. They continue to expect a solid holiday sales season.
“Retail sales bounced back in October, rising 0.3% over the month. This was a welcome sign after retailers saw the first decline in sales (-0.3%) in seven months in September. While the report was broadly positive, only six of thirteen retail categories reported higher sales, and with sales reported in nominal terms, we suspect some of the gains were price-related.”
“Looking through some of these volatile components, control group sales, which excludes sales at restaurants, gasoline stations, building materials stores and auto dealers, also rose 0.3%. That trend-like gain, however, wasn’t enough to sustain the breakneck, and unsustainable, pace of growth in recent months, and pushed the three-month annualized rate down to 4.0% in October. While that is still a solid pace, it’s the slowest in nine months.”
“August and September sales were revised lower, but the October retail sales report still suggests no material change to our forecast of a 5% gain in 2019 holiday sales.”
- GBP/USD is ending the week near the weekly highs.
- Resistances to the upside are seen at the 1.2950 level and the 1.3000 handle.
GBP/USD daily chart
GBP/USD four-hour chart
GBP/USD 30-minute chart
Additional key levels
- US Dollar Index retreats to 98 area on Friday.
- Industrial Production in US declines more than expected.
- Hopes of the US and China reaching a trade deal helps AUD find demand.
The AUD/USD pair gained traction in the American trading hours on Friday and rose above the 0.6800 handle boosted by renewed hopes of the United States and China coming to terms on trade. As of writing, the pair was trading at 0.6804, adding 0.27% on a daily basis. Despite today's rebound, the AUD/USD pair remains on track to post weekly losses for the second straight week.
In an interview with Fox Business Network on Friday, United States Commerce Secretary Wilbur Ross said that there will be a call on trade between officials on Friday and noted that there was a very high probability that they will be able to reach a trade deal with China.
USD comes under pressure amid uninspiring data
On the other hand, today's data from the US revealed that Industrial Production and Manufacturing Production declined 0.8% and 0.6%, respectively, in October to hurt the greenback. The US Dollar Index, which spent a large portion of the day moving sideways near the 98.20 mark, came under pressure and was last seen testing the 98 handle, erasing 0.15% on a daily basis. Although other data showed that Retail Sales rose slightly more than expected in October, it failed to help the USD find demand.
Technical levels to watch for
- EUR/USD moves higher on dollar weakness.
- US advanced Retail Sales expanded 0.3% MoM.
- US Industrial Production contracted 0.8% inter-month.
EUR/USD keeps pushing higher and extends the recovery to the 1.1050 region on the back of increasing selling pressure hitting the greenback.
EUR/USD tests the key 55-day SMA
The pair has accelerated the upside on Friday and is now printing new weekly highs in the 1.1050 region, where coincide the 10-day and 55-day SMAs. A clear breakout of this hurdle should reassert the upside pressure in spot.
Extra upside in the second half of the week came in pari passu with the deteriorating outlook on the dollar following renewed trade jitters, mixed data and declining yields.
Indeed, the US docket showed upbeat results from October’s Retail Sales, although the Empire State Manufacturing Index, Industrial/Manufacturing Production and Capacity Utilization all came in short of expectations.
Earlier in Euroland, final October headline inflation figures tracked by the CPI matched the preliminary readings at 0.1% MoM and 0.7% YoY.
What to look for around EUR
The euro has managed to reverse the pessimism seen in the first half of the week and motivated the pair to rebound from weekly lows in the 1.0990 region. Rising trade jitters and mixed data sparked a moderate correction lower in US yields, impacting on the sentiment around the dollar and thus forcing DXY to give away initial weekly gains. On the macro view, the outlook in Euroland remains fragile and does nothing but justify the ‘looser for longer’ monetary stance by the ECB and the bearish view on the single currency in the medium term at least.
EUR/USD levels to watch
At the moment, the pair is gaining 0.19% at 1.1041 and faces the next up barrier at 1.1045 (high Nov.15) followed by 1.1095 (100-day SMA) and finally 1.1179 (monthly high Oct.21). On the downside, a breach of 1.0989 (monthly low Nov.14) would target 1.0925 (low Sep.3) en route to 1.0879 (2019 low Oct.1).
- Improved market sentiment lifts US stocks on Friday.
- Renewed trade optimism boosts industrials and technology shares.
Wall Street's main indexes started the last day of the week in the positive territory supported by renewed hopes of the United States and China finalising the phase one of the trade deal to avoid tariff hikes in December. As of writing, the Dow Jones Industrial Average was up 0.3% on the day while the S&P 500 and the Nasdaq Composite were adding 0.35% and 0.5%, respectively.
Earlier in the day, United States Commerce Secretary Wilbur Ross told Fox Business Network that they were "much farther along with details of the trade deal with China," and noted that there was a very high probability that they will reach a deal.
Boosted by the improved market sentiment, the risk-sensitive Technology Index is adding 0.5% on the day to lead the rally alongside the Industrials Index, which was up 0.6% at the time of press. On the other hand, the defensive Real Estate, Utilities, and Consumer Staples indexes are registering modest losses.
Nigel Farage's Brexit Party has decided to step down from 43 additional constituencies where Labour won, facilitating the way for a Conservative majority. Markets prefer an outright Tory majority that will ratify the Brexit deal and enact market-friendly policies.
The final lists for the elections have been published, and they have shown that Farage's right-wing outfit has abandoned seats where the opposition party won in 2017, or at least where the Conservative Party came second. Prime Minister Boris Johnson's odds of winning seem to have increased.
GBP/USD has jumped above 1.29, the highest since early November. On its way up, sterling has broken above the downtrend resistance line that has accompanied it since late October. The next targets are 1.2950, 1.2980, and 1.3013. Support awaits at 1.29, 1.2820, and 1.2760. Momentum on the four-hour chart remains to the upside and the pound has previously broken above the 50, 100, and 200 Simple Moving Averages.
- EUR/USD is picking up steam in the second half of the week.
- The correction can extend to the 1.1055/75 resistance zone.
EUR/USD daily chart
EUR/USD four-hour chart
EUR/USD 30-minute chart
Additional key levels
- Renewed US-China trade optimism helped regain some traction.
- The uptick lacked bullish conviction and warrants some caution.
The USD/CHF pair stalled its recent pullback from levels beyond 200-day SMA and regained some traction on the last trading day of the week. Renewed trade optimism weighed on the Swiss franc's safe-haven status and led to a modest recovery, though bulls struggled to extend the momentum beyond the 0.9900 handle.
On the daily chart, the pair has been oscillating between two converging trend-lines over the past two months or so and now seemed to have formed a symmetrical triangle. Meanwhile, oscillators on 4-hourly/daily charts have been recovering but struggled for a firm direction, warranting some caution for aggressive traders.
Given the pair's repeated failures to find acceptance above a technically significant moving average, the near-term bias might favour bearish traders. However, the fact that the pair has been forming higher lows makes it prudent to wait for a sustained break through the triangle support, currently near the 0.9860-55 region.
The mentioned support also nears 50% Fibonacci retracement level of the 0.9659-1.0027 positive move and should act as a key pivotal point for short-term traders. Below the said support, the pair might turn vulnerable to break below the 0.9800 handle and aim towards testing its next major support near the 0.9720 region.
On the flip side, immediate resistance is pegged near the 0.9925-30 region (23.6% Fibo. level) and is closely followed by mid-0.9900s (200-DMA), which if cleared should assist the pair to make a fresh attempt to reclaiming the parity mark and head towards challenging the 1.0025-30 supply zone in the near term.
USD/CHF daily chart
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