A mixed start to the week for major markets as focus remains on US politics [Video]

Market Overview

Major markets look somewhat cautious in early moves today as several key issues remain on a knife-edge. US politics remains front and centre. Whilst the market appears to be positioning for a Biden victory in the US Presidential election, there is a lack of clarity still on whether a fiscal stimulus agreement can be struck prior to the election. In some ways, the market is taking it as a win/win, with the Democrats driving a hard bargain (wanting more funding), but equally in the knowledge that the opinion polls have Joe Biden around 10%/12% ahead. Whether fiscal support is agreed now or after a Biden victory (still an assumption at this stage) then it will be risk positive. Markets are also tentatively pricing for moves towards a potential Brexit trade deal agreement. However, there is a balance to this mood today, as the Peoples Bank of China (the PBoC) made it cheaper to short the Yuan and this has just weighed across risk assets today. It is all leaving a slightly cautious look for forex with the dollar clawing back some of Friday’s losses. This is weighing on gold, whilst the Aussie is also slipping back slightly. Despite this though, equities still seem to be sustaining the positive bias. Today is Columbus Day in the US and cash Treasury markets are closed which could leave markets slightly lacking direction.

Wall Street closed decisively higher on Friday (S&P 500 +0.9% at 3477) whilst futures are showing mild early gains today (E-mini S&Ps +0.2%). This has left a mixed to slightly positive Asian session, with Nikkei -0.3% but Shanghai Composite +2.4%. European markets are also mildly positive in early moves, with FTSE futures +0.1% and DAX Futures +0.5%. In forex, there is an edge of USD outperformance along with JPY. AUD is the main underperformer. In commodities, gold is a shade lower (-0.2%) with the dollar strength, but risk appetite is still helping silver to move higher (+0.6%). Oil is around -1% lower in early moves.

There are no key data releases on the economic calendar today. It is also Columbus Day public holiday in the US, so be aware that there may be thin markets and this can sometimes make for elevated volatility.

Chart of the Day – EUR/JPY

There has been a very mixed and rather uncertain feel to risk appetite in the past week. This is reflected in Euro/Yen once more gravitating around 124.40 again (a feature of trading throughout August and September). However, the bulls have been trying to grasp control in the past week, but can they now push on. A degree of traction that they had been seeing into the close on Friday is just waning slightly today. However, if they can continue to buy into intraday weakness, and use the mid-range pivot of the past ten weeks at 124.40 as a basis of support, then they can push on. There is a supportive little uptrend (today around 124.60), meaning 124.40/124.60 is a mini buy zone today. Initial resistance is at 125.10 from Friday’s high. Momentum indicators have been improving but for a bull run to be sustainable, RSI needs to pull into the 60s. Then the bulls can begin to eye the resistance towards the top of the range, around 126.45/127.05. Initial higher low support is at 123.85.

Brent Crude Oil

As Brent Crude fell over slightly on Friday the market re-affirmed the $5 one month trading range between $38.80/$43.80. An early slip lower now looks to be unwinding the market back towards the mid-range pivot at $41.30 again. Momentum is swinging lower to reflect the range, whilst the near to medium term moving averages are in a cluster and flattening off. This all points to a neutral outlook now until a close either above $43.80 or below $38.80.

Dow Jones Industrial Average

The bulls are gradually regaining their control of the market once more as the Dow has now traded clear back above the mid-September lower high of 28,365. A new uptrend formation of the past two weeks has developed after a run of higher lows, and underpins the move higher at around 28,275 today. Momentum indicators are also increasingly positive, with the RSI rising into the 60s (confirming the five week high) whilst MACD and Stochastics also rise into positive territory. We look to use near term weakness as a chance to buy. A breakout support band is 28,040/28,365. The next real resistance is the September high of 29,200 before the all time high of 29,568. A move below 28,730 would abort the bullish near term outlook now.

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