Market Overview

Risk appetite has had a double shot in the arm, resulting in a significant swing on markets. Donald Trump is talking up the prospects of a deal with China as the trade negotiations appear to be progressing well. The extent of an agreement is yet to be revealed (and given previous form, all could yet still be scuppered before the Chinese delegation leaves Washington tonight). However, traders are suddenly hopeful that the outcome could be something that cancels the planned tariff hikes of next week, whilst laying the pathway for further subsequent agreement. Market reaction has been to sell safety. Government bond yields have spiked higher, the yen is a primary underperformer in the forex majors (along with dollar weakness too) and gold is also lower. The euro and the commodity majors have gained, with equities and oil also higher. In the spirit of deal potential, yesterday also had a rare positive in the Brexit uncertainty. Crunch talks between Irish Taoiseach (Prime Minister) Varadkar and UK Prime Minister Johnson left both leaders talking up the prospects of a Brexit deal before the 31st October deadline. The subsequent reaction has been for sterling to drive for its biggest daily gain versus the dollar since March. The question is now whether the prospects of both these deals/agreements can be followed to fruition. If so then this will be a game changer across many markets. We will know by this evening about the US/China potential, for Brexit though, the path is far more rocky and the potential for disappointment remains high.

Wall Street closed solidly higher again last night with the S&P 500 +0.6% at 2938, whilst US futures are another +0.3% higher today. Asian markets have taken the ball and run with it, as the Nikkei is +1.1% and Shanghai Composite +1.1%. The mood in Europe is more mixed. Continued sterling gains are a drag on FTSE on the negative correlation, with FTSE futures -0.5%, whilst DAX futures are a solid +0.4% higher. On forex majors, there is still a risk positive bias, with EUR gains and JPY underperformance, along with continued recovery on GBP. In commodities, there is an interesting reaction on gold this morning, where the market is holding on and building support c. $4 higher. Oil has continued to run higher (c. +2%) amidst recovery in the demand outlook from the constructive US/China talks.

Arguably the most important data point for the week on the economic calendar today. With household spending accounting for 70% of the US economy, consumer surveys are extremely telling. The prelim reading of Michigan Sentiment for October is at 1500BST and there is a forecast decline to 92.0 (from 93.2 at the final September reading). However, also watch for the Current Conditions component which is expected to slip mildly to 107.5 (from 108.5 in September) and the Expectations component which is expected to drop to 81.7 (from 83.4).

 

Chart of the Day – EUR/JPY

The outlook for risk appetite is making a move for sustainable improvement. A second strong bull candle from EUR/JPY has set up the market to break through resistance of a downtrend that has been in place since April. Another positive open today shows that the bulls remain on the front foot. Yesterday’s breakout above a pivot (for the past couple of months) at 118.50 pulls the market to a two week high and set up for continued recovery now. This comes with some sharp improvements in momentum indicators as bull cross buy signals on both Stochastics and MACD lines have been seen, whilst RSI is now rising strongly above 50. The breakout above 118.50 effectively opens the key resistance at 120.00. This pivot line also now becomes a near term basis of support with the hourly chart showing a near term “buy zone” for the recovery between 118.15/118.50.

EURJPY

 

 

WTI Oil

There has been a notable choppy consolidation on oil for the past week. This has created a number of candles with long shadows (failed intraday moves) and lacking conviction. However, yesterday’s bounce really looked to put some direction into the market. A bounce from just above the key support band $50.50/$51.00 has helped to bolster this as a medium term floor. However, with a decisive close higher, the bulls are making a move. This has continued this morning on an intraday move above the resistance $53.90/$54.00 and if this can be closed above, the bulls would really be advancing. It would effectively complete a small $3.00 base pattern and imply recovery potential towards $57.00. Momentum seems to be turning the corner too, with Stochastics advancing, along with RSI and MACD lines also bottoming. The hourly chart shows $53.70/$54.00 is a near term buy zone. The importance of a positive resolution to the US/China trade talks cannot be underestimated with the progression of the recovery outlook.

WTI

 

Dow Jones Industrial Average

Signs of light in the US/China trade talks and the Dow has jumped again. Any (mini) trade deal that results in no further tariff escalation will send the Dow higher. On a technical basis, the resistance at 26,655/26,695 is the barrier to gains and if this can be breached then the bulls will be back in the driving seat. There is still an element of caution with the momentum indicators (RSI still under 50, MACD lines flat around neutral), but a near term break through resistance would be confirmed if these conditions ticked higher. The subsequent resistance test would be 27,045/27,080. The hourly chart shows there is still a degree of caution, with near term ranging outlook (between 35/65 on hourly RSI) still present. Initial support at 26,315 protects the 26,140 higher low.

Dow

 

Other assets insights

EUR/USD Analysis: read now
GBP/USD  Analysis:  read now
USD/JPY  Analysis:  read now
GOLD Analysis: read now

Risk Warning for Financial Promotions

Hantec Markets' various market reports and commentary are issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, No. 502635. The reports are prepared and distributed for information purposes only.

Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice.

The reports do not constitute personal investment advice, nor do they take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such. All of the views or suggestions within the reports are those solely and exclusively of the authors, and accurately reflect their personal views about any and all of the subject instruments and are presented to the best of the authors' knowledge. Any person relying on these reports to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.

© 2014 Hantec Markets Limited

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD clings to 3.5-week’s high, trades above 1.1000 figure

The pair is challenging the 1.1047 resistance. EUR/USD bull recovery from 34-month lows remains intact. Further coronavirus headlines are awaited.

EUR/USD News

GBP/USD hits new 2020 low and bounces amid Brexit rhetoric, coronavirus headlines

GBP/USD is trading above 1.2800 after hitting a new 2020, nearing the 1.2700 figure, as concerns about a no-trade-deal Brexit are weighing on the pound. Modest recovery seen in USD during the American session keeps the bearish pressure intact.

GBP/USD News

XAU/USD tumbles near two-week’s lows, sub-$1600/oz

Gold has been dropping sharply this Friday while reaching the 200 SMA on the four-hour chart. XAU/USD bulls gave up as sellers took the market down sharply. The bears seem to be in charge and more down could potentially be expected. 

Gold News

WTI remains under pressure around $45.00

Nothing new around crude oil prices, with rising concerns on the Chinese COVID-19 and its potential impact on the economy and the demand for the commodity keeping traders’ sentiment well depressed.

Oil News

FXStreet launches Real-Time Trading Signals

FXStreet Signals offers access to explanatory live webinars, real-time notifications when signals are triggered and exclusive membership to the company’s Telegram group, where users get direct guidance by our analysts and get room to discuss and interact.

More info

Forex Majors

Cryptocurrencies

Signatures