Weekly Market Analysis — Oct 11: Will stimulus be approved?
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- Dollar on the defensive amid stimulus talks and FOMC suggestions of low rates until 2023
- EUR/USD closes above the 1.1800 level, fueling bullish hopes
- GBP/USD above 1.3000, but the market doesn’t trust it too much as Brexit deadline approaches
- Stocks on the positive note as Wall Street sees more probabilities of a Biden victory
- Gold closed above 1.920. It now seems ready to start the anticipated upside long-run
- Bitcoin looks set to extends rally after breaking above 11,200
The Week Ahead:
It was all about Donald Trump’s health and stimulus talks last week. The volatility associated with these two events pushed the dollar down, and its major competitors, including euro, pound and gold broke critical resistances.
Is it time for further weakness in the dollar index? Only time will say, but as for now, markets are favoring riskier assets and safe investments.
On Wednesday, the Federal Reserve minutes suggested that the United States’ interest rates won’t be raised at least until 2023. Too much time to sustain the dollar at current levels.
Besides, Wall Street sees Joe Biden as the winner of the upcoming elections in the United States. Analysts expect the Senate to change color by a 70 percent of probabilities, too. It would be a Democratic president with a Democratic Senate, a combination that is no longer feared in Wall Street.
Given that Republican candidate and incumbent President Donald Trump stands for a little monetary stimulus to the US economy, but Democratic Joe Biden supports a bailout to help and boost economic growth. The market watches a Biden victory as a more favorable option that would bring a bigger stimulus sooner or later.
So, the cocktail for a weak dollar is served. However, don’t forget Trump’s reluctance to accept defeat, and the US would experience a contested election, which would be a risk aversion catalyst.
Forex: Dollar confirms downside; EUR and GBP above key levels
Dollar closed its second negative week in a row. But the most significant event was the breaking and closing below the 93.30 area, where October 6 low and the 50-day moving average lie.
With the DXY now testing the 93.00 support, euro and pound are gaining ground. The EUR/USD closed the week above the 1.800 significant level and technical studies now suggest further gains. The 1.1900 is waiting for the EUR/USD.
GBP/USD consolidated levels above 1.3000; however, the market doesn’t believe too much in the upside as the Brexit talks between the UK and EU deadline is October 15. Watch for a volatile Cable next week.
Stocks: Wall Street would welcome a Biden victory
Recent surveys suggest that Joe Biden will be the next US President by a 75 percent of probabilities. Also, the odds say that the Senate would change colors to Democratic. As markets perceive the blue party as a pro-bigger stimulus package, Wall Street performed substantial gains in the week.
The Nasdaq Composite closed the week sharply higher with gains of 4.56 percent to close at 11,579.94. The DJIA finished the week at 28,586.90 after gaining 3.27 percent in the period. Finally, the S&P 500 ended the five days at 3,477.13, which is 3.84 percent positive.
Commodities: Gold and Silver on a solid note
Last week gold and silver set the case for more bullish movements in the coming weeks, especially after the Federal Reserve suggested that the US’s interest rates would remain low for the next two years. It is bearish for the dollar, which is bullish for gold and silver.
Gold closed above the critical 1.920 level on Friday, charts now look bullish, and markets expect further gains, especially if the stimulus is approved. Silver, in the same line, accelerated on Friday and closed with significant gains above 25.00. Experts believe that 26.00 is a matter of time.
Cryptocurrencies: Bitcoin ready to take advantage of stimulus
Yes, it looks like the US stimulus is everywhere, and it is. Bitcoin rallied in the past when Congress approved the previous stimulus package, and experts expect the same this time. Bitcoin topped 11,000 for the first time in nearly three weeks.
Crypto markets changed their mood on Thursday as investors welcomed Fed’s minutes on low-interest rates and resume of stimulus talks. The second wave of COVID-19 cases in Europe and Asia would fuel remote banking and blockchain technologies across the globe.
Crypto accumulation is becoming trendy as payments company Square put 1 percent of total asses in Bitcoin as reserve. Square acquired 4,709 BTC on Thursday.
In summary: Show me the money!
It seems that the market is shouting to Congress “show me the money!” as investors use any pro stimulus news and talk as a bullish event. However, don’t forget that new economic data will test economic recovery this week.
- Monday: Producer price index in Japan, and Foreign Direct Investment in China,
- Tuesday: REINZ house price index, electronic card retail sales in New Zealand, trade balance in China, ILO unemployment in the UK, and inflation in Germany and the United States.
- Wednesday: Industrial production in the eurozone and product price index in the United States.
- Thursday: Unemployment rate in Australia, inflation in China, Philly Fed manufacturing index and jobless claims in the US.
- Friday: Business PMI in New Zealand, consumer price index in the eurozone, and retail sales and Michigan consumer sentiment in the United States.
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