Weekly Market Analysis — Sep 28: Say hello to a volatile week
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Highlights:
- Tuesday’s US presidential debate will provide volatility to the markets. Risk aversion vs. confidence
- Fears about a new wave of COVID-19 cases in Europe spurs market aversion and fuels dollar
- US dollar remains on recovery mode, pushing euro and gold down
- Gold consolidates near to 2-month lows, more declines expected
- Copper increased up to 40% in six months fuelled by manufacturing activity and increased Chinese demand.
- The European Union launches a package to work on cryptocurrency regulation for the whole union
- GDP in UK and US will add volatility to markets, but Friday’s US NFP will dictate the verdict
The Week Ahead:
It seems that Donald Trump’s race to be reelected as president of the United States is not a chimera as most people used to think a few months ago. With 20% unemployment and over 200K deaths due to the chaotic pandemic response, many people thought that the Donald Trump presidency was over.
However, in the last few days, Trump has raised his efforts to instrumentalize polemic situations, including the designation of a new SCOTUS to change the narrative of the elections.
Trump is a genius at taking control of chaos. He loves noise, and he knows how to manage the media. Now, everybody is talking about what Trump wants them to talk about and the Democratic party is looking like it could be behind the curve.
What does that mean for trading markets? Volatility, huge swings, and wild fluctuations in stocks, dollar, euro, gold, and cryptocurrencies.
The next six weeks until the elections will be wild for markets. Check every headline and follow polls. Keep in mind that for Wall Street, the best-case scenario is Biden in the presidency, and a US Congress dominated by the Republicans because Americans will decide between not only Trump and Biden, but also the next Congress composition.
Forex: A new dollar dominance
The dollar was the winner last week. DXY rose from 93.00 to its highs since July 24 at 94.80. Risk aversion and concerns about a second wave of COVID-19 in Europe fuelled movements. It made the market think that perhaps the US economy wasn’t too bad compared to Europe.
The EUR/USD fell to lows not seen since July 24. The trend is now clearly bearish. On the other hand, GBP/USD managed to control declines and it traded in a range between 1.2715 and 1.2800.
USD/JPY is extending its recovery and it’s now testing the 50-day moving average level around 105–80. The AUD/USD dropped to lows since July 20, but the 0.7000 level contained the pair.
All this can change in a second if the US Congress approves a new stimulus package, or depending on US employment reports this week.
Stocks: markets continue under pressure
Wall Street closed its fourth straight week with losses as investors are concerned about COVID-19 cases and a potential second wave in October. Investors are also rebalancing portfolios following the big March-August rally.
The S&P lost 0.63% to close at 3,298. The Dow Jones Industrial Average finished the week at 27,239.29, which is 1.75% down in the period. On the positive side, tech recovered some ground with the Nasdaq closing at 10,939.55, 1.11% up in the week.
Watch out for big techs such as Amazon, Microsoft, Apple, Facebook and Alphabet as they are on track for its worst month ever and it can produce some profit taking and short covering ahead of the end of the month.
Watch out for big techs such as Amazon, Microsoft, Apple, Facebook, and Alphabet as they are on track for their worst month ever which may produce some profit-taking ahead of the end of the month.
Commodities: Gold under pressure, all about dollar
Gold closed its worst week since March as investors were rethinking its bullish metal positions amid the dollar strength. Investors are expecting further declines as the XAU/USD doesn’t have solid levels below current 1.850.
Silver fell to 21.66, lowest since July 22, but it managed to recover the 23.00 area.
Copper prices have also been climbing up to 40% over the past 6 months, off the back of rebounding global manufacturing activity and increased Chinese demand.
In addition, the ongoing electrification of motor vehicles is also helping to drive demand for Copper, which could help to drive Copper prices higher. Recent comments by Tesla CEO Elon Musk, have also provided a boost to the given that Tesla’s most affordable electric vehicle, the Model 3, uses 60kg of Copper.
However, there is an expectation that Copper may be kept in check due to the potential of a second wave of Covid-19 in Europe.
Cryptocurrencies: is a wave of regulation coming?
The crypto market seems to be about to get a wave of regulations from governments. In Europe, the European Commission published a new package announcing they will work on rules for the whole crypto markets and its implications in the European Union.
The document says, “The future of finance is digital,” and they want to mitigate “any potential risks.”
In Brazil, Nasdaq reached an agreement with Hashdex, a fund manager, to launch the first crypto asset exchange-traded fund in the Bermuda Stock Exchange.
On the other hand, KuCoin Crypto Exchange was hacked and over $150 million was stolen on Friday. It was all focused on their Hot wallets as hackers somehow obtained private keys. KuCoin’s cold wallets were unaffected.
Meanwhile, Bitcoin declined to 10,150 support against USD, but the pair recovered its mojo and it is now testing the 10,735 area. Ethereum is again on the offensive as ETH/USD recovered from $320 and it is currently testing the critical $365 resistance.
On the Ethereum field, developers have announced that Ethereum 2.0 will be ready to be started as soon as October 15 which will have a very positive impact on ETH gas fees which are being fuelled by the DeFi craze. Keep an eye on ETH activity as we near Ethereum 2.0.
Summary: Volatility reloaded
What’s Next?
Investors are facing a new week full of volatility. Check the US Presidential debate, COVID-19 news in Europe, and economic data such as the US employment report for trading opportunities.
Monday: Japan will offer the only significant data on a quiet start of the week. It is the Coincident Index and the Leading Economic indexes that would affect the Yen fluctuation.
Tuesday: Consumer confidence report in the Eurozone and inflation in Germany will push pressure to the Euro in the case of not-that-good data. In the United States, dollar traders will watch Consumer Confidence and speeches of officials of the Federal Reserve.
Watch the first US presidential debate in the American evening as a way to understand how traders will trade on Wednesday. Between risk aversion and full confidence.
Wednesday: Early in the day, China will release its manufacturing and non-manufacturing PMI data for September. It will certainly influence the risk appetite on Wednesday, especially after the recent increase in COVID-19 cases.
Later, pay close attention to Gross Domestic Product (GDP) in the United Kingdom, Retail sales in Germany, and the ADP employment for September and GDP release in the US. It will set the tone for the dollar in the second half of the week.
Thursday: Markit will release its regular monthly manufacturing PMI reports for the most significant economies around the world. In the US, check the jobless claims report, personal income and spending for dollar movements and risk aversion that could affect gold and stocks.
Friday: The last day of the week will be dominated by the US employment report and its nonfarm payroll numbers. It will set the markets’ mood for the next week.
