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01 October 2020

High hopes for US fiscal stimulus boost sentiment, NFP hints eyed

US Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have both reported progress in agreeing on a new fiscal stimulus bill after several measures expired in late July and seem to be weighing on the economy. Layoff announcements by Disney and airlines may have been pushing lawmakers to action.

EUR/USD is trading closer to 1.1750, GBP/USD settles above 1.29, and commodity currencies are on the rise as well. Gold is nearing $1,900 and WTI Oil recaptured the $40 level.

The first day of the month features a long list of manufacturing purchasing manufacturing indexes. The ISM Manufacturing PMI is set to hold onto the high ground but may see a drop in the employment component. It serves as another hint toward Friday’s Non-Farm Payrolls. ADP’s labor report showed an increase of 749,000 private-sector positions, better than expected.

Dollar loses ground on hopes for compromise on U.S. stimulus

The dollar was on the defensive at a one-week low on Thursday, as robust U.S. data and fresh hopes for U.S. fiscal stimulus had investors confident enough about economic recovery prospects to seek out riskier currencies.

Republican President Donald Trump’s administration has proposed a coronavirus stimulus package to House Democrats worth more than $1.5 trillion, and hopes are rising that both parties will reach a compromise.

Along with strong U.S. labor and manufacturing data, that helped stocks to rally, and the mood pulled the dollar to a one-week low of 93.664 against a basket of currencies.

Early in the Asia session, the New Zealand dollar extended gains to a one-week peak of $0.6635. The Aussie rose to $0.7183, also the strongest in a week.

At the same time, jobs figures that showed U.S. private employers stepped up hiring more than forecast last month and that Midwest manufacturing grew faster than expected also fed in to the positive sentiment.

The yen ended its best quarter since mid-2019 on Wednesday with a 2.4% gain over the three months to September 30 as some of the exuberance in risk assets faded, particularly in September.

Gains in the euro overnight were also muted after European Central Bank President Christine Lagarde hinted that a strategy overhaul, and a more accommodative approach to inflation, could be possible.

The euro edged up 0.22% on Wednesday and held at $1.17248 on Thursday. The pound edged up to $1.2941.

Final purchasing managers index figures are due in Europe and Britain later on Thursday, followed by the ISM manufacturing survey in the United States and jobless claims data – all providing an update on the progress of the global coronavirus recovery.

Speeches from Bank of England Chief Economist Andy Haldane, at 1020 GMT, and ECB Chief Economist Philip Lane, at 1545 GMT, will also be closely watched for hints as to the next monetary moves.

GBP/USD teases eight day top above 1.2900 ahead of UK Manufacturing PMI

GBP/USD juggles with the recovery moves from 1.2913 between 1.2930 and 1.2940 while heading into the London open on Thursday. In doing so, the Pound prints a four-day winning streak despite marking the biggest monthly losses in over a year during September. Coronavirus (COVID-19) resurgence pushes the UK towards defying the claims of “no national lockdowns”. Though, readiness to compromise on Brexit seems to have pushed the trade negotiation talks, which in turn keeps pair traders optimistic. Moving on, activity numbers from the UK and the US will be the key to watch while comments from the BOE’s Chief Economic Andy Haldane shouldn’t be missed as well.

Technical analysis

GBP/USD rises for the fourth consecutive day by crossing the 50-day EMA amid bullish MACD. Considering the momentum strength, the quote is expected to attack the descending trend line from September 10, at 1.2957 now. Though, any further upside by GBP/USD beyond 1.2957 will be probed by the 1.3000 psychological magnet. Meanwhile, GBP/USD weakness below the 50-day EMA level of 1.2920 can aim for a 50% Fibonacci retracement of June-September upside, at 1.2868.

Gold Futures: Pullbacks look shallow

Open interest in gold futures markets went down by around 5.8K contracts on Wednesday following two consecutive daily pullbacks according to preliminary figures from CME Group. Volume, instead prolonged the choppy activity and rose by around 39.8K contracts.

Gold still targets the $1,920 level and above

Wednesday’s negative performance in prices of the precious metal was accompanied by rising open interest, supporting the idea that occasional pullbacks appear shallow for the time being. That said, Gold prices continue to target the Fibo level at $1,920 in the near-term.

USD/JPY Forecast: Increasingly bearish near the critical 105.40 support

The USD/JPY pair has continued to trade within familiar levels, extending once again its weekly advance by a few pips. The pair reached a daily high of 105.80, from where it retreated to the current 105.50 price zone. The pair was unable to advance despite rallying Wall Street and higher Treasury yields, these last underpinned by better than expected US data. In fact, the substantial rally in equities played against the greenback across the board, capping USD/JPY.

Early in the day, Japan published August Retail Trade, which beat expectations, by falling by just 1.9% YoY. The preliminary estimate for Industrial Production indicated a modest monthly improvement, although the year-on-year reading resulted at -13.3%, worse than the -10% expected. The country also released August Housing Starts, which were down 9.1%, while Constructions Orders were up by 28.5%. The country will publish the Tankan Large Manufacturing Index for Q3, foreseen at -23 from -34 in the previous quarter.

USD/JPY short-term technical outlook

The USD/JPY pair continues to trade above the 61.8% retracement of its latest daily decline at 105.40, the immediate support level. The upside potential is limited, as the 4-hour chart shows that sellers have kept rejecting advances around the 200 SMA, which stands at 105.80. Technical indicators have turned south and are about to enter negative territory. The bearish case will probably pick up momentum on a break below the mentioned Fibonacci support level.

Support levels: 105.40 105.00 104.60

Resistance levels: 105.80 106.25 106.60

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