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02 October 2020

Trump contracts COVID-19, risk-off mood ahead of Non-Farm Payrolls

President Donald Trump has tested positive for coronavirus, triggering a high dose of uncertainty and a risk-off mood weighing on stocks while boosting the safe-haven dollar and yen. Non-Farm Payrolls are set to show a slower restoration of jobs and will have a hard time competing with the bombshell news about the president.

The president and his wife Melania tested positive for COVID-19 after adviser Hope Hicks also got the same result. The septuagenarian leader is doing well and will continue conducting his business from isolation in the White House.

High uncertainty about the fate of the next fiscal stimulus package and the elections is weighing heavily on markets, sending S&P 500 futures more than 1.5% down at the time of writing. Oil prices are taking a substantial hit.

Republicans and Democrats ended Thursday without an agreement on a deal on fresh relief despite reported progress. Markets reacted sharply to headlines about talks on Capitol Hill last week.

The safe-haven dollar and yen are on the rise while gold seems to be breaking its correlation with stocks and rising.

The shocking news steals the focus from September’s Non-Farm Payrolls figures, the last such publication ahead of the elections. The US is projected to report an increase of 850,000 jobs and a drop in the unemployment rate to 8.2%. That would be a slower pace of restoration, yet still a substantial increase in absolute terms.

Brexit talks yielded no breakthrough over state aid and other topics, failing to fulfill optimism seen earlier in the week. Moreover, the EU took legal action against the UK in response to the Internal Markets Bill which knowingly violates the Brexit Withdrawal Agreement. The pound is on the back foot due to recent adverse developments and concerns about further COVID-19 restrictions in Britain.

USD/CHF: Upside corrective near-term toward seven-month downtrend at 0.9429 – Commerzbank

USD/CHF is holding over the 55-day ma at 0.9147 and was last seen trading at 0.9187 after rising above 0.92 early on Friday. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, maintains an upside bias and expects the pair to reach the seven-month downtrend at 0.9429.

“USD/CHF has sold off to the 55-day ma at 0.9147. Directly below here lies the short-term uptrend at 0.9120 and while above here we will maintain an upside bias.

“We are allowing for a rally to the 38.2% retracement of the move down from the March peak at 0.9342 and possibly the seven-month downtrend at 0.9429, but we would expect the market to fail here.”

“Only a slide below 0.9048 (10th September low) will trigger a slide back to the 0.8998 recent low.”

AUD/USD further upside is on the table – UOB

In opinion of FX Strategists at UOB Group, the short-term stance in AUD/USD remains positive.

24-hour view: “Yesterday, we held the view that AUD ‘could grind higher towards 0.7195 and that the next resistance at 0.7230 is likely out of reach’. AUD subsequently rose to a high of 0.7209 before pulling back. Upward pressure is beginning to ease and AUD is unlikely to strengthen further. That said, it is premature to expect a significant pull-back. All in, AUD could drift lower but any weakness is viewed as part of 0.7140/0.7205 range.”

Next 1-3 weeks: “There is not much to add to our latest update from Wednesday (30 Sep, spot at 0.7140). As highlighted, while the overall movement in AUD is viewed as part of a consolidation phase, the short-term bias is titled to the upside. However, any advance is viewed as part of a broader range of 0.7030/0.7230. In other words, a sustained rise above 0.7230 is unlikely.”

Crude Oil Futures: Extra downside stays on the cards

CME Group’s flash data for crude oil futures markets noted open interest extended the uptrend for yet another session on Thursday, this time by around 16.6 contracts. Volume followed suit and rose for the third session in a row, now by around 158.8K contracts.

WTI risks a move to $36.00

Prices of the barrel of WTI dropped below the ley $40.00 mark on Thursday amidst rising open interest and volume. Against this, crude oil risks slipping back to the area of September lows near the $36.00 mark per barrel.

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