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07 October 2020

Trump’s stimulus tweets cause market havoc, FOMC Minutes, Lagarde eyed

Markets are trying to stabilize after Trump tweeted support for several measures, contradicting his previous announcement about ending talks with Democrats. US politics, the Fed’s meeting minutes, and a speech by Lagarde stand out.

President Donald Trump tweeted his support for aiding airlines, payroll protection, and sending stimulus checks to all Americans, providing support to markets. His latest comments come after he announced the end of talks on a new relief package with Democrats, triggering a tumble in stocks and gold, while boosting the safe-haven dollar.

FOMC Minutes: The Fed’s meeting minutes from its September decision are due out later on Wednesday and may shed light on how policymakers see the economy and how ready they are to enlarge the bond-buying scheme.

Trump continues recovering from COVID-19 and his doctor said that the president is reporting no symptoms. In the meantime, White House adviser Stephen Miller joined a long list of staff testing positive to coronavirus.

VP Debate: Vice President Mike Pence, who tested negative, will debate VP candidate and Senator Kamala Harris late on Wednesday. The encounter between the two has higher significance amid the old age of both Trump and rival Joe Biden.

Recent opinion polls are showing a growing chance of a landslide victory for former VP Biden, and his successor at the job may have a chance to narrow the gap.

Brexit: The latest reports from the EU-UK talks suggest some progress has been made, yet fisheries remain a sensitive topic. GBP/USD is on the back foot amid dollar strength as Prime Minister Boris Johnson is considering additional restrictions to curb the disease.

AUD/USD: Dovish RBA and stingy Australian government weigh on the aussie – OCBC

The AUD/USD pair traded lower on Tuesday as risk fizzle out after the Trump headline. Also, the lower than expected fiscal package from the Australian government and a dovish Reserve Bank of Australia (although not more dovish than expected) further added pressure to the aussie. Terence Wu, FX Strategist at OCBC Bank, has not changed his defensive posture for now, staying positive on the USD against the AUD. Nevertheless, stay nimble on shifting political winds.

“Notably, aside from a commitment to address unemployment, there was not much was said about a rate cut ahead. The RBA probably does not want to pre-commit to any movement, doing just enough for the market to sense a tilt towards the dovish side. Aside, the new Australian fiscal budget was also slightly smaller than expected.”

“Assuming that Trump doesn’t flip-flop on his stance on the fiscal stimulus package, we think remnant hopes of reviving the risk-on, reflation trade may be put to rest for now. Our defensive stance is likely still warranted going ahead. Watch also for any shifts in the polling numbers, especially with Trump back in business and after his latest gambit. Any signs that the ‘Blue Wave’ is getting pushed back should be near-term supportive for the USD.”

“Looking forward, expect the AUD to trade heavy as markets drift further into risk-off. Support is now at 0.7100 with 0.7000 next in line if breached.”

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Forms Bearish Closing Price Reversal Top

Short-Term Outlook

In an early look at Wednesday, based on the closing price reversal top chart pattern, a trade through Tuesday’s low will confirm the potentially bearish chart pattern. At a minimum, this should lead to a test of 27320. Watch for a bounce.

If this level fails then look for the selling to possibly extend into the first minor bottom at 27109, followed by 27104 and another minor bottom at 27039. This is a potential trigger point for an acceleration to the downside with 26714 the next major target.

Given the reversal top chart pattern, buyers could retest 27729 to 28040, but they are going to have a hard time overcoming this area.

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