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15 October 2020

Dollar finds its feet amid stalled stimulus talks, ahead of US data, EU Summit

US fiscal stimulus talks are going nowhere fast. Less than three weeks ahead of the elections, Treasury Secretary Steven Mnuchin seems frustrated by the lack of progress. He was one of the proponents of negotiating a large relief package, contrary to Senate Republicans, which are focused on the Supreme Court. Democrats are in pole position in opinion polls ahead of the November 3 vote and seem reluctant to give President Donald Trump a political victory

Elections: Both the incumbent and challenger Joe Biden will hold separate televised town-halls late in the day. Models show a near 90% of a Biden win, while the Senate is a toss-up. Markets currently prefer a clean Democratic sweep that would facilitate vast fiscal spending.

US jobless claims are set to resume their falls and head toward 800,000. The Philly Fed Manufacturing Index is set to remain in positive territory.

Brexit: GBP/USD advanced above 1.30 after the UK refrained from abandoning talks. However, EU leaders are set to hear that no progress was made in recent talks about future relations between Brussels and London.

Eurozone coronavirus cases are on the rise, prompting additional restrictions across the old continent. Most notably, France imposed a nighttime curfew in Paris and other cities. German officials warned that new measures are coming following a surge in infections.

Christine Lagarde, President of the European Central Bank, will speak later in the day. The increase in COVID-19 cases could trigger dovish comments and readiness to do more.

AUD/USD has dropped significantly after Phillip Lowe, Governor of the Reserve Bank of Australia, said he could cut rates to 0.1% and leave rates at lower levels for longer. The RBA’s dovish stance outweighed a better-than-expected jobs report from Australia, where the Unemployment Rate remained below 7%.

Gold has been struggling around $1,900 following the lack of progress in stimulus talks while WTI oil is stable at around $41.

EUR/JPY tests the five-month support line at 123.39 – Commerzbank

EUR/JPY sells off to its five month uptrend at 123.39 which is expected to hold initially. A break below here, would open the path to the September low of 122.38 and potentially to the 200-day ma at 121.08, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, briefs.

Key quotes

“EUR/JPY is under pressure following the recent failure at the 200-week ma at 125.21. The market has sold off back to the up trend at 123.39, which we would allow to hold the initial test. Failure here will target 122.38, the September low and there is scope for the 200-day ma at 121.08.”

USD/JPY: Extra losses seen below 104.70 – UOB

USD/JPY risks a deeper pullback if the 104.70 support is cleared in the near-term, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectation for USD to consolidate was wrong as it dropped to a low of 105.02 before closing on a soft note at 105.15 (-0.30%). While quickly reaching oversold territory, there is room for the weakness in USD to probe the month-to-date low near 104.90 first before a rebound can be expected. For today, a sustained decline below this level is unlikely (next support is at 104.70). Resistance is at 105.35 but only a break of 105.50 would indicate the current downward pressure has eased.”

Next 1-3 weeks: “Yesterday, we indicated that the outlook for USD is mixed and held the view that it ‘could trade between 105.00 and 106.00 for a period of time’. The rapid manner by which it approaches the bottom of the range was not exactly expected (overnight low of 105.02) and downward momentum has improved a tad. While the bias is tilted to the downside, USD has to close below 104.70 before a sustained decline can be expected. For now, the prospect for such a move is not high but it would increase quickly as long as USD does not move above 105.70 within these few days.”

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