UK PM Johnson announces tighter restrictions on the hospitality sector, US stocks rebound

(Source: KVB PRIME)

The USstockmarketembraced its rebound yesterday – the Dow Jones closed up by 0.52% at 27288.18, theNASDAQrose 1.88%to11186.37 and the S&P 500 closed up by 1.05% at 3315.57. Socially distanced office companies and social media stocksperformed particularly well.

The same situation happened across the pond: the DAX closed up at 5829.46 (a 0.43% increase)and the FTSEsawa 0.43%increase, closing at 5829.46.

China’s market, however, reconsolidated down, even though it moved higherduring the morning.The Shanghai Stock index dropped 1.29%, the SZSE Component index decreased 0.96% and the GEM index went down 0.53%.

Crude oil forward contracts

WTI went lower during the Asian session but climbed back strongly during theEuropean market time. The price was initially above $40 but went down to $39.74 - 0.09% decrease - as of closing.

Brent oil performed marginally stronger, closing up by 0.24% at $41.76 per barrel.

Precious metal forward contracts

Gold rebounded to $1919 on Tuesday morning then dropped to $1895. During the European session, the gold price fluctuated upwards before declining during the North American trading hours,finally closing down at $1899.74 (a 0.66% decline).

Meanwhile, silver went down 1.37% intraday to close at $24.37 per ounce.

Currency pairs

·        USDXup to93.95(0.428%)

·        EUR/USDdown to1.1705(-0.531%)

·        GBP/USDdown to1.2733(-0.617%)

·        AUD/USD down to 0.71661 (-0.777%)

·        NZD/USDdown to0.66276 (-0.519%)

·        USD/CADup to1.33011 (0.055%)

·        USD/JPYup to104.925(0.248%)

Global Fundamentals

United States

US House Speaker Nancy Pelosi announced earlier on Tuesday that Democrats had reached a deal with Treasury Secretary Steven Mnuchin to avert a government shutdown and fund the government with a continuing resolution through to 11^thDecember.

The deal will add nearly $8bn to the continuing resolution for food and nutrition assistance programmes.Funding for farmers and the agriculture community is also included in the package - at the Republican Party’s request - with increased accountability measures.

Chicago Federal Reserve President Charles Evans noted he predicts 'recessionary dynamics' without fiscal aid and that his own forecast is for the US unemployment rate to fall to 5.5% by the end of next year.

However, this outlook assumes not just a vaccine for the coronavirus, but also a US fiscal package of at least $500bn or even $1trn in scope. If the Fed were to begin averaging this year - with inflation expected to be around 1.5%- and limit its tolerance for an inflation overshoot to a ‘timid’ quarter of a percentage point over target, it would take until 2026-2028 before the 2% average is achieved.

Additionally, sales of existing homes rose 2.4% to a seasonally adjusted annualised rate of six million units, according to the National Association of Realtors. Sales were 10.5% higher than in August 2019;this is the highest sales pace since December 2006, before the Global Financial Crisis (GFC) of 2008.

Australia

Royal Bank of Australia (RBA) Deputy Governor Guy Debelle announced that Australia will embrace lowered Australian dollar for the time being;the RBA seeks to contain inflation within a 2%-3% band, while its charter requires it to encourage full employment.

Unemployment is currently at 11.2%, the jobless rate is at 6.8%and inflation is currently negative.

UK

Last night, UK Prime Minister Boris Johnson unveiled new coronavirus restrictions that could last up to six months. Johnson said the new restrictions were aimed at stemming the spread of the coronavirus outbreaks, and include 10pm curfews for pubs and restaurants, as well as stricter measures on wearing face masks.

Bank of England (BoE) Governor Andrew Bailey has cooled expectations that the bank will deploy negative interest rates in the immediate future, despite the sharp rise in coronavirus infections weighing on Britain’s economic recovery.

European Council President Charles Michel also unexpectedly postponed this week's EU leaders' summit yesterday, revealing thata close encounter with coronavirus had forced him to self-quarantine.

Crude oil

The latest API report showed crude oil inventories increased by 0.69million barrels to 495million barrels, beatingexpectationsof a decline of 2.25 million barrels.

Conversely, last week, gasoline inventories had dropped by 7.73 million barrels, while the expectation wasonly 0.61million barrels.

Major asset intradayanalysis

EUR/USD and GBP/USD

Both the Euro and poundreturned to key resistance levels yesterday;the prices will likely keep dropping while ever both currencies are oversold.

Since the derivation is far too high, the priceswill require reconsolidation - EUR andGBPlook set totest resistances around 1.175 and 1.277, respectively.

In the medium term (until next week), the current trajectory suggests the EUR will test the 1.16 support, while GBP will test 1.277.

[EUR/USD, four-hour chart] (Source: KVB PRIME)

[GBP/USD, four-hour chart] (Source: KVB PRIME)

AUD/USD

For the past two weeks, we have expected that the Australian dollar would fall, and we retain this forecast for now.

Yesterday, Australia followed the Euro’s‘negative interest rate’ topic, which served to further push the price down.

For today, our resistance is at 0.718, and the price might fall further but with limited space of around 40 pips. 

[AUD/USD, four-hour chart] (Source: KVB PRIME)

Gold

Gold is now is below $1900 as we have noted several times: $1878 is the support below, and market needs to restore its energy for a further drop. The resistance is around $ 1910.

The low gold price might trigger new investors to buy,which adds a new element of risk for traders. Thecurrent price fluctuation is still within one stand derivation, so we define it as normal for now. 

[XAU/USD, four-hour chart] (Source: KVB PRIME)

USD Index

The USDX has been pushed up to $94. However, the price is overestimated currently, and therefore the price may test $93.6 as a key support below.

The USDX need to reconsolidate for a further drop and we hold an optimistic outlook forthe USDX in the medium term. For today, the upper resistance looks to be around $94.8. 

[USDX, four-hour chart] (Source: KVB PRIME)