Brexit negotiation deadline passes without trade deal, global equity markets down

Global equity market:

(Source: https://markets.businessinside...)

The US equity market declined further yesterday due to the unexpected unemployment data. The Dow Jones slipped 0.07% to 28494.2, the NASDAQdropped 0.72% to 11898.57 and the S&P 500 decreased 0.15% to 2483.34.

The European market also fared worse, likely as a result of uncertainty surrounding the Brexitnegotiation deadline. Both the DAX and STSE went down (by 2.49% and 1.73% respectively)to close at 12703.75 and 5832.52.

China’s stock market performed better but still saw a decrease; the Shanghai Stock index dropped 0.26%, the SZSE Component index decreased 0.48% and the GEM index went down by 0.95%.

Precious metal forward contracts

Gold dropped on Thursday during the Asian and North American sessions, edging below 1890 for a time. However,after the US unemployment figures were announced, the price climbed back and closed upby 0.36% at $1908.4 per ounce.

Sliver behaved similarly in that the price dropped 3% at one point butrebounded during the US trading hours. It ultimatelyclosed up by 0.16% at $24.29 per ounce.

Crude oil forward contracts

WTI went down 4% during the Asia and European trading hours. Despite this, the price recovered after the Energy Information Administration (EIA) report and eventually closed downby 0.43% at $40.91 per barrel.

Brent oil also dropped 1%, closing at $42.98 per barrel.

Currency pairs

·            USDXup to 93.4 (0.128%)

·            EUR/USDdown to 1.17078 (-0.343%)

·            GBP/USDdown to 1.29008 (-0.852%)

·            AUD/USDdown to 0.7093 (-1.024%)

·            NZD/USDdown to 0.65982 (-0.915%)

·            USD/CADup to1.32156 (0.538%)

·            USD/JPYup to 105.41 (0.287%)

Global Fundamentals

United States

President Donald Trump warned that the US would‘strike much harder’ if the European Union (EU) goes ahead with imposing tariffs on $4bn worth of American products.

“If they strike back, then we’ll strike much harder,” the President told reporters Thursday,“they don’t want to do anything, I can tell you that.”¹

Last week’s initial jobless claims figures came in at 0.898 million, which wasthe highest on record since 22nd August. ²

Additionally, Dallas Federal Reserve President Robert Kaplan revealed that he expects the US economy to contract by 2.5% this year and grow around 3.5% throughout 2021.

The unemployment rate is expected to bebetween 7% and 7.5% at the end of the year. However, Kaplan warned that unemployment may not drop back below 4% until 2023.³

Europe

The UK and EU, whose leaders met on Thursday, are currently attempting to secure a trade deal before the end of December, when Britain’s transition period following its departure from the EU is set to expire.

UK Prime Minister Boris Johnson had previously proposed a deadline of 15^th October to conclude talks for an agreement, however EU leaders met on Thursday to approve extending the negotiations.

European officials revealed they want concessions on the contentious subjects of fisheries, fair competition and dispute resolution, and said on Thursday they would not compromise at any cost.⁴

In addition, European Central Bank (ECB) President Christine Lagarde warned yesterday that risk of financial instability across the Eurozone is on the rise due to a surge in debt levels, thoughshe noted that the banking sector has ample buffers in place to absorb losses while continuing to lend.⁵

UK Health Secretary Matt Hancock also announced that London is set to move into ‘tier 3’ – the most stringent and restrictive tier in the government’s three-tier lockdown system – due to rising numbers of infections. The restrictions will become effective from 00:01 on Saturday.⁶

Today’s major assetanalysis

EUR/USD and GBP/USD

Despite the 15th October deadline being reached, no Brexit trade deal has been announced yet,though both parties are still sitting at the table as key conflicts remain unresolved.

The euro has completed its N pattern and its decline seems to be slowing down. Intraday, the EUR’s support is around 1.169, while its resistance is around 1.174.

Meanwhile, the poundhas gone up and down over the past three days, and now the price is back to its starting point near 1.29. Today’s resistance is around 1.292 and the support looks to be around 1.286.

Traders should be aware that rising coronavirus infections across the UK could have an impact on the market today – and Europe’s fundamentals are not expected to be overly optimistic for now.

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

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

AUD/USD

The Reserve Bank of Australia (RBA) has no plans to increase interest rates and has alluded to the possibility of cutting rates in future if needs be. Yesterday, the price tested and broke through the 0.712 support and tested the next support at 0.706, the latter of which acted as a mid-term support last week.

For now, 0.706 will be our short-term support and a further support could be found around 0.70 with an upward resistance around 0.712.

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

Gold

Gold climbed back by around $17 after the latest US unemployment applications numberswere released yesterday. The price is not standing above either the daily or weekly moving averages today.

Yesterday’s trading volume was approaching the volume on 13th October but with only half the price range. Today, the support looks to be around 1986 whilst the resistance is near 1916.

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

USD Index

The USDX broke through the 93.7 resistance during yesterday’s session and is now testing it as a support.

The next resistance seems to be around 94 with the support at 93.55. The US equity market has remained weak but tonight’s fundamental are expected to be positive.  

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

[i]Bloomberg (2020),

Trump Says U.S. to Strike Harder If EU Starts $4 Billion Tariffs

https://www.bloomberg.com/news...

[ii]U.S. BUREAU OF LABOR STATISTICS(2020),

U.S. BUREAU OF LABOR STATISTICS

https://www.bls.gov/

[iii]ActionForex (2020),

Fed Kaplan: Work needed to help disproportionately affected groups back into labor force

https://www.actionforex.com/li...

[iv]Reuters (2020),

Sterling slides as EU leaders press for elusive Brexit trade deal

https://www.reuters.com/articl...

[v]Reuters (2020),

Euro zone banks can absorb losses from crisis: Lagarde

https://www.reuters.com/articl...

[vi] GOV.UK (2020),

Coronavirus update on areas in local COVID alert levels

https://www.gov.uk/government/...