Forex FOREX PRO WEEKLY, November 02 - 06, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,023
Fundamentals

IT was a tough week guys, as markets were under strong impact of external non-market factors. Mostly it was expectation of election risks and ECB meeting. GDP release mostly passed unsigned as it's numbers were widely expected. Still, followed Michigan numbers, personal consumption and spending were better than expected, that even more supported the US Dollar.

Currently not only election risks but rising CV19 cases across the Globe, started lockdown in France deteriorates investors' sentiment. EU officials warned Europe to be ready for wider COVID restrictions as infections surged across the continent, France and Germany prepared curbs almost as strict as their spring lockdowns and cases soared across the United States.

“Given the very dynamic situation in all of Europe, we need to equally reduce contact in almost all European countries,” German Health Minister Jens Spahn told journalists after a video conference of EU health ministers that he chaired.

EU Health Commissioner Stella Kyriakides echoed the call - “We need to pull through this, where needed, with restrictions on everyday life to break the chain of transmission,” she told the video conference.

France and Germany announced new lockdowns this week as infections on the continent passed the 10-million milestone and hospitals and intensive care units filled up again. Bars, restaurants, sports and cultural events have been restricted or closed in several other European countries. Belgium, one of Europe’s worst-affected countries, recorded an average of 15,316 new infections per day in mid-October. Italy and Austria recorded their highest daily number of infections to date on Friday.

Checkpoints have been set up across Portugal to stop unauthorised travel during a five-day movement ban which began on Friday.

A record surge of coronavirus cases in the United States pushed hospitals closer to the brink of capacity and drove the number of infections reported on Friday to an ominous new daily world record of 100,000, four days before the U.S. presidential election.

The United States also documented its 9 millionth case to date on Friday, representing nearly 3% of the population, with almost 229,000 dead since the outbreak of the pandemic early this year, according to a Reuters tally of publicly reported data. With the country facing the final stretch of a tumultuous presidential campaign dominated by the coronavirus pandemic, U.S. health authorities on Friday also confirmed that 100,233 more people had tested positive for COVID-19 over the past 24 hours. Friday’s tally set a new single-day record in U.S. cases for the fifth time in the past 10 days, surpassing the previous peak of 91,248 new infections posted a day earlier.

Serious cases of COVID-19 were on the rise as well, as hospitals in six states reported having the most patients suffering from the disease since the pandemic started. The number of hospitalized COVID-19 patients has risen over 50% in October to 46,000, the highest since mid-August. Among the hard-hit states are those most hotly contested in the campaign between Republican President Donald Trump and Democratic challenger Joe Biden, such as Michigan, North Carolina, Ohio, Pennsylvania and Wisconsin.

The University of Washington’s newly updated model projects the death toll, which had been holding at a monthly pace of just over 22,000 for most of October, will start climbing next month toward a new record of more than 72,000 in January.

The pandemic remains a political football across the country. Trump has repeatedly played down the virus, saying for weeks that the country is “rounding the turn,” even as new cases and hospitalizations soared. He maintained his upbeat tone in a tweet on Friday, saying the country was doing much better than Europe had in confronting the pandemic.

Biden and fellow Democrats in Congress have criticized the president for his handling of the health crisis. In the U.S. House of Representatives, Democrats released a report on Friday condemning the Trump administration’s pandemic response as being “among the worst failures of leadership in American history.” At least 6 million Americans have been thrust into poverty and millions more are jobless, it said.

But the truth is “Struggling families should not have to choose between following rules (of restrictions and lockdown) and putting food on the table”.

This is especially important with the news of postponing stimulus providing and keep people without money through the Holidays till the next year. “The decreasing likelihood of U.S. fiscal stimulus pre-election, possibly even pre-year-end, as well as worsening virus numbers and increasing lockdown measures, all seem to be taking the shine off what was a rather complacent market view of the outlook,” said James Athey, investment director at Aberdeen Standard Investments.

U.S. Senate Majority Leader Mitch McConnell on Friday said that any new coronavirus aid package should be considered in early 2021, possibly closing the door to such legislation shortly following the Nov. 3 elections.

In an interview with conservative radio host Hugh Hewitt, McConnell said, “I think that will be something we’ll need to do right at the beginning of the year, targeted particularly at small businesses that are struggling and hospitals that are now dealing with a second wave of the coronavirus.”

House of Representatives Speaker Nancy Pelosi, who has been negotiating a coronavirus-relief package with Treasury Secretary Steven Mnuchin, said during an interview with MSNBC: “Certainly we’ll have something at the start of the new presidency, but we don’t want to wait that long because people have needs.”

The winner of the Nov. 3 elections -- President Donald Trump or former Vice President Joe Biden -- will be sworn in as the next president on Jan. 20.

As markets increasingly price in the likelihood of a Democratic president
and Congress and resulting rise in government spending and borrowing, U.S. 10-year Treasury yields hit their highest since early June last week at 0.8720% . They were trading at 0.81% on Monday.

“We have raised the probability of a Democratic sweep, already our base case, from 40% to just over 50% and have increased our expectation of Biden to win from 65% to 75%,” NatWest Markets analysts said. “We see steeper U.S. yield curves and a weaker USD as likely to prevail in our base case.”

FX volatility gauges for euro-dollar and most other major currencies are now at their highest since March.

“We opened up pretty risk-adverse but now things seem to have settled down,” said Societe Generale’s Kit Juckes. If the next week’s election result is contested by either Donald Trump or Joe Biden, or the result divides the Senate and the House of representatives between the two parties, safe-haven currencies are almost certain to gain, Hardy added.

This is the same major risk that we've mentioned on previous week, as well. Overall situation remains nervous and murky -

Investors are preparing for sharp price moves, with the biggest focus on the United States as it struggles to contain its coronavirus epidemic as people vote early in large numbers for what promises to be a pivotal election on Nov. 3.

“Certainly, people are nervous, yes, but participation on the part of many investors is also very low too,” said Stephen Gallo, currency analyst at BMO Capital Markets.
“We won’t get much further clarity on underlying investment trends until the noise of the U.S. election passes,” he said.


Markets are pricing a high probability of a clear victory by U.S. presidential challenger Joe Biden, but some investors are sceptical because the polls did not predict President Donald Trump’s win four years ago.

“This is why ... we have not seen the dollar strengthen as much as a result... Investors don’t want to go long the dollar ahead of the (vote),” said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America.

Legal battles between Republicans and Democrats over how to count votes have also raised the risk that the outcome of the election will be disputed.

After the elections, the market’s focus will again turn more towards the sharp rise in coronavirus infections, Vamvakidis added.

ECB Meeting

The euro dropped to a four-week low against the U.S. dollar on Thursday after the European Central Bank president flagged further monetary easing in December.

The European Central Bank gave a strong indication that it will likely boost its emergency bond-buying program to stabilize the euro-area economy after governments imposed a spate of new restrictions to control the coronavirus. For now, the Governing Council held its pandemic bond-buying program at 1.35 trillion euros ($1.6 trillion), reiterating that it will run until at least June 2021 and won’t be stopped until the “crisis phase” of the pandemic is past. The ECB’s deposit rate stayed at -0.5%.

The policy statement also said though that new economic forecasts in December will set the stage for more support. By December, the ECB will have updated economic projections to justify more stimulus, including the first forecast for 2023. Officials might also have a clearer view of key issues including the U.S. presidential election, any U.K. trade deal with the European Union, the impact of Covid-19 containment measures, and progress toward a vaccine.

“The ECB has about 800 billion euros in firepower beyond what it was poised to use for the remainder of 2020. However, that may be insufficient to tackle the threat to the economy and financial stability in 2021,”David Powell and Maeva Cousin, euro-area economists said.

The ECB, which kept interest rates steady, committed on Thursday to contain the growing fallout from a second wave of coronavirus infections, saying it would hone its response by its December meeting.

“We agreed, all of us, that it was necessary to take action and therefore to recalibrate our instruments at our next Governing Council meeting,” ECB President Christine Lagarde told a news conference.

“If you look at the price action in rate markets, we saw a further adjustment lower in some of the forward rate expectations. So the market is looking at the ECB comments as indicating further rate cuts,” said Erik Nelson, currency strategist, at Wells Fargo in New York. “You’re also looking at an overall challenging backdrop in Europe, which means further shutdowns and more restrictions, more so than in the United States. So it’s kind of a perfect storm that’s weighing on the euro at this point,” he added.


COT Report

This week the result of CFTC data is expectable - investors were selling everything and running into USD. As a result, as GBP as EUR shows the drop in open interest and massive decrease of long positions. While hedgers in EUR was doing logical things - open longs and closing shorts, speculators were closing as shorts as longs. It was just out from the currency:

1604133611859.png



Look over horizon

Nov. 3 is election day in the world’s biggest economy, a vote that’s particularly fraught due to the COVID-19 pandemic, the candidates’ differing policy platforms and the potential for a delayed or contested outcome. No wonder volatility gauges are up.

President Donald Trump lags Democrat challenger Joe Biden in opinion polls, though neither is really feared by markets -- the former spells status quo, and the latter is expected to spend big to lift the economy.

The VIX “fear gauge” is near its highest since June, however, fueled by coronavirus worries and a focus on the immediate election aftermath - more specifically, Trump’s claims that mail-in ballots will cause fraud. Yet VIX futures imply market swings will ease in the post-election months.

What markets want is a clear result. Then focus can shift to the winner’s strategy on the pandemic, stimulus and trade.

1604133729576.png


Some worry about a slowdown in central bank stimulus just as lockdowns again curb activity. European, Japanese and Canadian policymakers all opted recently to keep their powder dry, the U.S. Federal Reserve’s Nov. 4 meeting is expected to be uneventful too.

But others may step up. The Reserve Bank of Australia is expected to expand bond-buying on Tuesday to target longer-maturity debt, lower the cap on short-dated yields and trim cash rates.


On Thursday, the Bank of England may expand QE by 100 billion pounds to support an economy ravaged by coronavirus and Brexit. It may also signal whether interest rates could fall below zero and if so, when.

1604133986553.png



So, this week we see clear confirmation of our worries - analysts around the world talk about the same thing. First is CV19 situation is becoming worse and there is no piercing in the cloud yet, as traditional "flue" period just has started. Second - no stimulus until late January. Finally our primary risk - delay in elections result, no evidence in results, different frauds and legal claims from loosing side could turn situation out of control, is Supreme court will step in.
Besides, after previous elections Democrats, driven by H. Clinton have risen the social unrest in US disguised as "Occupy WS", but that was pure political action and I would call it as light attempt of violent coup, trying to scare D. Trump.

Somehow, I expect something of the same kind but this time it will be even worse, because of grater gap in favor of J. Biden. If Biden will lose with such gap on the back - it promises nothing good and situation could out of control. As I explained earlier, I do not trust public polls mostly because they belong to Democratic news agencies and skew real information, or people just do not tell them the truth, whom they intend to vote for. It means that real gap, as I suppose, significantly lower.
We definitely could say that we can't escape mutual accusing in frauds because of using voting by mail. This, in turn, could delay results announcement, which markets also expect. With dovish ECB policy, it means that demand for US Dollar could stay longer and EUR could remain under pressure till the end of the year. Mostly it agrees with our technical picture. At the same time we have to understand that our ability to forecast possible outcomes are very limited right now. Even big money stand aside by far, waiting and watching what will happen. Speaking in two words, it seems that market puts too high bets on Biden's victory and underestimated risks of voting procedure - frauds, delays, legal claims etc.



Technicals
Monthly


Here price has not taken out the September lows yet, but this is easily could happen on next week. We keep the same view and suggest that downside reaction on COP target is too small now and should be deeper. Appearing of engulfing pattern stands in favor of this scenario and let us to suggest some downside AB-CD pattern on lower time frames. Gradual deterioration of the sentiment could make finally this patterns works.

In longer-term perspective we do not deny overall positive picture here, as trend remains bullish and we have good acceleration to COP, keeping chances on action to 1.25-1.26 area, once retracement will be over. Although too deep retracement here is unwelcome, as EUR stands just at COP target - bullish context totally fails only if price drops below 1.06 "C" point, erasing AB-CD pattern and turning trend bearish.

eur_m_02_11_20.png


Weekly

Situation here changes rapidly under impact of external factors. Once we were still waiting stimulus last week, some chances on challenging of the 1.20 top existed. Now, when this question finally is resolve, albeit negatively, market re-establishes status quo fast, supported by dovish ECB policy. Do you see that we explain market motion exclusively by some fundamental factors. This is the way how it goes right now.

Of course, forming another top and collapse around 1.20 would provide much better DRPO "Sell" shape, here it looks not as perfect as it could. But, theoretically, we've got 2nd close below 3x3 DMA and this has happened with massive sell-off. Besides, even without DRPO pattern, we could consider downside AB=CD with 1.15 target. As market is not at oversold here, EUR could reach this level, especially if our fears on election process will become a reality.

In current situation it would be better to do either nothing, waiting for strong support levels and longer-term trend reversal, or consider short positions on lower time frames.
eur_w_02_11_20.png


Daily

On the lower time frame with could focus on the same AB-CD pattern but minor, COP target. EUR stands just with 10 pips above it and target agrees with daily oversold level. It is difficult to say, whether this support will be sufficient to trigger the bounce - mostly it depends on fundamental background that we will get on Monday. But technical picture suggests at least minor pullback. So, if you intend to go short - it would be better to get this retracement.

eur_d_02_11_20.png


Intraday

On 4H chart we have another extension target in the same area. In fact, this is our former "222' Buy that turns to butterfly shape. When EUR stands in trend usually it forms accurate harmonic swings as we see with this recent sell-off. If we still will get the pullback, the single harmonic swing points on nearest 1.1685 level. Still, as EUR meets daily oversold, two harmonic swings might formed, and price re-tests broken lows and K-resistance around around 1.17 area. Thus, you could consider these levels if you intend to take the short position on EUR.

eur_4h_02_11_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Morning everybody,

So, we have minimal changes by far, everything goes with the plan - EUR has hit daily COP target, oversold level and shows reasonable reaction.
eur_d_03_11_20.png


Now is a bit different thing interesting. Trump gets votes much faster than Biden and official gap stands already 51/44. In recent two days Trump adds 5% votes while Biden gets nothing. Somehow I have strong feeling that Trump will get the second term. Oil companies across the board has turned north without any economical reasons for that, this is also indirect sign that something is changing. Finally, we indeed could get the delay, as mail ballots could be received 10 days after elections, i.e. on 13th of Novembers. And as you know, Democrats electorate more often use preliminary mail voting, compares to Republicans.

On 4H chart now we're keep watching for harmonic swing pullback. The first one is already in place and now is a question about its doubling. In this case, 1.17 K-area could become the one where we could consider short entry. If Trump wins, it could become also the area where EUR starts action to 1.15 target:
eur_4h_03_11_20.png


If I'm wrong, EUR could form reverse H&S and opposite trend could start:
eur_1h_03_11_20.png


Anyway, despite what direction you intend to trade - you could keep an eye on this pattern but with different task. While bears could consider short entry around neckline 1.17 area and move stops to b/e once price starts to form the right arm, bulls could keep an eye 1.1660 particular for long entry with stops below the head. Everybody - be aware of strong action against your potential position. In this case just skip it.
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Morning guys,

The President's run is entering the final stage. Now the gap stands just for 11 votes. Trump has closed the gap fast. Even now starts to sound mutual accusing in stealing votes and possible involvement of Supreme Court that is more in favor of the D. Trump as Court is controlled by Republicans 6:3.
As I've explained yesterday - I think it is too early to fall in euphoria and personally I suspect that D. Trump wins. Sentiment on the market is changing as well - whole recent rally was turned opposite. But victory will be difficult. Both sides accuse each other with stealing votes, frauds. Polls shows wrong information, as we've suggested and Democrats have lost some states that were belonging to them by polls information. Finally, Supreme Court could be involved in decision making. Thus, current situation is turning to tough way that we've described in weekly report accompanied by social unrests, legal claims, frauds etc.

Technically, it could mean that reaction on COP target is over and market should start action to our major OP on weekly time frame:
eur_d_04_11_20.png


On 4H chart upside bounce was mostly to K-resistance around 1.17, emotions were able to make the spike a bit higher but this was very short-term:
eur_4h_04_11_20.png


On 1H chart we have widening triangle. Further direction depends on breakout, although technical picture looks more friendly to downside continuation. If you still consider taking the short position, you could keep an eye on possible "222" Sell pattern around 1.17, or direct drop below current lows...
eur_1h_04_11_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Morning everybody,

So, elections in US is turning to our worst scenario. Not occasionally we've said that mailing voting is a Pandora's box. Now everything is moving to mutual accusation in frauds, probes, votes stealing and social unrest. It seems that everything is just yet to begin.

Markets bet on Biden's victory but it is too early, so do not rely too much on current upside action.

As EUR stands in the same range, today we take a look at GBP. It shows different reaction on the same events, looking more heavy as GBP has its own problems that are far from resolving. New lockdown and hard Brexit are to name some. Besides, today we expect dovish action from BoE.

As a result, on daily chart we've got bearish grabber that suggests drop to the new lows. As you know, our longer-term view stands around 1.20-1.22 area on GBP.
gbp_d_05_11_20.png


On 4H chart we have the same H&S pattern that we've discussed last week, but now it has better shape. In general, situation is comfortable because as grabber as H&S pattern have the same vital points - the top of the right arm. To keep bearish scenario intact, market should not move above it:
gbp_4h_05_11_20.png


Thus, if you would like to take bearish bet - you could consider some chances inside the downside swing of the grabber. For instance, if we will get "222" Sell pattern, it could become the one that could be used for this purpose. Maybe we will get something else...
gbp_1h_05_11_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Morning everybody,

So, markets across the board strongly price-in Biden's victory. If we avoid any scandal and appellation in the court from D. Trump, trend should continue as we discussed in weekly report. Still, we suggest that some risk still exists, that it could be the scandal. First is, yields on US bonds are not rising and has dropped this week. Although in the beginning of the week they have shown strong rally. Second - the core of a scandal stands with this picture - unexplained Biden's surge in votes. This is in Michigan, but the same picture is in Wisconsin and some other states. This is the reason why D. Trump nervous.
1604647156773.png

So if we escape the scandal, long-term bull trend on EUR could continue and market should reach 1.20-1.21 area first. Still, today we focus on nearer targets - 1.19-1.1935 resistance. Because this is daily Overbought and some intraday targets stands around it. NFP stands in focus today as well.
eur_d_06_11_20.png


If we treat the price action on daily chart as Double Bottom, then nearest destination point is the neckline:

eur_4h_06_11_20.png


On 1H chart we also have steep AB-CD pattern, market is forming potentially bullish pennant pattern and XOP stands approx. in the same area of 1.1915:
eur_1h_06_11_20.png


So, let's focus today on targets that could be reached and long-term scenario postpone to weekly report. Maybe some more news will come in weekend.
 

Sive Morten

Special Consultant to the FPA
Messages
14,023
Alex, your reaction on this post is curious. I do not see any conspiracy and political motivation. This is just the picture that illustrates D. Trump position and what particular he unsatisfied with. This has direct relation to future market's sentiment, shows potential risks that we have to consider and this is the only reason why we put it here - for explanation. As you understand, personally, I absolutely do not care who becomes the President, as I'm living 8000 km from US.
 

Pharaoh

Colonel
Messages
19,957
I reported this. FPA should clearly take some action or you will soon have Qanon crazies publishing here.

There definitely are some interesting (and very creative) attempts to explain away red states turning blue via various conspiracy theories. What these overlook is that a Trump went to a lot of effort to discourage mail in voting and Biden went to a lot of effort to tell people that mail in voting was safe. The results of one candidate actively discouraging mailing ballots and one actively promoting this type of voting was clearly reflected in the much smaller percentages of absentee/mail ballots requests from Republicans vs. Democrats

Add in the fact that several of these states didn't even begin counting the mailed in ballots until election day, and an increase in the percentage of Biden votes as those mailed ballots were slowly added into the totals of in-person ballots was inevitable.

If anyone does try to push conspiracy theories on this, just ask them how allegedly fake ballots only affected the presidential race and while not giving the Democrats a massive sweep of Congress as well as state legislatures. All of those races were on the very same ballots the conspiracy theorists are trying to say were somehow magically able to bypass all the security methods used in each state.

And so we have a situation that ends like this:

Biden-Dewey.jpg



Now it's pretty much all over, except for a few legal challenges that have very little chance of changing the end results.
 
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