Primus Weekly - 19th October

FXP_2020

Fxprimus Representative
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The land Down Under – Australia, is having a rough year. In January Aussies were hit with the worst wildfires in modern history where more than 46 million acres were scorched. The estimate at that point was that around -1.5% would be shed off from 2020 GDP. Then COVID-19 happened along with the Great Decoupling between China and the Western world. China is Australia’s largest trading partner by a huge margin – around 25% of trade, both imports and exports, are with the Chinese. Australia is one of the world’s largest energy and commodities exporters, whilst China has been the largest consumer of those articles for decades. Recently however, this symbiosis has been breaking apart. The distrust has been brewing for years with both parties accusing each other of espionage and attempts of influencing the decision making at governmental or state level.

The first major escalation came in 2018 when Australia was the first country to ban Chinese tech giant Huawei’s involvement in building out their 5G network. China, clearly furious, did not retaliate immediately, being dependent on Australian resources. In 2020 Australia was one of the first Western countries to accuse China of misinforming the world about COVID-19. The subsequent escalation resulted in Chinese officials calling for a boycott on Australian products and import articles, from beef to education and tourism, and imposing tariffs on certain items. The final hit from China was to Australian coal industry last week when Aussie mining and trading giant BHP confirmed that the Chinese have started to defer coal orders. Coal prices, along with energy prices in general, have taken a hit this year. The expected drop in revenue for 2020 was around $34 billion dollars, down from $290 in 2019 to $256 billion, prior to the Chinese pivoting away from Australian coal.
Reserve Bank of Australia has cut interest rates once this year in March, bringing official interest rate to record a low of 0.25%. The Governor Philip Lowe hinted last week that another cut may be needed to stimulate the economy, causing AUD to plunge. AUDUSD lost 2.1% last week, finding resistance near 100-day Moving Average of 0.7097. On Thursday alone the Aussie weakened 1% against USD.

The IMF annual meeting took place virtually this week with a number of ECB key bankers delivering speeches or participating in debates. The main takeaways were that inflation is expected to remain negative in the Euro Area in 2020, local banks have enough capital to absorb loan losses, appreciation of euro is closely monitored, and that the ECB is considering implementing ‘digital euro’. Inflation expectations and strength of the currency go hand in hand – stronger currency translates into lower import prices and expensive exports prices which is not desirable for an exporting economy as it erodes the competitiveness. ECB’s Chief, Lagarde, has hinted in September this year that the ECB may tweak its inflation policy, potentially exploring a similar period overshooting methodology as the Federal Reserve Bank of the US has implemented.

Euro has moved to lower from 3-week highs of 1.1826 to 1.1713 last Friday. The shared currency has been oscillating between 1.1700 and 1.1900 since late July, levels last seen in October 2018.

In The Spotlight

Friday USD 2nd Presidential Debate
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*In USD millions

Impact
  • Chinese GDP Growth (YoY)
GDP data shows the monetary value of all the goods and services produced in the China. A negative number indicates a contraction of economic activity while a positive number shows an expansion. Chinese economy has shown a robust recovery since COVID-19 related lockdowns and given that a high proportion of GDP is related to manufacturing and construction, Chinese growth may translate into a global growth. Better than expected print is generally bullish for CNY, whilst a disappointing print is generally bearish.

  • UK Consumer Price Index (YoY)
Inflation measures the rise in consumer prices in an economy over a certain period of time. Higher inflation means that consumer prices have grown compared to the previous period. Higher than expected rate may be both positive or negative for GBP as the market does not like inflation expectations too far off from consensus. Generally high inflation is bearish for currency, while low inflation is bullish.

Market Sentiment

USDJPY
The pair continues to exhibit negative momentum, while flirting with 105.00 levels last week. Stacked Moving Averages (200 > 100 > 50 > 34 > 21 > 8) indicate both short-term and long-term negative trend. This week 8-day Moving Average has offered a clear resistance, pushing the price to 105.37 levels. The next resistance is near 21-day Moving Average level of 105.51. A long-term resistance has formed near 105.80, signaling more downward pressure. Stochastic of 24.6 would indicate oversold levels, while RSI of 51.5 is neutral. Weekly Squeeze has fired negatively 3 weeks ago, while daily squeeze is building up.

Support: 105.00
Resistance: 105.50
1910.png

NZDUSD
NZDUSD pair has been clearly consolidating since late September as short-term Moving Averages have had little air between them. The price has been trading in a tight and narrow range, finding support from 100-day Moving Average at 0.6581 levels. This level coincides with 24% Fibonacci retracement level, measured from September highs. Resistance levels are 0.6620 which is 38% Fibonacci retracement level, and also 8-day Moving Average. Next resistance level has formed 0.6653 which is the 50% retracement level.

Support: 0.6581
Resistance: 0.6653

EURAUD
EURAUD pair is testing again 1.6500 levels, after having traded in the range on 1.6300 and 1.6150 for a month in September. Stacked Moving Averages support short-term bullish trend (8 > 21 > 34 > 50 > 100) while the price is still well below 200-day Moving Average of 1.6636. As of Friday, EURAUD pair stretched broke to 1.6528 level during Friday’s trading session. A potential double bottom has formed since October the 5th which may indicate a bullish trend going forward. Stochastic of 66.9 and RSI or 95.1 indicate overbought levels.

Support: 1.6391
Resistance: 1.6589

USDCHF
This pair has been finding resistance in 8-day Moving Average this week, forcing the price to 0.9148 levels. On the flipside, 50-day Moving Average has offered a support near 0.9130, forcing USDCHF to trade in a narrow range for a couple of days. On a short-term basis the trend is bearish as indicated by stacked Moving Averages (34 > 21 > 8). 38% Fibonacci retracement level near 0.9160 might stop the price from gaining, while 0.9082 offers a floor to support the price.

Support: 0.9130
Resistance: 0.9160






 
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