FBI Gives Risk Sentiment Pre-Election Boost

Next 24 hours: Final Countdown to US Election

Today’s report: FBI Gives Risk Sentiment Pre-Election Boost

All of the attention this week was already going to be on the US election. But volatility from the event risk has come earlier than the market had thought it would on news the FBI found nothing concerning in its investigation of this latest batch of Clinton emails.

Wake-up call

Chart talk: Major markets technical overview video

Chart talk: Technical & fundamental highlights

EURUSD – technical overview

The correction has now extended back into a critical confluence of resistance, finally suggesting the market could be poised to start looking for that next lower top in favour of a bearish resumption. The rally has taken the major pair into previous support now turned resistance around 1.1100, with the market also testing the 50, 100 and 200-Day SMAs. Any additional upside should be limited from here, with only a break back above 1.1200 to delay the bearish outlook. Look for a daily close back below 1.1050 to confirm and accelerate declines.

eur

  • R2 1.1214 – 20Sep high – Medium
  • R1 1.1142 – 4Nov high – Medium
  • S1 1.1050 – 2Nov low – Medium
  • S2 1.0961 – 1Nov low – Strong

EURUSD – fundamental overview

The late weekend news of the FBI finding nothing incriminating in the Clinton emails has opened the door for an intense bout of profit taking on Euro longs after the single currency had enjoyed a nice recovery in the previous week on Trump momentum. From here, expect the US election to continue to be the primary source of volatility, though confirmation of a Clinton victory will likely inspire more profit taking. As far as today’s economic data goes, German factory orders, EMU Sentix investor confidence and Eurozone retail sales are the notable standouts.

GBPUSD – technical overview

The market has broken out of a multi session consolidation off the multi-year low, which could now open the door for a more significant correction higher in the days ahead. Ultimately, there is room to run towards 1.2800 without compromising the intense downtrend, with a lower top sought out in favour of a bearish resumption back towards 1.2000. Only a weekly close above 1.2800 would compromise the structure.

gbp

  • R2 1.2557 – 4Nov high – Strong
  • R1 1.2500 – Psychological – Medium
  • S1 1.2400 – Figure – Medium
  • S2 1.2297 – 3Nov low – Strong

GBPUSD – fundamental overview

The previous week’s breakout performance in the Pound is already under pressure early Monday, with the UK currency taking an immediate hit on news the FBI has cleared Hillary Clinton of any wrongdoing. The US Dollar had taken a hit across the board with Trump gaining momentum last week and this also helped to force the Pound out of a multi-day consolidation. But if Clinton gets the nod this week, it could very well add to the renewed downside pressure. Meanwhile, we got other weekend news out of the UK that has also been disruptive, with reports the Labour party would block the passage of Article 50 if the PM did not guarantee access to the single market. Looking ahead, with no first tier data out of the UK and US, these broader macro themes will likely dictate flow.

USDJPY – technical overview

The recent rally above 105.00 could not be sustained and the pressure has once again shifted back to the downside following this latest break back below 103.15. Look for a daily close below 103.00 to reaffirm bearish momentum, exposing a potential retest of the 2016 low around 99.00. At this point, back above 105.53 will be required to take the pressure  off the downside.

jpy

  • R2 105.53 – 28Oct high – Strong
  • R1 105.00 – Psychological – Medium
  • S1 103.77 – 7Nov low – Medium
  • S2 102.55 – 3Nov low – Strong

USDJPY – fundamental overview

The latest BOJ Minutes have come and gone and have received very little attention Monday, with the market clearly more fixated on this risk on reaction to the news of Clinton being cleared of wrongdoing. These were the Minutes from the meeting where yield curve control was announced, highlighting that most members said it would be possible to control the yield curve with this new framework. But it’s no surprise to see the Yen selling off on the back of the risk on flow from the Clinton news and with no first tier data due out of the US today, the US election will continue to take centre stage.

EURCHF – technical overview

The latest break below 1.0800 warns the market could be getting set to deviate from what had been a well defined range between 1.0800 and 1.1000. Look for a daily close below previous support at 1.0755 to strengthen the outlook and open the door for an acceleration of declines towards the 2016 low at 1.0624 further down. At this point, a daily close back above 1.0865 would be required to suggest the market is once again looking settle back into the range.

eurchf

  • R2 1.0900 – Figure – Medium
  • R1 1.0865 – 28Oct hig – Strong
  • S1 1.0755 – 2Nov low – Medium
  • S2 1.0624 – 24Jun/2016 low – Strong

EURCHF – fundamental overview

SNB President Jordan reiterated his central bank’s stance on monetary policy last week, saying the SNB was committed to using its two tools of intervention and negative interest rates to prevent further appreciation in the Swiss Franc. However, this strategy to prop the local currency is going to prove to be a very tough go if the SNB finds itself in a battle with global themes and flows that demand safe haven passage into the Swiss Franc. There had been many talking about 1.0800 as an unofficial EURCHF floor, but with that level broken, the market could quickly turn its attention to the post Brexit 2016 low in the lower 1.0600s. For the moment though, the SNB has received some welcome news in the form of the FBI findings, clearing Clinton of wrongdoing.

AUDUSD – technical overview

The market has struggled on rallies above 0.7700 and this suggests the rate could be looking to carve a lower top below the 2016 high at 0.7835 in favour of the next major downside extension. Look for a break back below 0.7421 to strengthen this outlook and accelerate declines towards 0.7000 in the days ahead. Ultimately, only back above 0.7758 will negate the bearish outlook and invite a retest of the 2016 highs.

aud

  • R2 0.7709 – 26Oct high – Strong
  • R1 0.7698 – 4Nov high – Medium
  • S1 0.7558 –28Oct low – Medium
  • S2 0.7507 – 13Oct low – Strong

AUDUSD – fundamental overview

The Australian Dollar hasn’t been able to figure out which way it’s supposed to go on Monday following the news of the FBI clearing Clinton of wrongdoing. On the one hand, the news is a risk positive development which would be supportive of the risk correlated Australian Dollar. But at the same time, the news is also US Dollar bullish, as it increases odds of a Clinton victory which ultimately gives the market status quo relief and also keeps the Fed moving towards rate hikes. So in the end, Aussie hasn’t really gone anywhere, caught between the flows. Looking ahead, lack of economic data will keep Aussie focused on US election risk.

USDCAD – technical overview

This market looks to be in the process of carving out a longer-term base off the 1.2461, 2016 low. Look for any additional weakness to be supported ahead of 1.3000 in favour of the next major upside extension towards a measured move objective into the 1.3500-1.4000 area. Ultimately, only back below 1.2764 would delay the constructive outlook.

cad

  • R2 1.3500 – Psychological – Strong
  • R1 1.3466 – 4Nov high – Medium
  • S1 1.3342 – 7Nov low – Medium
  • S2 1.3278 – 25Oct low– Strong

USDCAD – fundamental overview

Although Friday’s headline Canada employment data came in above forecast, there was a lot of deception in the numbers which upon closer glance, weren’t all they were cracked up to be. The fact that most of the jobs came from the part-time sector was less than encouraging and ultimately prevented the Canadian Dollar from mounting a post data rally. Meanwhile, US employment data was solid overall and continues to point towards a Fed rate hike next month. Into the early week, the Loonie is caught in consolidation mode following the news of Clinton being cleared of wrongdoing. Looking ahead, no first tier data is scheduled out of Canada or the US on Monday and this will leave the market focused on broader flow and the US election.

NZDUSD – technical overview

The pressure has shifted back to the downside with the market now expected to be very well capped on rallies. Look for a fresh lower top ahead of 0.7400 in favour of the next major downside extension below 0.7000 and towards medium-term support at 0.6675 further down.

nzd

  • R2 0.7369 –22Sep high – Strong
  • R1 0.7341 – 3Nov high  – Medium
  • S1 0.7279 – 3Nov low – Medium
  • S2 0.7181 – 2Nov low – Strong

NZDUSD – fundamental overview

The New Zealand Dollar is looking ahead to Thursday’s RBNZ decision which should be more interesting following a solid run of Kiwi data. But overall, the central bank is still expected to cut rates again, with inflation remaining subdued. While odds for a cut have scaled back, they still sit at about 80%. But it will be more interesting to see what the RBNZ has to say about future policy and if this latest uptick in data will put the central bank more at ease and more in a position to signal an end to the easing cycle. We will certainly get a lot of colour with the quarterly monetary policy statement due along with updated forecasts and OCR projections. Looking at today’s calendar, lack of first tier releases will leave Kiwi focused on broader risk flow and US election risk.

US SPX 500 – technical overview

Signs of a potential top after the market recently broke below critical support at 2108. This now opens the door for a meaningful period of weakness exposing a more pronounced decline towards the June base at 1990. Look for any rallies to now be well capped ahead of 2156, with only a daily close back above this level to compromise the newly adopted bearish outlook.

spx

  • R2 2137.00 – 31Oct high – Strong
  • R1 2123.00 – 31Oct low – Medium
  • S1 2084.00 – 3Nov low – Medium
  • S2 2065.00 – 30Jun low– Strong

US SPX 500 – fundamental overview

US election risk is dominating flow at the moment and after stocks took a big hit in the previous week, we are seeing the emergence of demand on Monday as Clinton regains momentum on the FBI news. But overall, once the election is out of the way, the market will need to once again think about the bigger issue at hand, which is an exhaustion of global monetary policy tools and an inability for central banks to continue to support and stimulate the global economy. This leaves financial markets vulnerable to any shocks and exposed to intense periods of risk liquidation going forward.

GOLD (SPOT) – technical overview

Despite a major setback in October, the overall structure remains highly constructive with the market in the process of carving out a longer-term base. Look for additional weakness to be very well supported above 1240, with only a close back below this level to delay the bullish outlook and give reason for pause. Back above 1300 strengthens the outlook and should accelerate gains towards a retest of the 2016 peak at 1375.

xau

  • R2 1313.10 – 4Oct high – Strong
  • R1 1308.00 – 2Nov high – Medium
  • S1 1260.40 – 24Oct low – Medium
  • S2 1241.45 – 7Oct low – Strong

GOLD (SPOT) – fundamental overview

Overall, GOLD has been very well supported in 2016, with the yellow metal finding solid demand from medium and longer-term players on the back of fears over the limitations of exhausted monetary policy, extended global equities, systemic risk and a bet that record low inflation will eventually start to turn up. All of this will almost certainly continue to keep the commodity in demand, even if the Buck is propped, with many market participants fleeing to the hard asset as the grand dichotomy of record high equities and record low yields comes to an unnerving climax.

Feature – technical overview

USDSGD has been well bid in recent trade, with the market establishing back above 1.3500 and pushing up towards 1.4000. However, while the structure remains constructive and additional upside is projected, scope exists for consolidation to allow for stretched interday studies to unwind. Still, look for any setbacks to be well supported above 1.3700 in favour of the next major higher low and bullish resumption beyond 1.4000.

sgd

  • R2 1.4000 – Psychological – Strong
  • R1 1.3962 – 27Oct high – Medium
  • S1 1.3818 – 2Nov low – Strong
  • S2 1.3770 – 12Oct low – Medium

Feature – fundamental overview

The overall outlook for the Singapore Dollar is not that bright right now, with the currency under pressure on yield differentials with the US and reduced appetite for emerging market FX. Meanwhile on the domestic front, in its macroeconomic review, the MAS said it did not expect the Singapore economy to pick up significantly in the near term on the drag from lackluster external demand and weak global trade. This has also contributed to more pessimistic growth forecasts. Clearly Monday’s uptick in sentiment and rally in the correlated USDJPY market is behind this latest USDSGD buying, after Clinton was cleared of wrongdoing. Dealers also continue to cite plenty of demand for USDSGD on dips.

Peformance chart: Five day performance v. US dollar

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