It’s a rather chaotic week with many themes developing. The first October surprise of US President Donald Trump’s coronavirus infects seemed to have fade as he’s back in election campaign. Just as challenger Joe Biden appeared to be widening lead, according to mainstream polls, another October surprise surfaced with Hunter Biden’s Macbook gate. The stories could finally viral out quickly after Twitter formally admitted it was wrong to block weblinks regarding Hunter Biden’s news. At the same time, there appears to be no chance of a fresh fiscal stimulus in the US until after the election in early November.
Then, coronavirus pandemic is coming back to haunt the Norther Hemisphere, just ahead of winter. In particular, Europe’s infects were hitting record highs, forcing some countries back into lockdowns. The UK and EU failed to close their gaps on Brexit negotiations after the mid-October deadline. Though, talks will still continue, with or without intensifications. The developments down South were much clearer. RBA was clear that it’s going to ease again in next meeting in November. New Zealand Prime Minister Jacinda Ardern’s Labour Party scored a clean victory in the general election during the week, maintaining political stability.
Yen ended as the strongest one, followed by Dollar. But we’d emphasize that investors just turned cautious and the markets were not back in risk-off mode. Stock indices refused to commit to a clear direction for now. Australian Dollar was the clear loser for the week without a doubt. Sterling was the second weakest. Yet, the Pound ended inside prior week’s range, suggesting that selling was not too intense. We’d expect the markets to stay in indecisive mode for now, perhaps only except Aussie.
S&P 500 failed record high, more consolidations first
S&P 500 edged higher last week but retreated well ahead of 3588.11 record high. Technically, based on the time spent and the depth, we believe that corrective pattern from 3588.11 has finished yet. That is, there should be one more falling leg to 38.2% retracement of 2191.86 to 3588.11 at 3054.75 before completion. But firstly, SPX has to break through 55 day EMA (now at 3363.69) to give us more confidence on this view. Secondly, we’re actually not expecting a committed direction before clearing US election risk.
DAX suck in range, another fall still likely before consolidation completes
Across the Atlantic, German DAX was stuck in range below 13460.5 since September. Similar to S&P 500, we also expect DAX to extend the consolidation with at least one more fall to 38.2% retracement of 8255.65 to 13460.5 at 11472.2 before completion. Break of 12341.6 near term support will further affirm our view. In case of another rise, we’re not anticipating a firm break of 13795.24 high. After all, European economies are facing two more risks in Brexit and coronavirus lockdowns. .
China Shanghai SSE might be ready for a break out, but key resistance zone lies ahead
In Asia, near term development in China’s Shanghai SSE isn’t too bad. The consolidation from 3458.79 short term top should have fulfilled the time and depth requirement. Strong support has been persistently seen from 38.2% retracement of 2646.8 to 3458.79 at 3148.61. And upside breakout looks imminent.
Yet, we’d remember that SSE is facing an important resistance zone of 38.2% retracement of 5178.19 to 2440.90 at 3486.54, as well ass 3587.03. Firm break of this zone could carry long term trend defining implications. But for the export led economy, there is little to cheer for if the world is still stuck in lockdowns. So, until we see a firm break of the 3486/3587 resistance zone, we’ll stay cautious.
Imminent risk downside breakout in dollar index eased
Risk of imminent downside breakout in the Dollar index eased with last week’s recovery, ahead of 92.74 support. Though, the index is pressed by 55 day EMA. For now, we’d not expect down trend resumption yet, at least not until US elections. But even in case of another rebound, we’re not expecting a break of 95.71 resistance zone, 38.2% retracement of 102.99 to 91.74 at 96.03. At least, that shouldn’t happen until there is a big change in the outlook, which depends on world recovery and the pandemic.
Gold’s rebound stalled at 1933, but another rise still mildly in favor.
Gold’s development was somewhat in tandem with Dollar too. Rebound stalled at 1933.17 and turned sideway. But downside is so far contained comfortably above 1872.85 support. Rebound from 1848.39 is still mildly in favor to extend higher. Break of 1933.17 would target 1973.58 resistance next. However, break of 1872.85 will likely resume the correction from 2075.18 through 1848.39 low.
GBP/CHF range bound with another rise in favor
Despite all the headlines of Brexit and UK lockdown, Sterling was indeed bounded in range against most major currencies. GBP/CHF extended the consolidation from 1.1968 with another brief dip. But it’s supported well above 1.1723 support. Hence, we’d still, for now, expect another rise in GBP/CHF through 1.1968 resistance to resume the rise from 1.1598, to retest 1.2222/59 key resistance zone. But break of 1.1723 will probably resume the fall from 1.2222 through 1.1598 instead.
AUD/JPY to resume the decline from 78.46
The weakness in Aussie was more profound. AUD/JPY’s rebound from 73.97 to 76.52 was much stronger than we expected. Yet, subsequent reversal suggests that it’s still merely a corrective recovery. Fall from 78.46, as a correction to rise from 59.98, is still in progress and it’s probably resuming. Immediate focus is back on 73.97 support. Break will confirm this bearish case and target 38.2% retracement of 59.89 to 78.46 at 71.36.
EUR/CHF Weekly Outlook
EUR/CHF finally broke out of range last week and dipped to as low as 1.0688. But as a temporary low was formed with subsequent recovery, initial bias is neutral this week first. Current development suggests that consolidation from pattern from 1.0915 has started the third leg. Break of 1.0688 will target 1.0602 support and possibly below. However, on the upside, break of 1.0749 minor resistance will mix up the near term outlook again.
In the bigger picture, price actions from 1.0503 are still seen as a consolidation pattern. With 1.1059 cluster resistance (38.2% retracement of 1.2004 to 1.0503 at 1.1076) intact, the down trend from 1.2004 (2018 high) would still extend through 1.0503 low at a later stage. However, sustained break of 1.1059/76 will argue that rise from 1.0503 is starting a new up trend and would target 61.8% retracement at 1.1431 and above.