Some dollar crosses managed to record confirmed technical breaks through resistance levels in the weekly close, strengthening the signal. EUR/USD ended the week at 1.1631 (vs EUR/USD 1.1696 dollar resistance). The trade-weighted greenback closed at 94.64, confirming the move through 94. The dollar kept its posture even if US stock markets showed new vigor, erasing opening losses and eventually winning up to 2.2% (Nasdaq). Asian markets are less ebullient this morning, but nevertheless gain nearly 1%. Chinese industrial profits increased for a 4th month straight, but remain down YTD (-4.4%). Stock markets shrug of the troubling geopolitical scene with rising COVID-19 tallies tilting the balance in the direction of stricter lockdown measures. The Times of London for example reports that the UK is reading a forced social lockdown across much of norther Britain and potentially London.
This week’s trading dynamics will spin around risk sentiment and US eco data. Last week’s volatility on (US) stock markets was very high. From a technical point of view, we remain in correction territory. The US eco calendar contains consumer confidence, the first presidential debate between Trump and Biden (both tomorrow), ADP employment change, Chicago PMI (both on Wednesday), weekly jobless claims, PCE deflator, manufacturing ISM (on Thursday) and US payrolls (on Friday). Data risk being negatively affected by the end of several fiscal support measures and by the spreading corona pandemic. Last week’s EMU September numbers (PMI’s) already suggested that the Q3 recovery might be a one-off. This week’s agenda is loaded with ECB and Fed speakers as well. The dovish wing of the European Central Bank (Lagarde, Visco, Hernandez de Coz) this weekend warned against removing fiscal and monetary stimulus too soon. The back-loaded eco agenda gives way for risk sentiment to dominate first. European stock markets are set to open stronger, USD/JPY’s decline from 105.60 to 105.30 suggests some caution still. A positive market vibe could help the euro recover against the dollar while undoing some of Friday’s core bonds gains. German Bunds outperformed with the curve bull flattening, Yields fell by 0.9 bps to 4.4 bps. US yield changes ranged between -0.3 bps and -1.2 bps with the belly of the curve outperforming the wings.
Sterling continues defying the odds. EUR/GBP gapped open lower this morning before returning to 0.91. BoE policy maker Tenreyro reported on encouraging discussions on negative interest rates and dismissed the idea of a V-shaped recovery: “Flare-ups like we’re seeing may potentially lead to more localized lockdowns and will keep interrupting that V,” she said. “Another factor interrupting the V is a very weak global outlook, with high uncertainties, particularly with a second wave already striking many countries.” Apart from the UK potentially enforced lockdown and the debate on negative interest rates, we have brexit. The EU and UK enter another round of discussion this week, with their self-imposed October 15 deadline rapidly closing in.
Switzerland in a referendum approved a plan to buy new fighter jets for an amount of CHF 6 bln. The expenditure was expected to be approved, but only received a very small 50.2% majority. Another measure on immigration, with would limit the number of immigrants from the EU was rejected with a majority of 62%, avoiding a political conflict with the EU.
The UK House of Commons plans a vote on the prolonging legislation that gives the government powers to impose measures to limit the spreading of the corona pandemic without approval of the Parliament on Wednesday. Opposition parties indicated that will support action against the emergency powers while at the same time the opposition within Boris Johnson’s conservative party is building, too, as MP’s want to put a check on the government’s powers.