Tepid risk sentiment prevails at the start of the week with global Covid-19 news going head to head with more corporate earnings reports.  Chinese equity indices have seen a strong start with CSI300 +2.55%, Shanghai Composite +2.62% and Shenzhen Composite +1.78%. S&P500 e-minis erased early gains and have consolidated losses at -0.31% on the day.

The markets are also waiting on two main stimulus package decisions.  The EU aid deal which rumours suggest is close to reaching a compromise and also whether Washington will pass the next stimulus package which many believe will be the last one as we approach the elections.  Over the weekend one of the US’s biggest state Los Angeles, was contemplating re-introducing lockdown measures as cases continue to rise.

USDJPY – traded a high of 107.53 overnight but has since pared back these gains and we are now back below the 107.30/35 area. The DXY is back below out 96.03/09 level and if we see a deal reached regarding the EU aid package we could see the index suffer more losses. For the pair we are still very much in a wide range and we still advocate selling rallies 107.30/35 and then 107.50/55 and are looking for a move initially towards 106.80 and then 106.20.

EURUSD – the common currency waits with bated breath for a positive outcome on the EU recovery fund. It was pretty much a stalemate over the weekend with no decision being reached and Dutch President Rutte being the main adversary and really digging his heels in. However, this morning rumours are circulating that a compromise may have been reached with the final number being 390bn in loans and 310bn in grants even though, the loans are 110bn less than the original 500bn proposed it does at least show that unity does prevail and the Southern European countries will be getting the much needed funds to begin their recovery. BTP yields are liking this and are now trading around 1.20% as opposed to the close of 1.23% on Friday. We think that the pair has done a lot of work and will be selling our longs around 1.1500 as we are sure there will be a lot of option play around this level t and then readdress the situation but will still buy any dips if we see any. On the downside immediate support is at 1.1430 followed by 1.1380. Should we break 1.1500 then 1.1550 becomes next resistance but again there will be option play there too.

GBPUSD – has held in well even though EURGBP continues higher as a result of the weaker USD.  We still favour selling rallies but are waiting for higher levels. 1.2660 and 1.2700 would be ideal should we see them again.  Pessimism surrounding Brexit still exist, fears of the economy moving forward, the potential of negative rates and now the tussle with China will all weigh on the currency. 1.2515 and 1.2480 are the main support zones with a break of the latter opening way for 1.2400. On the topside 1.2580 and 1.2625/30 are the 2 main resistance zones with a break of 1.2625/30 opening way for the recent high of 1.2660 where we would instigate fresh shorts.

FTSE 100 – higher prints on the FTSE 100 remain muted as investors look for signs of further stimulus from the US and EU’s leaders ongoing Brussels meeting, while increasing virus cases in Asia and Los Angeles spark fears of a second round of lockdown. As the index prints between our Support/Resistance levels at 6270/6325, a break in either direction is needed for clearer direction.

DOW JONES – we reiterate Friday’s recommendation as the index closed below our support level at 26600 looking to test 24400 support level.  Risk sentiment is tilting more towards risk off with futures printing lower in early trade today as investors weigh further stimulus with the Fed planning to extend emergency loans to non-profits.  Moreover, surging virus cases in Florida have been described as ‘out of control’ by a US congresswoman earlier.

DAX 30 – continues to trade below the 13000 level as the EU leaders’ Brussels meeting continues to drag on market sentiment after failing to reach an agreement three days in.  Lower than expected German PPI data released earlier today weighed down on the index while news that the EU’s frugal four are ready to accept Euro 390B in grants should keep the 12800 support level intact. Trading is range-bound between 12800/13000 support/ resistance levels.

GOLD – ended Friday’s session in the green back above the 1800 level and the 200-period SMA on the hourly chart as Covid-19 deaths in the US surpassed 140000 while President Trump downplayed the severity of it saying the US has the ‘best mortality rate’.  A weakening greenback should support higher prints on the yellow metal with an hourly close above 1815 to open the door to further gains.

USOIL – WTI crude oil eases as risks of a second wave of lockdowns continue to augment with global cases passing 14.5M while US Baker Hughes oil rig count dropped by one in the past week to reach 180. Failure to remain above the 200 period SMA on the hourly chart will favour a retest towards our support levels with 40 and 39.27 levels in sight.

 

Rony Nehme
Chief Market Analyst at SquaredFinancial

Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.

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