Chinese equities have rallied but the tone in other Asian stock markets is laced with caution in the lead-up to tonight’s Fed policy decision.  Japanese stocks have been the laggards given the worsening coronavirus situation in Japan (Kyoto, Osaka and Okinawa have all recorded record daily infections) and weak earnings reports from Canon (1st quarterly loss and cutting its dividend) and Nissan (bigger than expected operating loss).

Both the DOW and S&P are trading a little soft ahead of tonight’s decision and we will have to see how they trade leading up to the event and then after the press conference.  We believe that the FED will do nothing today opting to wait to see how the data prints in the next month and will state that the recovery will be very slow and generally downbeat.  With this in mind we feel equities should come off at the end of the conference.

US house speaker Pelosi says Republican coronavirus stimulus bill unlikely to pass in Senate as she believes McConnell is not ready to make an agreement on the aid.  At the moment market is trading cautiously and directionless.

The PboC sets USDCNY at 6.9969 (from 6.9895).

USDJPY – overnight the pair staged a retest of its 4-1/2 month low of 104.96 as Japanese stocks slid but then soon pared back these losses and traded back towards 105.25/30. As we write we are testing these lows again but for now the move lower is more of a grind than an acceleration. As we mentioned yesterday the BoJ will be closely monitoring the exchange rate and they really do not want a strong JPY and overnight this was further emphasised by Amamiya (deputy BoJ governor) who stated that the BoJ would be ready to ease further without hesitation if needed. Whilst we are below 105.25 there is a chance we could trade towards 104.40 which is the next Fibonacci level on the daily charts.  On the topside 105.25 is resistance with a break opening 106.00 again and then 106.25/30 which was the old support. The DXY really here is the main driver and for now at least it seems very stretched but still very sick.  Ideally we need to at least get back above 93.71 to stabilise things in the very short term and then we look to tonight’s decision where really it will be a flip of a coin as to how the market will react. As we write the USD starts on the back foot again.

EURUSD – the pair for now seems to be in a consolidation mode of 1.1700/50 whilst still at a high level. We still believe that we will go higher ultimately possibly passed our initial target of 1.1800 and onto 1.2000 however, we are expecting a pullback of some kind. As we have already mentioned the meeting tonight and how the market reacts will be a coin flip and therefore, will need to be nimble but we are looking at 1.1800 to be being very good resistance as it was back in 2018 and ideally go long again around 1.1600/1.1580 with 1.1480/1.1500 being solid support as this was the level we broke out of. Today is also value date month end for Corporates where we should expect USD buying for month rebalancing.

GBPUSD – has performed very well over the last few sessions and we have stayed out of its way. As we have said we feel this bullish move is more because of USD weakness as opposed to GBP strength as GBP at the moment does not really have much going for it in terms of Brexit issues and the state of the economy and high unemployment as a result of covid19. The levels today are 1.2925/1.2960. A break of the former will open up 1.3000 whilst a break of the support will open up 1.2850.

FTSE 100 – hit our support target at 6100 in yesterday’s session yet again, while failing to breach lower as a pickup in defensive and travel stocks provided some footing to the index with trading remaining to be choppy as earnings season gather pace. 6160 resistance level to direct today’s session with an hourly close above it to favour higher prints.

DOW JONES – disappointing earnings results, weakening consumer confidence and wrangling between US Republicans and the White House over the latest stimulus package weighed down on investor sentiment as the Dow hit our short support target at 26400, favouring lower prints as we look towards 26200 support target.  The Fed decision yesterday to prolong 7 out of 9 of its emergency spending program until year end failed to boost sentiment with all eye’s today on the FOMC decision as expectations remain dovish.

DAX 30 – hit our support target at 12800 as fears over a second virus wave across Europe dented investor sentiment, only to print higher in early session today on better than expected bank earnings, and a note from Morgan Stanley’s analysts stating that European stocks could rise by 10%. Technicals continue to favour bearish momentum as long as we don’t print above the 200 period SMA and the 13000 resistance level.

GOLD – the yellow metal hit our short support target at 1920 only to end yesterday’s session on a record close as the greenback continued to slide, amidst risk-off sentiment as Congress and the White House struggled to reach a deal on the latest aid package and six US states registered record Covid-19 deaths. Investors await the US Federal Reserve’s meeting outcome today, with prints above our support level at 1945 to keep bullish momentum strong with 1980 as the target.

US OIL – a surprise drawdown of 6.829 Mb, vs. an expected 1.2 Mb and a previous buildup of 7.544Mb, failed to boost crude higher, ending yesterday’s session on a bearish engulfing daily candle as we hit our short support target at $41 in early trade today. Investors look ahead to today’s EIA data which may provide some footing to WTI Crude, as we keep our bearish view on longer term technicals with 40.50 and 40 as next support targets.

 

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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