FXStreet notes that optimism that a fresh US fiscal stimulus package could be announced ahead of the presidential election has faded and the market outlook has been overtaken by rising fears connected with the second wave of COVID-19. Insofar as Europe is in the grip of a second wave of the pandemic and fears about deflation in the region are widening, the EUR’s shine appears to be dimming. Economists at Rabobank forecast the EUR/USD pair at 1.17 on a one-month view. 

“Press reports on Wednesday have hinted at the possibility of another national lockdown for France from Thursday night. In Germany there are reports that Chancellor Merkel could close all restaurants and bars and some other venues from November 4. In Rome protests have erupted in dissatisfaction about the latest restrictions.”

“Having been buoyed by the creation of long EUR positions in the spring and summer, we see the EUR as now vulnerable to further selling pressure against both the USD and the JPY. While a steady policy outcome from the ECB tomorrow would likely lend the EUR support, given the worrying economic backdrop in the EUR, we would expect any rebound in EUR/USD and EUR/JPY to be short-lived.”

“While the huge liquidity facilities put in place by the Federal Reserve this year suggest that the market is unlikely to see anything like the disruption experienced in March in the foreseeable future, we do expect reduced risk appetite to translate into a covering of short USD positions. We look for EUR/USD at 1.17 on a one-month view and see risk of a dip to EUR/USD 1.16 in three-months.”  

• Bars and restaurants will have to close at 11 pm
• Events with more than 50 people  as well as sporting and cultural activities with more than 15 people will be prohibited

• CAD stronger than assumed in July despite low oil prices
• BoC will keep providing stimulus to support economy through recovery
• We are still more than 700,000 jobs below pre-pandemic; peak job losses in 2009 recession were about 425,000
• Purchases of longer-term bonds are more effective
• The very rapid phase of the reopening phase is over
• Some parts of economy will simply be unable to completely reopen until coronavirus vaccine is widely available
• We expect Q4 growth to be just barely positive
• We've marked down growth potential to 1% out to 2023
• We see the risks are forecasts to be roughly balanced but we're particularly focused on downside risks

NFXStreet reports that analysts at Natixis note that new economic policies conducted in the United States could reduce the dollar’s reserve currency role, leading to a depreciation of the dollar, rising long-term interest rates and falling share prices, particularly for technology shares if dominant positions are challenged.

“The dollar remains the dominant international reserve currency, and if this status disappeared, the United States would face a serious crisis. The reason is that the dollar's status enables the US to maintain continuous fiscal and external deficits and to finance them without difficulty at a very low interest rate. It should also be pointed out that the US’ attractiveness for non-resident investors concerns not only US Treasuries and bonds, but also equities. The dollar can therefore be said to be a reserve currency for all types of financial assets.”

“A decline of the dollar as an international reserve currency could be the result of economic policies in the US that would discourage foreign investors (in US bonds and equities): A fiscal and monetary policy that would exacerbate the shortfall in savings relative to investment... and therefore speed up the increase in US external debt; A wage or competition policy that would reduce US companies' profitability and affect the attractiveness of the US equity market for non-residents.”

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories rose by 4.320 million barrels in the week ended October 23. Economists had forecast a gain of 1.230 million barrels.

At the same time, gasoline stocks decreased by 0.892 million barrels, while analysts had expected a decline of 0.961 million barrels. Distillate stocks tumbled by 4.491 million barrels, while analysts had forecast a drop of 2.065 million barrels.

Meanwhile, oil production in the U.S. surged by 1.200 million barrels a day to 11.100 million barrels a day.

U.S. crude oil imports averaged 5.7 million barrels per day last week, increased by 0.5 million barrels per day from the previous week.

The Bank of Canada (BoC) maintained its benchmark interest rates unchanged at 0.25 percent on Wednesday, as widely expected.

In its policy statement, the Canadian central bank noted:

• Bank is recalibrating QE program to shift purchases towards longer-term bonds, which have more direct influence on the borrowing rates that are most important for households and businesses; total purchases will be gradually reduced to at least $4 billion week from $5 billion week
• Governing Council judges that, with these combined adjustments, QE program is providing at least as much monetary stimulus as before
• QE program will continue until the recovery is well underway
• Rising COVID-19 infections are likely to weigh on the economic outlook in many countries, and growth will continue to rely heavily on policy support
• U.S. GDP growth appears to be slowing considerably, while China’s economic recovery continues to broaden and recovery in Europe is slowing amid mounting lockdowns
• Canada’s economy is now transitioning to more moderate recuperation phase
• Canada’s economy is expected to grow by almost 4 percent on average in 2021 and 2022
• Despite continued low oil prices, the Canadian dollar has appreciated since July, largely reflecting a broad-based depreciation of the US dollar
• Governing Council will hold policy interest rate at effective lower bound until economic slack is absorbed so that 2-percent inflation target is sustainably achieved; in BoC’s current projection, this does not happen until into 2023
• We are committed to providing monetary policy stimulus needed to support recovery and achieve inflation objective

• UK's government will not back down on its fisheries policy
• European Commission has made clear it will not agree to third-country cumulation in any circumstances

U.S. stock-index futures fell on Wednesday, as a surge in coronavirus infections across the globe triggered fears of lockdowns disrupting a nascent economic recovery, while concerns over a contested U.S. presidential election and a stalled coronavirus stimulus talks also weighed on sentiment.

Global Stocks:

FXStreet notes that S&P 500 stays critically placed on its 63-day average at 3391, a close below which should clear the way for further near-term weakness as well as reinforce a broader sideways range into the US election, with key support seen starting at 3324 and stretching down to 3298/96. The VIX spotlight turns to key resistance at 37.20/38.28, above which would see a significant base established to mark a more concerning rise in volatility and likely market weakness, per Credit Suisse.

“The S&P 500 stays critically placed, sitting right on its 63-day average at 3391 and with support from the ‘neckline’ to the ‘head & shoulders’ base removed the immediate risk is seen lower.”

“A close below 3391 should confirm the base has indeed been neutralized to reassert the sideways range from the early September peak with support then seen next at 3365 ahead of the late September price gap, starting at 3324 and stretching down to 3298/96, also the uptrend from mid-June. We would look for a fresh floor here.”

“The VIX has surged higher to turn the spotlight on key trend/price resistance at 37.00/38.28. A close above here would see a base complete to warn of a more significant rise in volatility and accompanying fall in the market itself.”

MasterCard (MA) reported Q3 FY 2020 earnings of $1.60 per share (versus $2.07 per share in Q3 FY 2019), missing analysts’ consensus estimate of $1.66 per share.

The company’s quarterly revenues amounted to $3.837 bln (-14.1% y/y), missing analysts’ consensus estimate of $3.951 bln.

MA fell to $304.00 (-4.13 %) in pre-market trading.

(company / ticker / price / change ($/%) / volume)

USD rose against most of its major counterparts in the European session on Wednesday as demand for safe-haven assets increased amid a surge in coronavirus infections across the globe and ahead of next week's presidential elections in the U.S. The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, jumped 0.7% to 93.59.

According to the latest data from Johns Hopkins University, the total number of confirmed global coronavirus cases has increased to 44,067,588 and deaths have grown to 1,168,693. 

A recent surge in new infections in Europe forced the region's major economies to head for more restrictions on movement and commerce. French president Emmanuel Macron is expected to announce a month-long national lockdown later today, while German chancellor Angela Merkel is reportedly planning to close all restaurants and bars in Germany. The European Commission president Ursula von der Leyen said today that a spike in virus infections is "alarming" and urged the EU governments to step up response to the pandemic. The developments in Europe elevated concerns that more cities in the U.S. might adopt similar measures to contain their coronavirus epidemic.

The U.S. presidential election, which is to take place in less than a week, also remains in investors' focus. Polls give a former vice president Joe Biden a lead over the U.S. president Donald Trump in the upcoming presidential election, but the contest is much tighter in battleground states that could decide the result of the elections.

FXStreet notes that the Canadian dollar continues to outperform amongst G10 currencies with USD/CAD still threatening to break below the 1.3000-level ahead of the US Presidential election. The Bank of Canada (BoC) policy update should be modestly CAD supportive, according to economists at MUFG Bank.

“According to our calculations, the Canadian dollar has displayed the most bullish momentum over both the last three weeks and three months. However, we would argue that upward momentum is not stretched enough to provide a strong signal that there’s a high risk of a reversal lower.”

“The most likely scenario in the run-up to the US Presidential election is that USD/CAD continues to consolidate between 1.3000 and 1.3400. We do not expect today’s BoC meeting to reinforce the Canadian dollar’s upward momentum sufficiently for USD/CAD to break below 1.3000.”

“The aggressive fiscal response and strong bounce back for Canada’s economy have eased some of the pressure on the BoC to deliver further stimulus. There has been no strong indication from the BoC it is ready to step up QE from the current pace of just over CAD5 billion/week. Those favourable developments continue to encourage a stronger Canadian dollar. However, we would caution that the loonie strength relative to the US dollar is starting to look overdone based on short-term fundamental drivers such as the price of oil and yield spreads. As a result, USD/CAD should continue to find it difficult to break below 1.3000.” 

FXStreet reports that Quek Ser Leang at UOB Group’s Global Economics & Markets Research reviewed the prospects for the US Dollar Index (DXY).

“In our Chart of the Day from about one month ago, 23 Sep 20 (when USD Index was trading at 94.15), we highlighted that ‘the early September low of 91.75 is a significant bottom and this level may not come back into the picture within these couple of months’. We added, if USD Index were to break the critical resistance levels between 94.70 and 94.90, it could potentially lead to a relatively large corrective rebound.”

“USD Index subsequently rose as expected but was unable to break the top of the Ichimoku cloud at 94.90 (high has been 94.74). Since then, USD Index drifted lower and touched 92.47 last Wednesday (21 Oct). In other words, our expectation for a strong ‘corrective rebound’ did not materialize. Instead, we now view the current movement in USD Index as part of a consolidation phase and it could trade within September’s range of 91.75/94.74 for a period of time.”

Boeing (BA) reported Q3 FY 2020 loss of $1.39 per share (versus earnings of $1.45 per share in Q3 FY 2019), better than analysts’ consensus estimate of -$1.94 per share.

The company’s quarterly revenues amounted to $14.139 bln (-29.2% y/y), beating analysts’ consensus estimate of $13.957 bln.

BA rose to $1156.75 (-0.97%) in pre-market trading.

• Says spike in virus infections is "alarming"
• Coronavirus cases will increase in the next 2-3 weeks
• Now is not the time to relax virus measures

General Electric (GE) reported Q3 FY 2020 earnings of $0.06 per share (versus $0.15 per share in Q3 FY 2019), beating analysts’ consensus estimate of -$0.03 per share.

The company’s quarterly revenues amounted to $19.417 bln (-16.9% y/y), beating analysts’ consensus estimate of $18.944 bln.

GE rose to $7.37 (+3.80%) in pre-market trading.

Yandex N.V. (YNDX) reported Q3 FY 2020 earnings of RUB22.06 per share (versus RUB20.54 per share in Q3 FY 2019), beating analysts’ consensus estimate of RUB21.83 per share.

The company’s quarterly revenues amounted to RUB53.704 bln (+19.3% y/y), missing analysts’ consensus estimate of RUB57.895 bln.

YNDX fell to $57.50 (-3.41%) in pre-market trading.

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. rose 1.7 percent in the week ended October 23, following a 0.6 percent drop in the previous week.

According to the report, refinance applications surged 2.5 percent, while applications to purchase a home increased 0.2 percent.

Meanwhile, the average fixed 30-year mortgage rate edged down to 3.00 percent from 3.02 percent.

“These results highlight just how strong the upper end of the market is right now, with outsized growth rates in the higher loan size categories,” noted Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Furthermore, housing inventory shortages have pushed national home prices considerably higher on an annual basis.”

Microsoft (MSFT) reported Q1 FY 2021 earnings of $1.82 per share (versus $1.38 per share in Q1 FY 2020), beating analysts’ consensus estimate of $1.36 per share.

The company’s quarterly revenues amounted to $37.154 bln (+12.4% y/y), beating analysts’ consensus estimate of $35.781 bln.

MSFT fell to $209.06 (-1.96%) in pre-market trading.

FXStreet reports that economists at TD Securities look for the Bank of Canada (BoC) to keep rates unchanged while maintaining a cautious tone in the October policy statement.

“Hawkish (10%): Could have been worse. Economy has outperformed central scenario from July, large (2pp) upgrade to 2020 GDP, 2021 unchanged. A larger supply-side impact will pull forward closing of the output gap. Forward guidance and QE unchanged.”

“Base Case (60%): Not out of woods yet. Economy has outperformed the central scenario from July; a large (2pp) upgrade to 2020 GDP but 2021 downgraded. Statement flags more challenging recovery from here, fragile consumer and business sentiment. Forward guidance and QE unchanged.”

“Dovish (30%): Enter YCC. Strong initial recovery in the rearview, next phase will be more difficult with COVID-19 infections rising. Fiscal policy supporting growth but low inflation/excess supply suggest more needs to be done.”

Bloomberg reports that China has taken more steps this month to loosen its grip on the yuan than at any time since curbs were imposed in the aftermath of a chaotic devaluation in 2015.

Although the changes were widely interpreted as an attempt to slow the currency’s appreciation, they have been deployed without significantly weakening the yuan or destabilizing global financial markets. Instead, the result has been a steady Chinese currency that remains near a two-year high .

A growing consensus among analysts is that the yuan has every reason to stay strong, even if appreciation happens at a slower pace from now. Higher-yielding Chinese assets will continue to attract foreign capital into mainland bond and equity markets, and the country’s economy is recovering faster from the virus pandemic than elsewhere.

Reuters reports that British finance minister Rishi Sunak said he would announce a one-year plan for government spending on Nov. 25, which would focus on tackling the COVID-19 pandemic and delivering on the government's plans to protect jobs.

Sunak said earlier this month that he would provide an outline of his spending plans for one year rather than the usual three, given the uncertainties about the coronavirus.

FXStreet reports that according to strategists at Credit Suisse, gold consolidation extends as expected, but with new highs eventually expected, .

“Gold extends its consolidation/correction following the move to our base case objective of $2075/80 in August, but is still holding flagged support at $1837, the 38.2% retracement of the rally from March. We look for this to continue to hold to maintain the sideways range ahead of a break above $1993 for a fresh look at $2075.” 

“An eventual move above $2075 stays looked for a resumption of the core bull trend with  resistance seen next at $2175, then $2300, although we continue to believe this will not be seen until next year.”

Reuters reports that DIW institute said that the German economy likely grew by around 6% in the third quarter but the recovery from the coronavirus crisis seen over the summer will probably slow as a second COVID-19 outbreak hits Europe's biggest economy.

DIW pointed to the threat of further coronavirus-related restrictions and said many companies were still struggling with the consequences of the lockdown imposed in spring and had hardly any financial reserves left.

The Federal Statistics Office is due to release preliminary German gross domestic product (GDP) data for the third quarter on Oct. 30.

FXStreet reports that FX Strategists at UOB Group believe USD/CNH’s rebound could extend to the 6.7450 level in the next weeks.

Next 1-3 weeks: “We have held a negative view in USD since early last week. As USD rebounded after touching a low of 6.6275, we highlighted last Friday (23 Oct) that ‘slowing downward momentum and oversold conditions suggests that 6.6030 could be out of reach this time round’. We added, ‘a break of 6.6980 would indicate the risk for further USD weakness has eased’. USD blew past 6.6980 yesterday (26 Oct) and hit a high of 6.7172. The price action suggests that 6.6275 is a short-term bottom and this level may not come back into the picture within these couple of weeks. The current movement is viewed as part of a ‘corrective recovery’ that has scope to extend to 6.7450. Overall, USD is expected to trade with an upward bias for now as long as it does not move below the ‘strong support’ level at 6.6530. On a shorter-term note, 6.6660 is already quite a solid level.”

FXStreet reports that disruptions from the second COVID-19 wave in Europe is set to build a darkening outlook for the common currency, per MUFG Bank.

“The main trigger for the euro sell off has been reports that the French government is considering a month-long national lockdown to help dampen the spread of COVID-19 which could take effect from midnight on Thursday. French President is expected to make a televised address on Wednesday when the new lockdown measures could be officially announced.” 

“According to the WHO, 46% of all global cases and nearly one third of all deaths were from the European region last week. If the negative COVID-19 trends in Europe continue in the coming weeks and months, it will increase pressure on other national governments to follow France and re-impose lockdown measures. The developments are clearly darkening the outlook for the economic recovery in Europe heading into year end. Leading indicators are already signalling that the eurozone economy is slowing more than the US which is currently experiencing its third wave of COVID-19.” 

“At the same time, the ECB and national governments will come under increasing pressure to deliver further stimulus to support growth, although it is probably too soon to expect action as soon as at this week’s ECB policy meeting.”

During today's Asian trading, the euro fell against the US dollar and the yen, while traders are waiting for the results of the European Central Bank (ECB) meeting, which will be announced on Thursday.

Concerns that Europe is plunging into a cycle of weak economic growth, negative interest rates and deflation will be at the heart of the ECB's discussions this week, although no immediate action is expected from the regulator.

On Friday, traders also expect the publication of preliminary data on changes in consumer prices in the Euro zone in October and GDP in the third quarter. The data could show the region's economy growing at around 10% compared to the previous three months after the recession in the first half of the year.

However, a new spike in the incidence of coronavirus and retaliatory restrictive measures, including curfews in France, Italy and Spain, pose the threat of a second recession. ECB chief Christine Lagarde is expected to signal a willingness to accept new stimulus in December, amid worsening forecasts.

The yen is rising. The Bank of Japan will also hold a meeting this week, the results of which will be announced on Thursday. Experts do not expect him to change the main parameters of monetary policy at the upcoming meeting.

Hopes for a new package of measures to support the US economy before the presidential election were dashed after the leader of the Republican majority in the Senate, Mitch McConnell, announced that the upper house of Congress will not resume work until November 9.

The ICE index, which tracks the dynamics of the US dollar against six currencies (Euro, Swiss franc, yen, canadian dollar, pound sterling and Swedish Krona), rose by 0.22%.

According to the report from the Insee, in October 2020, households’ confidence in the economic situation has declined slightly: the synthetic index has lost one point compared to September. At 94, it returns to its July and August level and remains below its long-term average (100).

In October, households have been less optimistic concerning their future financial situation: the corresponding balance has lost three points and is back below its long-term average. On the other hand, households' balance of opinions about their past financial situation has been stable and stays above its long-term average.

Furthermore, the share of households considering it is a suitable time to make major purchases has been stable. The corresponding balance remains below its long-term average.

In October, the share of households considering it is a suitable time to save has declined. The corresponding balance has lost two points, but remains well above its long-term average. However, households' balance of opinion on their current saving capacity has gained one point and stays well above its average.

According to the report from the Federal Statistical Office (Destatis), the index of import prices decreased by 4.3% in September 2020 compared with the corresponding month of the preceding year. Economists had expected a 4.8% decrease. In August 2020 and in July 2020 the annual rates of change were -4.0% and -4.6%, respectively. From August 2020 to September 2020 the index rose by 0.3%.

The index of import prices, excluding crude oil and mineral oil products, decreased in September 2020 by 1.9% compared with September 2019.

The index of export prices decreased by 1.1% in September 2020 compared with the corresponding month of the preceding year. In August 2020 and in July 2020 the annual rates of change were also -1.1%, each. From August 2020 to September 2020 the index slightly rose by 0.1%.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1892 (4073)

$1.1872 (496)

$1.1857 (506)

Price at time of writing this review: $1.1774

Support levels (open interest**, contracts):

$1.1733 (1063)

$1.1703 (1650)

$1.1668 (2083)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 6 is 57859 contracts (according to data from October, 27) with the maximum number of contracts with strike price $1,1800 (4073);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3140 (2623)

$1.3107 (265)

$1.3086 (800)

Price at time of writing this review: $1.3053

Support levels (open interest**, contracts):

$1.3011 (826)

$1.2949 (250)

$1.2921 (648)

Comments:

- Overall open interest on the CALL options with the expiration date November, 6 is 33111 contracts, with the maximum number of contracts with strike price $1,3950 (3784);

- Overall open interest on the PUT options with the expiration date November, 6 is 26647 contracts, with the maximum number of contracts with strike price $1,2050 (2391);

- The ratio of PUT/CALL was 0.80 versus 0.79 from the previous trading day according to data from October, 27

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.

eFXdata reports that Nomura discusses its expectations for ECB policy meeting on Thursday.

"We expect the ECB to leave its monetary policy unchanged at its October meeting. We maintain our view that the next policy move will be in March 2021, when we think the ECB will increase its PEPP envelope by an additional €400bn. Before that we expect the ECB to step up its weekly PEPP purchases into the winter as the euro area economic recovery falters as a result of more restrictive lockdown measures," Nomura notes. 

RTTNews reports that according to the report from the Australian Bureau of Statistics, Consumer prices in Australia were up 0.7 percent on year in the third quarter of 2020, in line with expectations, following the 0.3 percent decline in the previous three months.

On a quarterly basis, inflation climbed 1.6 percent following the 1.9 percent contraction in the three months prior. Economists had expected a 1.5 percent increase

The RBA's trimmed mean was up 0.4 percent on quarter and 1.2 percent on year after slipping 0.1 percent on quarter and gaining 1.2 percent on year in Q2.

The RBA's weighted median was up 0.3 percent on quarter and 1.3 percent on year after rising 0.1 percent on quarter and 1.3 percent on year in the previous three months.