26th October 2020 - Bulls testing bearish commitments at resistance


Good Morning,

Market Headlines

Sentiment remained mixed on Friday, with US stimulus talks continuing but not agreeing. The S&P500 closed up 0.3%, risk sensitive currencies were slightly higher, and bond yields were slightly lower. Commodities, Brent crude oil futures fell 1.6% to $41.75, copper fell 0.7%, iron ore fell 3.9% to $115.65, and gold fell 0.1%.

Currency

AUD/USD: 0.7102 – 0.7158

EUR/USD: 1.1792 – 1.1865

GBP/USD: 1.3017 – 1.3122

USD/JPY: 104.55 – 104.88

USD/CAD: 1.3110 – 1.3160

NZD/USD: 0.6657– 0.6704

AUD/JPY: 74.33 – 74.91

AUD/NZD: 1.0654 – 1.0683

AUD Thoughts

- AUD/USD is in a current bullish environment according to technical indicators.

- However, bears could be encouraged at near-term resistance structures.

AUD/USD has been in the hands of the bears while correcting five months of an otherwise uninterrupted bull trend. The 38.2% Fibonacci retracement is way down at 0.6680, although there is plenty of demand in 0.7020 which will need to be cleared if there is to be an extension as deep.

While the fundamental case for a weaker dollar is compelling given the prospects of a Biden victory and of global reflation amid large scale fiscal stimulus post-election, the following illustrates the technical bearish argument for AUD.

Event Risk Data Today

New Zealand: Labour Day holiday.

Germany: The October IFO business climate survey will likely signal a deterioration in confidence as virus cases surge once again (prior: 93.4, market f/c: 93.0).

US: New home sales reached a 14yr high in September, though the flow-on benefit for new home construction will likely be capped by supply-side constraints (prior: 1011k, market f/c: 1024k). Chicago Fed activity index (prior: 0.79) and Dallas Fed index will give updates on business conditions in two of the key manufacturing regions(prior and market f/c: 13.6).

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