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Week Ahead: October Will be Anything but Normal

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Fundamental analysis of Forex market

This week is going to be full of headlines regarding President Trump’s health and Brexit.

As if things couldn’t get more bizarre in 2020, US President Trump and his wife have tested positive for the coronavirus, only weeks ahead of the November 3rd US election.  Traders will be monitoring the situation to see how it will affect the campaigning.  This comes ahead of the Vice-Presidential debate on Tuesday, which now may be the most anticipated Vice-Presidential debate EVER! After a relatively quiet week of negotiations regarding Brexit, UK’s Johnson and EU’s von der Leyen will hold high level talks this weekend, with hopes of breaking through stalemates.  The coronavirus is continuing to pick up steam and it seems to be stalling the economic rebound in many countries.  In addition, US House leader Nancy Pelosi and Treasury Secretary Mnuchin continue talks to try and push through another fiscal stimulus package before the election.

Now that the President of the United States and the First Lady have tested positive for the coronavirus, traders will be searching over the weekend as to what’s next for the Trump campaign with 1 month left before the election.  As of Friday afternoon, the President is reporting “cold-like” symptoms.  However, the President has already turned over phone meetings with US Governors to Vice President Pence and he said he plans to tap the Vice President for duties if symptoms worsen.  For now, though, except for a few debates and some campaigning, the President plans to retain his Presidential duties.

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This brings forward the anticipation of the Vice-Presidential debate to be held on Tuesday. As neither of the Presidential candidates are getting any younger, with Trump at age 74 and Biden at age 78, one of these two Vice-Presidential candidates may have to step into role of President over the next 4 years if the sitting President cannot perform his duties as Commander-in-Chief.  Trump’s coronavirus reminds us the even the most protected people in the world are susceptible to illness.  Usually the Vice-Presidential debate is a non-event.  However, the world will be watching Tuesday night with more interest than usual.

Heading into the weekend, talks between the UK and the EU on Brexit are at a standstill.  Earlier this week, the EU filed legal action over the Internal Market Bill.  The Bill was passed by the House of Commons but still needs to be debated by the House of Lords.  This weekend, Prime Minister Boris Johnson and European Commission chief Ursula von der Leyen will virtually meet to discuss the roadblock over issues such as EU fishing rights and state aid.  As long as there continues to be discussions, both sides seem relatively optimistic (so does the Pound) that some kind of deal can be reached before the self-imposed deadline of October 15th.  However, some are saying that talks can last into early November.

In addition to the coronavirus drama in the US, House Speaker Nancy Pelosi and Treasury Secretary Mnuchin continue to meet in hopes of getting some kind of fiscal stimulus bill passed before the election on November 3rd.  Both sides were far apart earlier in the week, with the Democrats looking for a $2.2 Trillion deal while the Republicans are looking more in the area of $1 Trillion.  However, after Friday afternoon, Pelosi said that the two sides have agreed on funds for the struggling airline industry and urged airlines not to layoff workers, as the stimulus is on its way.  It’s a start!  As with Brexit, hopes remain high that a deal can be reached.

Last week’s economic data showed that the rebound in economic activity is slowing.  US Non-Farm Payrolls showed that only 663,000 jobs were created in September, down from 1,489,000 in August.  In addition, countries around the world are showing upticks in coronavirus cases and slowing in manufacturing, consumer activity, and jobs.  For example, Australia’s retail sales print was -4% for August, showing that the local lockdowns have hurt.  The RBA meets this week to discuss interest rates and stimulus. The central bank said at their last meeting that Australia is in recovery mode, however the road will be bumpy.  Watch the statement this week for the RBA to set the table for more QE and stimulus at the November meeting.  Other central banks also noted last week the potential for more stimulus, such as the BOJ, ECB, and the BOE.

This week, the economic calendar is relatively light, however there are many Central Bank speakers.  Watch for clues as to how much more monetary stimulus is to come.  Other important economic data is as follows:

Monday

  • Global: Services PMI Final (SEP)
  • Australia: NAB Business Confidence (SEP)
  • EU: Retail Sales (AUG)
  • US: ISM Non-Manufacturing PMI (SEP)
  • US: Fed Barkin Speech
  • US: Fed Evans Speech

Tuesday

  • Australia: Trade Balance
  • Australia: RBA Interest Rate Decision
  • EU: Christine Lagarde Speech
  • Canada: Trade Balance
  • US: Fed Chair Powell Speech
  • EU: ECB Lane Speech
  • US: Fed Hawker Speech
  • US: Fed Kaplan Speech
  • US: Vice-President Debate

Wednesday

  • Australia: RBA Chart Pack
  • Germany: Industrial Production (AUG)
  • EU: Christine Lagarde Speech
  • UK: Labour Productivity (Q2)
  • Canada: Ivey PMI s.a. (SEP)
  • US: Fed Barkin Speech
  • FOMC Minutes
  • US: Fed Williams Speech
  • US: Fed Kashkari Speech
  • US: Fed Evans Speech
  • Crude Inventories

Thursday

  • Japan: BOJ Gov Kuroda Speech
  • Germany: Trade Balance
  • UK: BOE FPC Statement
  • EU: ECB Schnabel Speech
  • EU: ECB Guindos Speech
  • EU: ECB Mersch Speech
  • US: Initial Jobless Claims (Week ending Oct 3rd)
  • Canada: BOC Governor Macklem Speech
  • US: Fed Barkin Speech
  • US: Fed Kaplan Speech

Friday

  • Australia: RBA Financial Stability Review
  • China: Caixin Services PMI (SEP)
  • UK: Trade Balance (AUG)
  • UK: Industrial Production (AUG)
  • UK: Manufacturing Production (AUG)
  • Canada: Employment Change (SEP)

Chart of the Week: Daily USD/CNH

Source: Tradingview, FOREX.com

On May 27th, USD/CNH tested highs from early September 2019 and failed.  Price began to move lower within a well-defined channel and on September 1st broke below the lows from January at 6.845, forming a double top. (Note that a double top is not formed until the neckline is broken.) The target for a double top is the distance from the highs to the lows, added to the lows of the structure.  This target is near 6.47.  After breaking below the previous lows, price continued lower on September 1st to the 127.2% Fibonacci extension from the lows of January to the highs on May 27th, near 6.755 on September 15th.  This was also channel support and a gap fill from May 2019. Price then bounced to test the January lows (now resistance) and the top downward sloping trendline of the channel, before moving lower.  Price is currently retesting the September 15th lows.  RSI is currently diverging with price, which signals USH/CNH may be ready for a short-term bounce back to the top the channel trendline near 6.80.  Resistance above there is the January lows at 6.845.  First support is the bottom channel trendline near 6.70, then the 161.8% Fibonacci extension from the previously mentioned timeframe near 6.62.

This week (and month) is going to be full of headlines regarding President Trump’s health, the US elections, Brexit, and US fiscal stimulus.  This is likely to stir up some volatility as we begin the first full trading week of the Q4!

Have a great weekend and please remember to always wash your hands!