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Week Ahead: The Wild, Wild, West

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Fundamental analysis of Forex market

As crazy as the last week has been for Brexit talks, the situation in the US regarding fiscal stimulus may be even more loony.  October 15th is right around the corner for the “deadline” in Brexit talks, but it appears that talks will continue past that date.  As US President Donald Trump returned to the White House after testing positive for the coronavirus, he tweeted that fiscal stimulus talks were off, but on Friday, there were rumors in the market that Trump agreed to a deal.  The situation remains fluid.  We also have natural disasters, such as pandemics and hurricanes this week.  Coronavirus cases continue to increase, after slowing over the summer.  Local lockdowns have occurred, and more are imminent.  Hurricanes (and strikes) have helped oil climb to its highest levels since May.  Its also the start of earnings season!

On again/off again Brexit negotiations appear to be on again and most market participants feel that “something” will get done.  Prime Minister Johnson has threatened the EU with a deadline of July 31st, the Internal Market Bill, and the upcoming October 15th deadline.  Despite all of this, the 2 sides appear to still be talking.  Johnson and EU lead negotiator von de Leyden met last week and agreed to extend talks for another month.  The EU said they will ignore the Oct 15th deadline.  EU sources are saying trade talks have been most positive so far big progress regarding state aid.  However, the UK has threatened to walk away, again.  And on Friday, Germany took a hard stance on EU fishing rights.  The markets appear to believe that some kind of deal will get done.  Later this week will be EU Summit, which was supposed to be when members would vote and ratify the deal.  However, with talks going at least another month, it appears a deal will not be done any time soon.  As long as both sides are talking, the markets seem to be happy.   The FTSE was up +2% last week, and the GBP/USD has moved from a recent low of 1.2675 up to 1.3035.

In the US, President Donald Trump returned to the Oval Office after spending the weekend at Walter Reed Army Medical Center.  Upon his return, he stated that the Senate should delay a fiscal stimulus bill and focus on passing his nominee for the Supreme Court, Amy Coney Barret, to replace Ruth Bader Ginsburg, who died on September 18th.  Markets immediately went into risk-off mode after this headline.   However, in the ongoing fiscal stimulus drama, on Thursday stories began circulating that the President would agree to piecemeal the deal, which included federal aid for the struggling airline industry and aid to struggling families.  On Friday, Trump appears to have gone even further. Reports suggested that Trump was willing to go above the $1.8 Trillion offer for aid, which would undercut his own stimulus negotiators, as Democrats were asking for $2.2 Trillion.  As of the time of this writing, negotiations seem a bit chaotic.  Regardless, once talks were back on, stock markets rejoiced and moved higher, just as with Brexit negotiations. In addition, with Joe Biden’s growing lead over Donald Trump in the polls for the Presidential Election on November 3rd,  the equity markets began to bet on a Biden win and therefore, that a stimulus deal will get done early in Q1 at the latest (once the President is sworn into office).  The S&P 500 was up almost 4% last week.  Hopefully this week the picture will become a bit clearer regarding a fiscal stimulus package.

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There are also a few natural disasters the world is dealing with, namely the ongoing coronavirus and Hurricane Delta, which has shut down nearly all oil production in the Gulf Coast as it nears Louisiana.  Coronavirus cases continue to uptick around the world.  This week Germany, the UK, Canada, and the US have all taken (or said they would take) additional measures if things continued to worsen.  Data appears to show that the global recovery is slowing and that more aid is needed.  US Fed Chairman was practically begging for more fiscal stimulus the day before Trump ended the negotiations (before starting them again).  After a host of Central Bank speakers last week, the consensus seemed to be the same:  no new aid right now, but more will be needed in the future.  Also, watch the Eurogroup meeting for talks on the European Recovery Plan worth 1.8 Trillion Euros of aid.  Once things are agreed, national parliaments must ratify the deal.

To add insult to injury, Hurricane Delta is preparing to make landfall and has all but shut down oil production in the US Gulf Coast.  The hurricane, along with an oil workers’ strike in Norway, helped push WTI crude oil prices up over 9.25% this week (less supply equals higher prices).  As of the time of this writing, there are reports that the strike has ended.  Keep an eye on crude prices next week, as they may pull back, especially if there is little damage from the hurricane.

It’s earnings season!  This week begins the unofficial start to earnings season with many of the major banks reporting.  Major earnings announcements this week are: JPM, C, JNJ, WFC, BAC, UNH, GS and TSM.

In addition, once again there are a host of central bank speakers to keep an eye on, along with employment data from the UK and Australia and Retail Sales from the US.  Other important economic data is as follows:

Monday

  • Japan:  Machinery Orders (AUG)
  • Japan:  PPI (SEP)
  • EU: ECB Schnabel Speech
  • EU: ECB President Lagarde Speech
  • EU: ECB Guindos Speech

Tuesday

  • Japan: Reuters Tankan Index (OCT)
  • China: Exports (SEP)
  • China: Imports (SEP)
  • China: FDI (YTD) (SEP)
  • Germany: Inflation Rate Final (SEP)
  • UK: Claimant Count Change (SEP)
  • Germany: ZEW Economic Sentiment Index (OCT)
  • Germany:  Bundesbank Wuermeling Speech
  • Germany: Bundesbank Buch Speech
  • US: Inflation Rate (SEP)

Wednesday

  • Australia: Westpac Consumer Confidence Index (OCT)
  • Japan: Industrial Production Final (AUG)
  • EU: ECB Lagarde Speech
  • EU: ECB Mersch Speech
  • EU: ECB Lane Speech
  • US: PPI (SEP)
  • US: Fed Clarida Speech
  • Canada: BOC Lane Speech
  • US: Fed Quarles Speech
  • US: Fed Kaplan Speech
  • Crude Inventories

Thursday

  • Australia: RBA Gov Lowe Speech
  • Australia: Consumer Inflation Expectations (OCT)
  • Australia: Employment Change (SEP)
  • China: Inflation Rate (SEP)
  • China: PPI (SEP)
  • US: Initial Jobless Claims (week ending October 10th)
  • US: Import Prices (SEP)
  • US: Export Prices (SEP)
  • US: NY Empire State Manufacturing Index (OCT)
  • US: Philadelphia Fed Manufacturing Index (OCT)
  • Canada: BOC Lane Speech
  • US: Fed Quarles Speech
  • EU: ECB President Lagarde Speech
  • US: Fed Kashkari Speech
  • EU Summit
  • G20 Meeting

Friday

  • New Zealand: Business NZ PMI (SEP)
  • New Zealand: Inflation Rate (Q3)
  • EU: Trade Balance (AUG)
  • EU: Inflation Rate Final (SEP)
  • US: Retail Sales (SEP)
  • US: Industrial Production (SEP)
  • US: Manufacturing Production (SEP)
  • US: Fed Williams Speech
  • US: Michigan Consumer Sentiment Prel (OCT)
  • EU Summit
  • G20 Meeting

Chart of the Week: Weekly USD/CAD

Source: Tradingview, FOREX.com

USD/CAD was in a falling wedge since mid-March and bottomed the week of August 31st, near 1.2994, putting in a false break below an upward sloping trendline dating back to April 2018. Price then bounced and broke out of the top of the wedge. However, USD/CAD was met with resistance at the 61.8% Fibonacci level from the last high in late June to the August 31st low, near 1.3440.  The pair also held the 50 Day Moving Average at 1.3460.  Price has traded lower the previous 2 weeks and closed -1.34% last week, near 1.3125.  This level is also support from the previously mentioned long-term weekly trendline. A break below here next week would open the downside for a possible retest of the August 31st lows.  First resistance comes in at the top of last weeks candle near 1.3340, then September 28th highs near 1.3420 and the 50 Day Moving Average at 1.3460.  As USD/CAD typically traded inversely with the price of Crude Oil, keep an eye on crude for clues as to where the pair may head next.  If WTI pulls back next week, watch for USD/CAD to bounce and the trendline support to hold.

Markets may get a bit crazy this week as Brexit headlines and US fiscal stimulus headlines comes across the wires.  In addition, watch for headlines on continued increases in coronavirus cases.  And don’t forget about earnings surprises as well!

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