• NZD/USD begins the week’s trading with an upside gap beyond 0.6600.
  • Jacinda Ardern secured an emphatic victory in general elections by securing 49.1% votes.
  • China passed a law to restrict controlled exports, US stimulus deadlock, virus woes continue.
  • Risk catalysts can keep the driver’s seat despite the important China data dump.

NZD/USD struggles to keep the week-start uptick of 0.6612, while also keeping the 0.6600 threshold, as Monday’s trading begins. The pair’s initial rise of 13 pips from Friday’s close could be attributed to Jacinda Ardern’s status-quo in New Zealand’s general elections. However, challenges to the market’s risk sentiment probe the bulls despite Friday’s moderate environment, mainly due to upbeat US data and stimulus hopes.

Labour gains parliamentary majority, Ardern stays as PM…

With early results projecting Labour to have 64 out of 120 seats in New Zealand’s Parliament, the rare outright majority speaks louder of Jacinda Ardern’s popularity. While the ruling party is likely to keep their alliance with the Greens, PM Ardern will have a free hand to push the kiwi towards Pacific leadership. During her first speech, the winner signaled to form a government in 2-3 weeks while citing a little interest in keeping Greens in all the positions as they previously were. Although the result favors a bright future for the New Zealand dollar (NZD), bearish RBNZ and risk-off mood probes the NZD/USD buyers.

Read: New Zealand election: Jacinda Ardern’s Labour Party scores landslide win

Among the many indicators that question market optimism, failures of the US Congress to provide the much-awaited coronavirus (COVID-19) relief package gain major attention. While US President Donald Trump’s recent easing of government strings have raised hopes of a stimulus outcome, the Democrats’ deadline to have an agreement by Tuesday makes the case serious.

Elsewhere, rising COVID-19 numbers in Europe, coupled with brakes in leading vaccine trials, threaten traders of much economic hardship ahead. Further, China’s tussle with the US, the UK and Australia also becomes a worrisome point for NZD/USD bulls. Having recently banned some Aussie items and warned America over its alliance with Taiwan, Beijing announced the law to limit controlled exports to shrug off the global wave of limiting items from the Asian major.

On the data side, US economics have been mixed while those from New Zealand have also signaled RBNZ’s need for intervention. Friday’s US Retail Sales and Michigan Consumer Sentiment helped the market to recover some of the losses. New Zealand’s September month Business NZ PSI grew from upwardly revised 47.2 to 50.3 in its release on Monday.

Moving on, China’s September month Industrial Production and Retail Sales will accompany the third quarter (Q3) GDP to entertain Asian traders. Upbeat forecasts are likely to favor the Antipodeans if risk factors allow.

Technical analysis

Repeated bounces off 100-day SMA, currently around 0.6585, coupled with mildly positive MACD on the daily chart, favor the bulls to remain hopeful unless breaking an ascending trend line from June 30, at 0.6545 now.

 

The November 3rd election is just 16 days away as the US House speaker Nancy Pelosi has given the White House a deadline of Tuesday to reach an agreement on a stimulus package. 

The Senate plans to vote Tuesday on a stand-alone bill to renew payroll protections which doesn’t include any direct payments potentially kicking off a clash between the Senate and President Donald Trump, who wants to send $1,200 stimulus checks. 

The equity markets will be tuned into the developments of this throughout the week.

S&P500 Weekly Forecast: Choppy trading action expected to continue

 

 

The November 3rd election is just 16 days away as the US House speaker Nancy Pelosi has given the White House a deadline of Tuesday to reach an agreement on a stimulus package. 

The Senate plans to vote Tuesday on a stand-alone bill to renew payroll protections which doesn’t include any direct payments potentially kicking off a clash between the Senate and President Donald Trump, who wants to send $1,200 stimulus checks. 

The equity markets will be tuned into the developments of this throughout the week.

S&P500 Weekly Forecast: Choppy trading action expected to continue

 

 

New Zealand Prime Minister Jacinda Ardern won a landslide victory over the weekend in the country’s general election.

Ms Ardern’s centre-left Labour Party won 49.1%, bringing a projected 64 seats and a rare outright parliamentary majority.

The centre-right National Party won 26.8% in Saturday’s poll just 35 seats in the 120-seat assembly.

The poll was originally to be held in September but was postponed by a month after a renewed Covid-19 outbreak.

NZD/USD is expected to find a bid on the outcome for the day ahead.

In additional news from the weekend that is likely to be priced into the pound, British officials are prepared to water down Boris Johnson’s controversial lawbreaking Brexit legislation.

This is a move that could revive failing talks with the European Union, according to people familiar with the matter, as reported by Bloomberg.

The news follows expectations that the Brexit negotiations will resume within days.

Michael Gove confirmed that despite Downing Street’s tough rhetoric the door remained “ajar” on re-engagement.

The EU’s chief negotiator, Michel Barnier, will hold a video conference call with his British counterpart, David Frost, on Monday afternoon to discuss the structure of future talks.

The Bank of England Governor Andrew Bailey said there is a significant risk of further disappointments to UK economic growth, and that the country faced unprecedented uncertainty as coronavirus cases began to climb again.

Reuters has reported that Britain’s economy shrank by 20% in the three months to June, the biggest drop of any large advanced economy, and Bailey reiterated that he expected output at the end of the third quarter was 10% below its level at the end of 2019.

“Ten percent is still a huge gap, let’s be clear on that,” Bailey told an online seminar for central bank governors hosted by the Group of Thirty, a panel of economic policymakers and senior bankers on Sunday.

“We’re operating at an unprecedented level of economic uncertainty. Of course, that is heightened now by the return of COVID…. The risks remain very heavily skewed towards the downside,” he added.

Market implications

The BoE is expected to announce further bond purchases on November the 5th.

This will come on top of the 310 billion pounds ($400 billion) of asset purchases already underway since the start of the pandemic.

Meanwhile, the idea that the BoE will have no choice but to move to cut interest rates to negative at some point is a weight on the pound. 

“Our assessment of negative interest rates, from the experience elsewhere, is that they probably appear to work better in a more wholesale financial market context, and probably better in a nascent economic upturn,” he said.

Here is what you need to know on Monday, October 19:

The risk-averse sentiment eased just modestly ahead of the weekly close, as US data beat expectations, with Retail Sales and the Michigan Consumer Sentiment Index improving by more than anticipated.  Still, the greenback finished the week with gains against most major rivals.

EUR´s weakness was linked to increasing coronavirus cases in the EU, leading to restrictive measures in the Union. Over the weekend, European Central Bank board member Fabio Panetta warned that an ultra-loose monetary policy is more than necessary, amid the risk of a second wave of COVID-19 derailing the economic recovery.  EUR/USD settled at 1.1715, ahead of ECB’s head Lagarde speech this Monday.

The British Pound was hit by comments from UK PM Boris Johnson, who said that local business should get ready for an Australia-type deal with the European Union, “given the EU have refused to negotiate seriously.¨ Even further, he said that talks with the EU were over, adding that EU’s chief negotiator Michel Barnier should only come to London this week “if he is prepared to discuss all of the issues on basis of a legal text.” Barnier was due in London for talks with his counterpart, David Frost.  GBP/USD trades around 1.2900.

The Australian dollar was quite resilient to greenback’s demand but fell after RBA’s Governor Lowe hinted a rate cut in the near-term.

Over the weekend, China passed a law restricting exports of controlled items, allowing the government to act against countries that abuse export controls in a way that harm’s China’s interests. With no explicit mention, the decision is correlated to US measures on Huawei, part of the trade war ongoing between Washington and Beijing.

 Gold prices consolidated around $1,900 a troy ounce for a second consecutive week, ending it with modest losses just below the mentioned level. Crude oil prices were also little moved these days, with WTI finishing the week modestly up at $40.70 a barrel.

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  • XAU/USD holds the ascending parallel channel’s support firmly.
  • The 50 SMA in the 6-hour timeframe is likely to hinder movement in the new week.

After closing the week at precisely 1,900, gold is moving into a challenging week. Over the last four weeks, the precious metal consistently fought for recovery within the confines of an ascending parallel channel. The upside capped under 1,900 in October, while the channel’s support provides the much-needed anchorage.

Marginally above 1,900, gold’s price movement is limited by the 50-day Simple Moving Average in the 6-hour timeframe. The bearish outlook is emphasized by the 100 SMA slightly above the first moving average. Moreover, more resistance is anticipated at 1,910, 1,920 and the monthly hurdle at 1,940.

The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) point towards consolidation taking over in the new week. If 1,900 fails to hold, the next target is 1,890. Simultaneously, the channel’s support may help absorb some of the selling pressure. Other key areas to keep in mind are 1,880 and 1,850.

XAU/USD 6-hour chart

XAU/USD PRICE CHART

It is worth mentioning that the bearish outlook may be invalidated if XAU/USD slices thought the 50 SMA and 100 SMA resistances. Price action beyond 1,910 may restart the rally to 1,940 by encouraging more buy orders.