• WTI bulls taking the baton from the bears on Thursday against an otherwise technically bearish backdrop.
  • Demand-side fundamentals demand greatly on a vaccine. 

WTI is currently trading at $40.19 having travelled between a low of $39.15 and a high of $40.34.

Commodities are performing well as the US dollar starts to show signs of exhaustion in its recent bullish correction.

The CRB index spent the majority of the day in North America climbing between 146.81 to a high of 148.48 to end on Wall Street some 0.4% higher. 

However, while oil has been bid on Thursday, overall, the price of oil is giving back gains in a phase of consolidation in the low $40s and there are compelling technical prospects for the downside.

Fundamentally, though, there are continued hopes of a vaccine which should encourage social behaviours towards a rise in demand.

The OPEC put is crucial for energy markets to sustain on the recovery path, 

analysts at TD Securities argued.

It’s worth reiterating that OPEC opened the door for an extraordinary meeting in October if oil markets weaken further, which should mitigate concerns surrounding the stalling pace of the recovery in demand, given OPEC’s willingness to fight back against the virus.

WTI technical analysis

In the above daily chart, the price of oil is being rejected by the daily resistance which opens prospects for an approach to the prior structure to the downside.

WTI weekly chart

The price looks to have completed the upside with prospects back to below the $40 area and into the low $30’s, according to the structure.

  • AUD/USD has fallen another 0.37% on Thursday.
  • There could be some relief on its way with some strong support.

AUD/USD daily chart

The Australian dollar has been the worst hit during the recent bout of dollar strength. The market is heading to a pretty formidably zone at the 0.70 area. Adding to the strength of the psychological area is the 23.6% Fibonacci retracement and black support like which was a strong resistance back on 31/12/2020. 

If this level fails there is another level to watch at the red horizontal line near 0.6836. This zone was important in early June as it acted as the main consolidation low before the really continued in mid-July. 

The indicators are understandably in a very bearish position. The MACD histogram is red and the signal lines are just about to cross over to the downside. The Relative Strength Index is showing a bullish sign even though it is in a bearish position. This is called a bullish failure swing, it is when the market is making higher lows but the indicator makes a lower low (often moves into oversold).

There could be a small move back up in the near term but longer term this does seem like a decent reversal to the downside. 

AUD/USD Technicals

Additional levels

 

Democratic presidential nominee, Joe Biden, is touted to have Lael Brainard of the Federal Reserve, a centralist, as his Treasury secretary pick.

This would be a choice that would keep both Wall Street and progressives in-line.

The more provocative choice of Senator Elizabeth Warren hasn’t been ruled out though.

However, this may not be the favourite choice for the financial industry as she has been known for her crusade against the banks. 

Meanwhile, Steven Mnuchin, who has served as Treasury chief since 2017, has publicly said he would serve a full second Trump term if he wins.

 

 

 

Here is what you need to know on Friday, September 25:

The dollar maintained its positive momentum throughout the first half of the day, extending its rally to fresh weekly highs against most major rivals, although demand for the greenback receded during US trading hours. Stubbornly high weekly unemployment claims in the US weighed on the greenback. Movements were limited amid a light macroeconomic calendar.

In the UK, Finance Minister Rishi Sunak unveiled an emergency jobs scheme, which will result in the government and firms top up wages of workers whose jobs were affected by the pandemic. The new Job Support Scheme will cover three-quarters of normal salaries for six months starting next November. The announcement is part of a wider plan to protect the economy over winter, according to Sunak.

In its final day of testimony, US Federal Reserve Chief Powell said that there is “downside risk to the economy if some form of support to households doesn’t continue,” once again urging lawmakers to provide fiscal support.

Gold trimmed intraday losses but was unable to turn positive for the day. It finished the day around $1,865.00 a troy ounce. Crude oil prices recovered some ground, finding support in the better performance of Wall Street. WTI closed at $40.00 a barrel.

Bitcoin and Ethereum rebound strongly and are poised for further gains

  • NZD/USD has started to make a slight come back as risk appetite improves.
  • The US dollar may have run too far too soon, offering bullish prospects for the bird. 

NZD/USD is recovering from a one-month low in the start of a movement which had been forecasted on Wednesday here.

  • NZD/USD Price Analysis: Will the US dollar now give back some ground to the dollar bloc?

The bird has been under pressure this week, until the start of today’s North American session.

USD strength returned and the Reserve Bank of New Zealand’s policy bias has also weighed significantly. 

The RBNZ has re-affirmed its commitment to leave the OCR on hold till at least March, although is not pretending that there are no other policy tools left of the table, signalling a readiness to act if required. 

The RBNZ reminded markets that a lower OCR and bank funding for the lending programme (FLP) are preferred options for further stimulus, noting that the FLP would be ready “before the end of this year.” 

Meanwhile, we are seeing a bit of a comeback in risk appetite on Wall Street on Thursday which has likely helped the correction in the dollar bloc.

The S&P 500 is up some 0.5% at the time of writing, but off its highs by the same margin. 

However, the commodity complex is firmly bid with the CRB index, oil and copper all behaving bullishly. 

The DXY is on the backfoot, breaking a key old hourly resistance turned new support and resistance again on a restest; See below for this analysis.

A fall in the US dollar will give some upside opportunity in the bird as explained in the following flow of charts, again, founded on yesterday’s analysis. 

NZD/USD techncial analysis

As per yesterday’s analysis, the price of the bird is turning higher in the demand area:

Yesterday’s analysis

Price rejected from demand area

The price has been unable to break below the support structure and the focus is now on the upside towards a confluence of the resistance and a 38.2% Fibonacci retracement level. 

From here, the US dollar needs to give back some ground to the presumed area of support forecasted yesterday as follows:

So far, so good

DXY 1D chart

DXY H1 chart

The US dollar has broken below support and is failing the retest of the structure that now acts as resistance, confirming the downside bias which is good for the NZD/USD bullish outlook.

  • USD/CAD fell sharply after breaking below 1.3400 on Thursday.
  • US Dollar Index lost its traction in the American session.
  • WTI clings to decisive daily gains above $40.

The USD/CAD pair climbed to its highest level since early August at 1.3418 on Thursday but reversed its direction during the American trading hours. As of writing, the pair was down 0.33% on a daily basis at 1.3342.

The greenback, which has been gathering strength against its rivals since the start of the week, came under modest pressure in the second half of the day on Thursday. Although there was no clear catalyst behind the renewed USD weakness, a decisive rebound witnessed in major equity indexes in the US seems to be weighing on the US Dollar Index (DXY).

At the moment, the DXY is posting small daily losses at 94.30 and the S&P 500 Index is up 0.35%. 

WTI recovery helps CAD find demand

On the other hand, rising crude oil prices are providing a boost to the commodity-related loonie and allowing the bearish pressure on USD/CAD to remain intact. After spending the majority of the day in a tight range near mid-$39s, the barrel of West Texas Intermediate (WTI) turned north in late American session and touched a daily high of $40.35. 

Earlier in the day, the data published by Statistics Canada showed that payroll employment in July rose by 5.1%, or 739,700, but was largely ignored by the market participants. There won’t be any macroeconomic data releases featured in the Canadian economic docket on Friday and Durable Goods Orders data from the US will be looked upon for fresh impetus.

Technical levels to watch for

 

  • The S&P 500 is trading 0.71% higher on Thursday after a bad start to the week.
  • The price has tested the 23.6% Fib which matches a support area.

S&P performance

It has been a real mix bag at the top of the index on Thursday as Goldman Sachs make the top ten after the recent underperformance in the banking sector. Freeport McMoran also make the grade despite copper losing some serious ground in the last couple of sessions. Albemarle Corp is also 5% higher and that is despite falling 15% this week. 

On the downside, twitter, CarMax and Accenture make up the bottom three but Under Armour are also struggling as Nike increase their market share. 

S&P 500 daily chart

The chart below shows the extent of the bounce at the level where the 23.6% Fibonacci extension and 3233.25 support meet. It is hard to say if the level will hold over the coming sessions but it seems like the bulls have found their voice for now. 

The MACD indicator is bearish with the histogram in the red and the signal lines under zero. The Relative Strength Index however is showing a bullish pattern called a failure swing. This is when the price continues to make higher lows but the indicator makes a lower low and reaches oversold levels. Technical traders could continue to monitor these developments over the coming sessions to see if the signal matures. 

A great start would be a break of 3315.00. This medium-term resistance point could be key and if the bulls manage a break it could indicate the bull trend might be set to continue. 

S&P 500 technical analysis

Additional levels

 

  • GBP/USD bulls taking back control at a critical support structure.
  • BoE negative rates still on the table, USD might give some ground back at this juncture. 

GBP/USD is currently trading at 1.2763 between a range of 1.2690 and 1.2781.

In an improved risk environment, the pair is bid on the session as bears exit at weekly and monthly support.

Bulls are stepping up to the plate despite the growing concerns over the spread of the coronavirus and the Bank of England’s persistent commentary suggesting that negative rates are an option that is still on the table. 

Less than 20 per cent of people in UK self-isolated after developing symptoms

Earlier today, the UK reported the highest ever COVID daily case count at 6634 cases on the same week that the PM Boris Johnson outlined tighter rules.

Public Health England also said there had been 40 new deaths, up from 37 the day before.  

The number of people testing positive for coronavirus in England has nearly tripled since August.  

 According to the government’s Test and Trace system, there has been an increase of 180 per cent in positive cases since the end of August.

Yvonne Doyle, medical director at Public Health England, said that positivity rates are rising across all age groups.

“We must all follow the new measures that have been bought in to help control the virus and download the new NHS Covid-19 App which is the fastest way of knowing when you’re at risk.”

From new data on the number of people adhering to isolation and quarantine has found, the Telegraph has reported that just 18 per cent of people in the UK self-isolated after developing symptoms of Covid-19 between May and August, 

In addition to this, only 11 per cent of people quarantined after being told by NHS Test and Trace that they’ve been in contact with a confirmed case.

If the UK public does not begin to adhere to the advice of the government, there is a slim chance that COVID-19 is not going to be a huge problem for pound going forward. 

BoE on negative rates

Meanwhile, we have seen the US dollar’s correction resonate broadly in the FX complex.

The recovery can be partly put down to the fact that the Federal Reserve is not going to be left behind. 

Since the market had over-interpreted the Monetary Policy Minutes with respect to negative rates, we have heard from the Bank of Englands Governor, Andrew Bailey, a couple of times this week.

At the start of the week, he downplayed the comments in the minutes, saying that nobody should read more into this as it’s just the next stage of the work to ensure that negative rates could be used if necessary.

Instead, he said that given the uncertainty and downside risks, they would need “a lot of very strong evidence” on the recovery before a shift in policy.

Baily is likely concerned about the second wave and subsequent lockdown measures.

The Governor appears to be more concerned about the economy now than he was at the start of the month during his testimony before the Treasury Select Committee earlier this month. 

Today, he once again addressed the prospects of negative rates and said,” t would be a cardinal sin not to look first at whether the UK could use it too.”

We should have negative rates in the toolbox because other countries have demonstrated they can do it.

However, he once again reminded that the BoE have reached no view on whether they would use negative rates.

We have got to get answers.

He noted at the start of the week that economic activity is still 7-10% below pre-COVID levels after the recent burst of activity and that the “hard yards are ahead of us.”

GBP/USD technical analysis

Firstly, the DXY is at an interesting juncture.

On the daily chart, the price has potentially completed wave 3 of a 5-wave analysis:

On a long-term outlook, the bulls look good to go on a pullback for higher levels. 

As for GBP/USD, the price has reached a weekly support structure:

Support structure holding up, so far

A possible outcome of the support structure holding

The central bank of Mexico (Banxico) announced on Thursday that it lowered its benchmark interest rate by 25 basis points to 4.25%. In its statement, Banxico noted that the board was unanimous on the rate decision, as reported by Reuters.

Key takeaways from the policy statement

“Balance of risks for the projected trajectory of inflation remains uncertain.”

“Ample slack conditions expected throughout the time frame in which monetary policy operates.”

“Headline inflation expectations for the end of 2020 rose; those for the medium and long terms remained stable at levels above 3% target.”

“Challenge for monetary policy posed by pandemic include both the significant impact on economic activity as well as a financial shock and their effects on inflation.”

“Environment of uncertainty and downward risks prevail despite the economy beginning to recover in June and July.”

“Headline and core inflation are expected to be around 3% within the 12-24 month forecast horizon.”

Market reaction

With the initial reaction, the USD/MXN pair recovered modestly from daily lows and was last seen losing 1.35% at 22.0725.