Market watch - 21st October 2020
The dollar was soft already, as the market kept up with the stimulus negotiations. However, it was then announced that the US was launching an anti-trust case against tech giant Google, alleging that it had abused its position in the market. This helped the dollar gain against sterling and the yen, although EUR/USD held its ground. There were still news announcements around the stimulus talks even, as it passed the supposed deadline, with Nancy Pelosi saying her talks with Mnuchin on Tuesday provided more clarity and that she is hopeful of agreement this week. Interestingly the talks are continuing past the deadline. Some analysts suggest that Pelosi is happy to do so because if a deal is agreed between the Democrats and the White House a vote in Congress will focus the spotlight on Republicans who are facing an election and who may well lose votes if they don’t back a President approved deal. This environment has caused the dollar to continue to weaken. In European trading especially against the Yen.
USD/CAD was quite range-bound yesterday. We hope for movement today, as we have CPI and retail sales for release today. We expect a decline of 0.1% for CPI and an increase of 1% for retail sales. Prime Minister Trudeau has made a vote today, a vote of confidence in his administration. The vote is to set up a new special committee that would focus on investigating the WE charity affair and other alleged scandals.
The euro pushed higher again on dollar weakness first off. From a technical viewpoint, price has been moving in a triangle pattern, which indicates that the market is waiting for an event or resolution before moving. The probability is that the event in focus is the US presidential election, and currently the probabilities suggest EUR/USD could have another push higher.
The pound was firm initially yesterday, until BoE MPC member Vlieghe explained that he was taking a dovish and accommodating view to monetary policy in the coming months. He said interest rate tiering had been effective in providing the benefits of negative interest rates, whilst reducing the costs. It was then time to board the sterling roller coaster, as it was announced that David Frost and Michel Barnier had had ‘constructive’ talks. This morning has been just as busy as we had the release of UK CPI, which has been on a downward projection since the start of this year when it was 1.8%. As expected, it showed a reading of 0.4%, and a bounce from last month’s 0.2%, the lowest so far in 2020. This was followed by Michel Barnier specifically confirming the UK as a sovereign nation, which was one of the stipulations from the UK for re commencing the talks. The other was to explicitly confirm that the EU would make compromises as well to gain agreement. German leader Merkel confirmed this last Friday. GBPUSD has gained 0.7% this morning and the expectation is that the UK will recommence official talks shortly.
The AUD couldn’t stand against a resurgent dollar and slumped lower with RBA Assistant Governor Kent’s dovish comments ringing in its ears. It did, however, manage to stage somewhat of a recovery in early Asian trading today.