The risk off move in markets over the last couple of sessions has been fuelled by technical and fundamental factors. From a technical perspective overbought conditions produced reversals at key levels in risk assets but the uncertainty developing from the US election outcome is fuelling a move into cash in some quarters. The Election needs to primarily be clear cut in order to satisfy traders that it is safe to come back into a risk on stance. With Former Vice President Biden ahead in most polls the outcome seems to suggest a clear winner, but the possibility of polarising the hard right into contesting the outcome to the extent of violence on American streets means there is a cohort of traders who are uncomfortable leaving capital fully invested. The possibility that President Trump fails to concede if he loses opens up the chance of a disorderly handover of power. The other major factor around the election, concerns the possibility of more stimulus if the same party wins the White House and the Senate. A Democratic sweep may open the floodgates and see large amounts of fiscal support produced to support the economy through the pandemic. A win for Republicans may produce some additional badly needed fiscal support. However a win for one party in the White House would divide government and hobble their ability to produce fiscal support for the economy. The markets corrected this week with the launch of the new iphone and the stalling of efforts to produce more fiscal stimulus in the US. In Germany a record 6,638 new Covid-19 cases have been detected with the Government there announcing an exponential growth phase for infections. Germany is set to take measures in 10 days if the spread of the virus is not capped. German chancellor Merkel and state governors sat down for an eight-hour meeting to introduce tighter restrictions. Mask wearing will be made obligatory in public places where people are packed closely together in districts where infections hit 35 per 100,000 people. Bars and restaurants in those districts will also be instructed to close early. Meanwhile, in districts where infections hit 50 per 100,000 people, public and private gatherings should be limited to 10 persons, and bars and restaurants should close at 11pm. However German Chancellery Minister, Helge Braun, said this morning that the agreed measures are unlikely to be sufficient, with the Health Minister Jens Spahn, saying that keeping the economy, schools and Kindergartens open must be a priority, but too many people are not sticking to the rules at the moment. These moves have created a risk off atmosphere in markets. The Japanese 225 closed lower by -0.51%, with the Shanghai Composite Index trading lower by -0.1%. The Hang Seng Index is trading down by -1.3%. European Futures are pointing to a lower open by -0.8% after yesterday’s selloff. Selling took place yesterday in the US session and extended overnight. USDJPY is trading at 105.280. Gold has traded back down to 1895.00.
On the calendar today, the BOE will release its Credit Conditions Survey this morning. The EU Economic Summit will also take place today. In the afternoon, US Unemployment Claims are expected to fall to 810K from 840K. ECB President Lagarde is due to speak at the online CNBC Debate on the Global Economy during the IMF/World Bank Annual Meetings.
The USDJPY has sold off again after it found resistance at the 109.850 level in June with a move that took price down to 106.000 area. The pair rallied after finding support in this area and went higher to test the 108.000 level, but the pair began consolidating between 108.200 and 106.000/105.800. Price broke down out of a tight range between 106.630 and 107.540 and tested the bottom of that range as resistance late last month. The failure to break back above the 108.000 area opened the way for a retracement down to test the 106.480 area followed by the 106.000 level and eventually found a low at 104.009. Price moved back higher and is now retesting 105.500 as resistance and 104.900 as support, creating a new range to trade within. The 106.000 area acted as support in May and created a major higher low on the chart, so this may now be resistive. The selloff found support at 104.450 and produced the rally to the current high at 112.228 and this area may play a part as support. Further support at 104.000 is followed by 103.150 and the 102.500 area.
In the short term the 105.500 area is acting as resistance followed by 106.000, 106.500 and the former support levels at 106.680/106.630. Above the 107.000 round number, the 107.680/107.600 area, may be used as resistance, followed by 108.000 and 108.480, with the 109.500 area above. A rally above the 109.500 level may seek to take price up to engage the 109.700 area of resistance from December which is followed by the 109.850/110.000 area. This area has acted on price in the past and was retested as resistance in February, with a breakout to the high at 112.227. The lower high at 111.700 may also act as resistance. A break above this area may open the path to the pair potentially attempting to gain a foothold above this resistance and establish a base to engage the 113.000 area. A break above this level may seek to test the 114.000 level followed by the potential resistance at 115.000.
The EURGBP chart is showing that the pair has broken down from the March high, 0.9500 level and is currently trading around 0.9039 after finding support at 0.8866. The pair tested 0.9292 early last month but was pushed back down to 0.9008 yesterday and this former resistance has now become support. The pair is now trading between 0.9300 and 0.9000, consolidating its position and probing the 0.9000 area. Failure to remain above this area may result in a deeper selloff. Support has been re-established at the 0.9000 area, and a loss of this support may result in a fall to the 0.8900/0.8890 area, with 0.8865 being used as being key support as the June low. Support at 0.8813 is followed by the 0.8750 area and the 0.8700 level. A loss of this level may push price down to 0.8660 level. Support may be seen at 0.8645 followed by 0.8620/0.8600. Below this level, the 0.8500 area may be supportive again, followed by the 0.8412 area. The low at 0.8276 from December and then the 0.8250 level may also be used as potential support for the pair.
The area above 0.9100 may offer resistance followed by 0.9177. The 0.9200 round number may provide further resistance followed by the 0.9235 area. A move back higher from there, targets the 0.9250 area, followed by the higher high at 0.9275. Above this area the 0.9290/0.9300 area comes into play followed by the August high around 0.9323. The current high at 0.9500 remains the level to beat for buyers. A break higher may seek to test the 0.9550/0.9560. Beyond this the potential resistance area at 0.9620 might be used ahead of the 0.9700 level. The next area of interest may be found at 0.9720, followed by 0.9750 which may also be used as resistance to any potential move higher, while above the area the 0.9800 area may further resist attempts to push price up to the 0.9900 level. The round number level may also come into play at 1.0000.