USD slips as stimulus deadline runs out

The USD weakened somewhat against some of its counterparts as hopes for a fiscal stimulus seemed to be increased before Nancy Pelosi’s deadline. House of Representatives speaker Pelosi and Treasury Secretary Mnuchin continued talks, narrowing their differences, in an effort to provide a fiscal stimulus package for the US economy. Pelosi stated that she hopes that more clarity will be provided by the end of Tuesday, yet we tend to have little expectations for such a deal to be struck. Focus is also on the US presidential elections as the last debate between the two candidates on Thursday nears, while once again the number of COVID 19 infections is on the rise, creating uncertainty for the US elections as well as the recovery of the US economy. As noted, we tend to have little hopes for a US fiscal stimulus being agreed and should Pelosi and Mnuchin not strike a deal, we could see safe haven flows supporting the USD in the coming days, especially given the high uncertainty. EUR/USD rallied yesterday breaking the 1.1720 (S1) resistance line, now turned to support and continued higher testing the 1.1790 (R1) level. Despite the rise of the pair, we still see fundamentals on both sides of the pair not supporting it, hence a correction lower is possible. Also, it should be noted that the pair’s main body of price action since the beginning of the month was between the 1.1790 (R1) line and the 1.1720 (S1) implying a wide sideways motion. Should the pair come under the selling interest of the market, we could see it breaking the 1.1720 (S1) line and start aiming for the 1.1655 (S2) level. Should the pair find fresh buying orders along its path, we could see it breaking the 1.1790 (R1) line and aim for the 1.1850 (R2) level.

AUD weakens on RBA’s dovish stance

AUD tended to weaken against the USD yesterday and during the Asian session today, given the dovish stance of RBA. Analysts tended to note that the Aussie eased to a three-week low as yields were pushed lower, as expectations of RBA buying long term government debt tended to increase. The bank’s dovish stance seems to continue to weigh on the AUD, after RBA Governor Philip Lowe’s speech last week, in which many analysts saw the possibility of further easing. At the same tone, also the release of the bank’s October meeting minutes enhanced market expectations for further easing at the bank’s next meeting. It seems that in the last meeting of the bank members discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative, and buying government bonds further along the yield curve. We expect the monetary outlook of RBA to continue to weigh on the Aussie along with the wider uncertainty in the international trading environment, while on the flip side the pandemic seems to have at least temporarily, eased in Australia. AUD/USD retreated reaching new lows since the start of the month by aiming the 0.7025 (S1) line. We maintain a bearish outlook for the pair as the downward trendline incepted, since the 9th of October, seems to continue to guide it. Should the bears actually control AUD/USD’s direction, we could see it breaking the 0.7025 (s1) line and aim for the 0.6940 (S2) level. If the bulls take over, AUD/USD could reverse its direction, breaking the prementioned downward trendline, the 0.7100 (R1) line and aim for the 0.7200 (R2) level.

Other economic highlights today and early tomorrow

Today during the European session, we get Germany’s PPI rates for September and in the American session, we highlight the simultaneous release of the US number of building permits and housing starts, both for September, while just before the Asian session starts we get the US API weekly crude oil inventories figure. Also note that EU Commission President Ursula von der Leyen, BoE’s MPC member Vlieghe, Fed’s Vice Chair Quarles, Chicago Fed President Evans, Fed Board Governor Brainard, Atlanta Fed President Bostic and BoJ Board member Sakurai are scheduled to speak.