USD strengthens as President Trump calls off stimulus talks

The USD strengthened substantially against its major counterparts yesterday, while US stock markets tumbled as uncertainty was on the rise fuelling a risk off approach of the market. US President Trump called off the stimulus talks until after the Presidential elections, increasing the uncertainty in the markets as a delay in the delivery of the fiscal stimulus could slow down the recovery of the US economy. It was characteristic that Fed Chairman Powell stated yesterday that should the COVID 19 pandemic not be set under control, the US economy could fall into a negative spiral and at the same time called for more fiscal assistance. We expect traders today to pay special attention to the release of the Fed’s September meeting minutes and analysts to scrutinise the document for any clues about the intentions of the bank. At the same time the markets seem to prepare for the election of Joe Biden, given that polls seem to show a wide consistent lead of Biden against Trump. Should Biden’s lead be maintained, we could see President Trump’s behaviour becoming more erratic providing the markets with an even more bumpy ride.
Also, a steady wide lead of Biden over Trump in the polls could increase insecurity in the markets about what is to come and could polish the safe-haven qualities of the USD, while at the same time weaken US stock markets somewhat. AUD/USD tumbled yesterday yet bounced on the 0.7100 (S1) line. We expect the pair to stabilise somewhat after the pair’s bounce on the prementioned support line, as well as on the RSI reading of 30 below our 4-hour chart. US fundamentals could be in the forefront for the pair in the next 24 hours and should the bears regain control over the pair’s direction we could see it breaking the 0.7100 (S1) line aiming for the 0.7025 (S2) level. Should the bulls take charge over AUD/USD, we could see the pair recovering the lost ground by aiming if not breaking the 0.7200 (R1) line.

Pound Traders eye Brexit deal

The pound fell against the USD, yet traders seem to be eyeing the possibility of a Brexit deal as signs of progress are present. EU officials stated that the EU was prepared to extent negotiations well into November instead of leaving the negotiating table mid-month. Analysts tend to mention that EU’s move could be calling UK’s “bluff” to leave the negotiating table by mid-October should its demands not be met. Differences seem to be ongoing especially given France’s hard stance on fisheries, which tends to increase uncertainty substantially about a possible deal on Brexit. So, negotiations are expected to become more intense which could create substantial volatility for the pound, and we expect that any further headlines underscoring the possibility of a Brexit deal could provide support for the pound and vice versa. On the monetary front, investors seem to be pushing back on the idea of the BoE employing negative rates which could support the pound, given that recently high calibre BoE members expressed their dissent to such a scenario.
GBP/USD dropped yesterday breaking the 1.2945 (R2) and the 1.2885 (R1) support lines, both now turned to resistance. We expect some stabilisation to take place, yet US fundamentals as well as Brexit developments could affect the pair’s direction substantially. Should the selling interest restart for the pair, we could see it breaking the 1.2800 (S1) support line, moving possibly even lower. Should a buying momentum characterise the pair, we could see cable breaking the 1.2885 (R1) line aiming, if not breaking the 1.2945 (R2) level.

Other economic highlights today and early tomorrow

In the European session, we get Germany’s industrial output for August as well as the UK Halifax House prices for September. In the American session, we get Canada’s Ivey PMI for September, and the US EIA weekly crude oil inventories figure. During the Asian session we note Japan’s current account balance for August. As for speakers ECB President Lagarde, NY Fed President Williams, Minneapolis Fed President Kashkari, Atlanta Fed President Bostic, Chicago Fed President Evans and BoJ Governor Kuroda speak.