USD loses ground as market sentiment improves

The USD slipped against some of its counterparts yesterday as market sentiment tended to improve and the USD seems to prepare for the second weekly loss in a row. Investor’s confidence that Biden will win the US presidential elections seems to be increasing, given that polls continue to show a wide lead of the former vice president against Donald Trump. Analysts are underscoring the possibility of smoother US-Sino relationships and the increased possibility of a fiscal stimulus for the economy in the case that Biden wins the elections. We agree regarding the stimulus part, given the Democrat’s current position on the matter, yet we retain our doubts about the smoothening of US Sino relationships given the bipartisan support in various bills at the US Congress against China and would also add the possibility of higher taxes. Nevertheless, it should be noted that the Chinese Yuan soared given the USD weakness and the prospect of smoother US-Sino relationships. Also, we highlight the slight rise of the weekly initial jobless claims figure yesterday, which increases our worries for the recovery of the US employment market. We expect traders to focus on fundamentals today and should market sentiment continue to improve we could see the USD slipping further. AUD/USD continued to rise yesterday aiming once again for the 0.7200 (R1) resistance line. As long as the pair remains above the upward trendline incepted since the 7th of October we tend maintain our bullish outlook for the pair. Should the bulls actually maintain control over AUD/USD we could see it breaking the 0.7200 (R1) and start aiming for the 0.7300 (R2) level. Should the pair come under the influence of the bears we could see it breaking the prementioned upward trendline, the 0.7100 (S1) and aim for lower grounds.

GBP stabilises with little gains

The pound stabilised with little gains against the USD, EUR and JPY yesterday, yet the possibility of an EU-UK Brexit deal seems to be improving. UK’s PM Boris Johnson and EU Council President Charles Michel had agreed on Wednesday that some progress had been made in the negotiations, yet media tend to note that the situation may be better than implied. At the same time, it should be noted that COVID 19 cases tend to be on the rise in the UK overshadowing the good news from the Brexit front and additional lockdown plans seem to be on the agenda. So, on the fundamental side, these two matters seem to be heavily influencing the pound and should there be no intense positive headlines regarding the Brexit negotiations, we may see the spreading of the pandemic in the UK and the market’s associated worries weigh on the pound. A voice of optimism seemed to derive from BoE Governor Bailey as he stated that he expects a second wave of COVID 19 not to be as bad the first one and seems to be more confident for a Brexit deal. Besides COVID 19 and Brexit pound traders are expected to keep their attention also on today’s financial releases from the UK. GBP/USD’s sideways motion yesterday broke the 1.2945 (S1) resistance line, now turned into support. We maintain our bias for a range bound movement of the pair, yet we note that slight bullish tendencies seemed to be also present during today’s Asian session. Should the buyers insist with their bid, we could see cable breaking the 1.3015 (R1) line and aim for the 1.3085 (R2) level. On the flip side should a selling interest be displayed by the market, we could see GBP/USD breaking the 1.2945 (S1) line and aim if not break also the 1.2885 (R2) level.

Other economic highlights today and early tomorrow

In the early European session, we get UK’s GDP rates for August as well as the manufacturing output growth rate for the same month. During the American session we highlight the release of Canada’s employment data for September, while during Monday’s Asian session, please note that Japan’s machinery orders and corporate goods prices growth rates, both for August are due out. As for speakers Richmond Fed President Barkin, BoE’s Andy Haldane and Chicago Fed President Evans are scheduled to speak.