USD slips as stimulus negotiations are ongoing

USD seemed to retreat against a number of its counterparts yesterday while some stabilisation took place during the Asian session today. Risk appetite seemed to improve as US stock markets were on the rise. US President Trump’s discharge from hospital tended to make lots of headlines, yet the market may be more interested in the ongoing negotiations for a fiscal stimulus in the US Congress. Nancy Pelosi and US Treasury Secretary Steven Mnuchin are reported to have spoken over the phone for about an hour yesterday and are to speak again today, continuing their efforts to reach a deal. White House officials stated that there is still the potential of reaching a deal, yet the situation seems to be more complicated as a number of policymakers including Trump contracted COVID 19. Should the risk on sentiment continue to affect the markets we could see the USD slipping further and fundamentals could continue to guide the greenback.
EUR/USD continued to rise and is currently testing the 1.1790 (R1) resistance line. It should be noted that the pair has reached a two week high and the RSI indicator below our 4 hour chart has reached the reading of 70, confirming the dominance of the bulls, yet also implying that the pair’s long position is somewhat overcrowded. We tend to maintain a bullish outlook for the pair as it seems to be guided by the upward trendline incepted since yesterday’s Asian session, yet some stabilisation could be in play given the RSI reading mentioned before and the resistance met at the 1.1790 (R1) line. Should the bulls maintain control, we could see the pair breaking the 1.1790 (R1) and aim for the 1.1850 (R2). Should the bears take over, we could see the pair aiming if not breaking the 1.1720 (S1).

RBA remains on hold and the Aussie jumps

As was widely expected RBA remained on hold keeping rates unchanged at +0.25%, yet the Aussie jumped around 22 pips upon release. In Governor Lowe’s accompanying statement the bank stated that it will not increase the cash rate until progress is made towards full employment and inflation is sustainably within the 2-3% inflation target of the bank. We see the bank striking a slight ray of optimism as it mentioned that the decline in output “was smaller than was expected” and “unemployment rate is likely to peak at a lower rate than earlier expected”. The bank seems to maintain a wait and see position, yet at the same time adds pressure to the Australian government for more fiscal stimulus. Market expectations seem to solidify for RBA not to proceed with a mini rate cut in November and instead keep rates unchanged through 2020. Given that the monetary outlook for the Aussie remains stable currently, we expect Aussie traders to turn their attention to financial releases as well as the possibility of a fiscal stimulus especially given that the budget is to be released later today.
AUD/USD remained in a rather sideways motion just below the 0.7200 (R1) line. It should be noted that the pair seems to have maintained its sideways motion from yesterday and is currently testing the upward trendline incepted since the 2nd of October. Should it clearly break the prementioned trendline we would switch our bullish outlook in favour of a sideways movement initially, before the pair takes a decision on its next leg. Should the pair find fresh buying orders along its path, we could see it breaking the 0.7200 (R1) line and aim for the 0.7300 (R2) level. Should the pair come under the selling interest of the market, we could see the pair breaking the 0.7100 (S1) support line on its journey southwards.

Other economic highlights today and early tomorrow

During Tuesday’s European session, we get Germany’s industrial orders for August, UK’s construction CPI for September and later on, the milk auction figure which is of interest for Kiwi traders. In the American session, we note the US international trade balance as well as Canada’s trade balance, both for August. As for speakers, we highlight ECB President Lagarde’s and Fed Chair Powell’s speeches.