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Andreas Zanin
Analysis | October 28, 2020

KTM Thursday FX: Falling like a dead weight in the sky

  • The dollar pops, and the rest tumbles
  • EURUSD and GBPUSD on their way towards 100MA
  • AUDUSD, Gold, and Silver lost 100MA-on their way towards 200MA.
  • Brent lost all the key moving averages.
  • The combination of events rattling the markets.

The financial markets across the asset classes took a hit on Tuesday as COVID-19 cases rise. The VIX jumps back above 40 suggest the fear is back to the table, which sent a red wave across.

When preparing this, French President Macron has announced a new lockdown for France as new cases arise. In the past 24 hrs, 36,437 new cases and 244 new deaths were reported in France. 

Overnight German Chancellor Merkel announced new lockdown restrictions, which could cap the EUR into today’s ECB meeting. Sixteen thousand forty-four new cases and 95 new deaths were reported in Germany over the past 24hrs. 

Meltdown: A week to US election and the latest daily COVID-19 cases are the two catalysts that send tremors to the financial markets since Monday. Most of the major currencies and benchmark indices lost the near term-key moving averages of 50 and 100MA. 

The S&P 500 has been trading Southward for eleven sessions out of 12, so as Dow Jones. Both the US benchmark indices lost the 100MA and will travel towards 200MA. Since mid-June, the 100MA is the lifeline for the S&P and Dow Jones, which finally lost on Wednesday. However, Aussie and UK’s benchmark indices lost all the critical moving averages

The immediate support located at 3200, below 3130 and 2900, exists for S&P, nearly 11% down the current price. For Down Jones, the immediate support exists at 25,990; below here, 24600 exists. 

Overnight’s interesting fact is, on average, stock markets lost more than 3%, but bonds remain neutral. However, the price of Gold down 1.60%. We believe investors shed their Gold positions to cover their equity losses. So, the Gold downtrend will be limited

The 10-year benchmark yield remained neutral at 0.79% compared with at close 0.85 in the previous trading session.

  • NAB said, “On a day like today, the argument that core global bond yields have lost their safe-haven appeal, given the current low yield environment and Central Bank interference is hard to contradict. However, options structures could play a role, especially bearing in mind risk events around the corner. The ECB meeting tonight, the US election, and FOMC next week.: 

FX: The G10 currencies extended losses on October 28 due to rising COVID-19 cases in the US and Europe. On top of this, they were existing US election uncertainty rattling the markets. 

The Norwegian Krone plunged 2% on Wednesday, followed by commodity currencies AUD, CAD, and NZD, which went down between 1.20-1.80% against the dollar. 

Commodities: The safe-haven melted 1.80% or lost $33 to close at $1877. The price of Gold lost 100MA but managed to hold the 100EA. At lower levels, $1869 and $1848 will act as support for the haven. If this support breaks decisively on the downward, then one may expect a sharp correction in the near term. 

Besides, the cheapest metal Silver, lost more than 4% and followed the Gold’s footprint. At lower levels. $22.80 and $21.60 are going to act as support in the near-term. 

Oil: Brent crude oil nosedived nearly 5% to close at $39.50. Since mid-September, the price pattern has been developing a distribution pattern; finally, it unfolds the drama. The immediate support exists at $38.90 below here; $ 37 and $36.15 exists. 

The day ahead: Market participants focus on the Bank of Japan and European Central Bank’s policy meetings.  

ECB: The next significant move in EURUSD cast on this week’s ECB meeting (Thu). We and the market expect the ECB to leave all its policy settings unchanged, but we expect to highlight the risk in Q4. And we also hint at further easing of monetary policy in the December meeting.

  • “The case for further easing from the ECB is strong and perhaps getting stronger by the day, though we suspect they will wait until the December meeting when updated staff forecasts become available before officially announcing a greater PEPP purchase pace.” According to Nordea.
  • Westpac analysts said, “Euro has more immediate downside into the ECB and likely beyond if Lagarde signals strong prospects for more accommodation, as seems likely in the wake of an aggressive set of new suppression measures in France and Germany.” 

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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