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AUD/USD Unfazed by Ban on Australian Coal as Risk Appetite Improves

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Australian Dollar Talking Points

AUD/USD pulls back from the monthly high (0.7243) as the US Dollar recovers against most of its major counterparts, but the improvement in risk appetite may keep the exchange rate afloat as the Greenback reflects an inverse relationship with investor confidence.

AUD/USD Unfazed by Ban on Australian Coal as Risk Appetite Improves

AUD/USD appears to be unfazed by headlines stating that China has banned coal imports from Australia as Trade Minister Simon Birmingham insists that “we do not have proof that this is occurring” during an interview with Sky News.

The price action following the Reserve Bank of Australia (RBA) interest rate decision suggests that the decline from the yearly high (0.7414) may have been an exhaustion in the bullish trend rather than a change in market behavior as AUD/USD clears the monthly opening range, with the Relative Strength Index (RSI) displaying a similar dynamic as it breaks out of the downward trend carried over from the previous month.

Image of DailyFX economic calendar for Australia

In turn, the advance from the monthly low (0.7096) may gather pace as the bearish momentum abates, but the update to Australia’s Employment report may drag on AUD/USD as the economy is expected to shed 35K jobs in September.

Image of ASX 30 Day Interbank Cash Rate Futures

Source: ASX

At the same time, the ASX 30 Day Interbank Cash Rate Futurescontinues to reflect a greater than 70% probability for a rate cut in November, and speculation for an RBA rate cut may produce headwinds for the Australian Dollar as the “Board continues to consider how additional monetary easing could support jobs as the economy opens up further.

However, it remains to be seen if the RBA will deploy more non-standard tools to insulate the economy after tweaking the Term Funding Facility (TFF) in September, and Governor Philip Lowe and Co. may stick to the same script at the next meeting on November 3 as Treasurer Josh Frydenbergplans to provide additional fiscal support through income tax cuts.

Until then, swings in investor confidence may continue to sway AUD/USD as key market trends remain in place, with the tilt in retail sentiment resurfacing in October as retail traders flip net-short the pair.

Image of IG Client Sentiment for AUD/USD rate

The IG Client Sentiment report shows 39.87% of traders are net-long AUD/USD, with the ratio of traders short to long standing at 1.51 to 1. The number of traders net-long is 15.90% higher than yesterday and 0.53% higher from last week, while the number of traders net-short is 3.52% higher than yesterday and 4.12% higher from last week.

The rise in net-long position comes as AUD/USD clears the monthly opening range, while the rise in net-short interest has spurred a greater tilt in retail positioning as 41.58% of traders were net-long the pair during the previous week.

With that said, the pullback from the yearly high (0.7414) may turn out to be an exhaustion in the bullish trend rather than a change in market behavior as the crowding behavior in AUD/USD reappears, with the Relative Strength Index (RSI) highlighting a similar dynamic as it reverses from oversold territory and breaks out a downward trend carried over from the previous month.

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AUD/USD Rate Daily Chart

Image of AUD/USD rate daily chart

Source: Trading View

  • Keep in mind, the advance from the 2020 low (0.5506) gathered pace as AUD/USD broke out of the April range, with the exchange rate clearing the January high (0.7016) in June as the Relative Strength Index (RSI) pushed into overbought territory.
  • AUD/USD managed to clear the June high (0.7064) in July even though the RSI failed to retain the upward trend from earlier this year, with the exchange rate pushing to fresh yearly highs in August and September to trade at its highest level since 2018.
  • The RSI instilled a bullish outlook for AUD/USD during the same period as it threatened the downward trend from earlier this year to push into overbought territory for the fourth time in 2020, but a textbook sell-signal emerged as the indicator quickly slipped back below 70.
  • The RSI established a downward trend in September as the indicator fell to its lowest level since April, but the bearish momentum has abated as the RSI fails to push into oversold territory to reflect the extreme readings seen in March.
  • As a result, the pullback from the yearly high (0.7414) may turn out to be an exhaustion in the bullish trend rather than a change in AUD/USD behavior as the RSI breaks out of the downward trend carried over from the previous month, with the break/close above the 0.7180 (61.8% retracement) region pushing the exchange rate towards the 0.7270 (23.6% expansion) area.
  • Next region of interest comes in around 0.7370 (38.2% expansion) to 0.7390 (38.2% expansion), which largely lines up with the 2020 high (0.7414), followed by the 0.7480 (50% expansion) area.

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— Written by David Song, Currency Strategist

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Dollar-Yen Undermined by Stimulus Hopes

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USD/JPY PRICE OUTLOOK: US DOLLAR COULD FALL VS JAPANESE YEN AS FISCAL STIMULUS DEAL STEERS GREENBACK LOWER

The US Dollar has faced heavy selling pressure throughout Tuesday’s trading session. Broad-based US Dollar weakness has weighed negatively on the DXY Index and just pushed the benchmark below a major support zone. USD downside largely follows rekindled fiscal stimulus optimism after Democratic House Speaker Nancy Pelosi conveyed an upbeat tone earlier today on the possibility that a coronavirus aid package can be reached before the November 2020 election.

Pelosi, who will speak with Treasury Secretary Steven Mnuchin again this afternoon in an attempt to finalize legislative text, stated that the Trump administration has ‘come a long way toward reaching an agreement.’ Reinvigorated fiscal stimulus hopes thanks to encouraging remarks from Pelosi exacerbated US Dollar downside and helped steer spot USD/JPY price action to session lows.

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USD/JPY PRICE CHART: DAILY TIME FRAME (01 JUL TO 20 OCT 2020)

USD JPY Price Chart USDJPY Dollar Yen Technical Forecast

The intraday reversal by USD/JPY also happens to correspond with another rejection of its 50-day simple moving average. This highlights growing potential for further Dollar-Yen weakness, which could motivate USD/JPY bears to eye another retest of the 105.00-handle and month-to-date lows. Breaching this technical support level could see USD/JPY prices extend even lower toward the 104.00-mark. Notable hurdles still stand in the way of politicians being able to break the ongoing impasse over passing a comprehensive coronavirus aid package prior to the upcoming election, however.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -1% -16% -8%
Weekly -10% -5% -8%

A last-minute breakdown in fiscal stimulus negotiations due to differences on aid to state and local governments, or failure to garner enough support in the Republican-controlled Senate, pose upside risks to USD/JPY price action. That said, eclipsing the bearish trendline extended through the series of lower highs since early July might open up the door for USD/JPY bulls to target the 106.00-price level before setting their sights back on August highs.

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— Written by Rich Dvorak, Analyst for DailyFX.com

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Pound Cuts Gains as U.K. PM Drags Heels on Resuming Brexit Talks By Investing.com

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© Reuters.

By Yasin Ebrahim

Investing.com – The pound cut its gains against the greenback Tuesday, as the U.K. continues to dig in its heels over restarting trade talks with the EU and parts of Britain go into lockdown to curb virus infections.

fell 0.05% to $1.2940.

U.K. Prime Minister Boris Johnson reportedly told the Greek prime minister Brexit talks will remain paused until the EU changes its stance on the discussions.

“He reaffirmed that the EU have effectively ended those negotiations by stating they did not want to change their negotiating position,” Johnson’s spokesman said following the call with Prime Minster Kyriakos Mitsotakis. “Should the EU fundamentally change their position, then the UK would be willing to talk on that new basis.”

Issues including fishing access and state aid rules have held up progress on talks.

EU negotiator Michel Barnier who just a day earlier extended an olive branch after suggesting that the bloc was committed to intensifying talks called on the U.K. to “make the most of the little time left” with just months ago until the end of the transition period at year-end.

Without a trade deal, the U.K. will trade with the EU on World Trade Organization trade terms, which many have said will hurt growth, particularly a time when Britain has resumed some lockdown to curb a surge in cases.

Johnson confirmed Greater Manchester would be going into the highest level of lockdown – Tier 3 – from 12.01am on Friday morning.

Coronavirus infections in the U.K. soared by 21,330 since Monday, the highest one-day rise since June 5.

The prime minister also had to contend with a widely expected defeat in Parliament as his internal markets bill, which seeks to undermine parts of the Brexit withdrawal agreement, was voted down.

Sterling remains vulnerable until there is meaningful progress on talks, analysts have warned.

“A true breakthrough would be the news that an agreement has been reached on the issue of fishing. That would be more suited to justifying strong Sterling appreciation as this is one of the real stumbling blocks in the negotiations. Until that is reached, I would remain cautious as a Sterling bull,” Commerzbank (DE:) strategist Thu Lan Nguyen said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Trump Vs. Biden on Economies and Markets

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Trump versus Biden Policies Overview

  • The November 3 elections are around the corner, and the state of the economy thanks to the coronavirus pandemic is at the top of voters’ minds.
  • While a Trump administration would likely continuation of lower tax rates, a Biden administration might bring about the end to trade wars.
  • The composition of the Congress matters greatly, insofar as a mixed result could bring more gridlock to Washington, D.C. – regardless of whoever is the president.

A decade after The Great Recession, Americans are dealing with the worst economy since The Great Depression. Onset by the coronavirus pandemic, US growth cratered in the second quarter of 2020, with inconsistent evidence emerging of a widespread V-shaped recovery in the third quarter.

Now past the Labor Day holiday, we are officially in the US presidential election season, and the state of the economy amid the coronavirus pandemic is at the top of voters’ minds as they weigh sending back to the White House Republican Donald Trump, or Democratic nominee and former Vice President Joe Biden.

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Depending upon the outcome of the November presidential election, the US economy could take very different tracks. While there may be some agreement in terms of trade or infrastructure, Trump and Biden diverge on nearly every other economic policy facet – from taxes, to jobs, to the coronavirus pandemic recovery itself.

We outline below key areas and explain how we see them differ in a Trump or a Biden administration.

Taxes

Trump – Tax rates have been cut during the first Trump term, both at the corporate and individual level. Comments made during the campaign suggest that Trump would seek further cuts to both corporate and individual tax rates to help spur the economy’s recovery from the coronavirus pandemic.

Biden – Tax rates would be poised to go higher under a Biden administration, both at the corporate and individual level. But at the individual level, the Biden plan calls for an increase of 0.4%, while the top tax bracket would jump nearly 13%, back to levels seen under Obama.

Infrastructure

Trump – “It’s infrastructure week!” proved a well-worn quote during Trump’s first term, but nothing materialized despite repeated promises for a robust infrastructure spending bill. Trump continues to beat the drum, saying that he’d like to see a $1 trillion infrastructure program passed; the holdup may be Senate Republicans.

Biden – The Democratic challenger has released a $2 trillion infrastructure spending program, aimed at spurring development and investment in carbon-neutral and green energy solutions over four years. The plan was enhanced from its original $1.3 trillion spend over 10 years, insofar as increased spending on a shorter time horizon will enhance the US economy’s recovery from the coronavirus pandemic.

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Jobs/Coronavirus Response

Trump – The White House has been pushing for a skinny fiscal stimulus boost after the $2 trillion used to fund the CARES Act has been depleted. Against a robust automatic unemployment benefits program (seeking $300 per month, down from $600 in the CARES Act), the Trump campaign has proven hesitant about leaning into more deficit spending as the economy, particularly the labor market, has produced above-expectation results in the second half of summer 2020. Likewise, the Trump campaign has proven ambivalent about increasing federal spending to subsidize damaged tax revenue streams at the local and state level.

Biden – The economy will receive much more fiscal support under a Biden administration, insofar as plans outlined thus far suggest that Biden would seek to extend the $600 per month unemployment benefits program established vis-à-vis the CARES Act. Furthermore, a Biden administration would likely be more willing to use the federal purse to help localities and states that have seen their tax bases depleted thanks to reduced income tax and sales tax revenues.

Trade

Trump – The US-China trade warwas a hallmark of Trump’s first term. While there have been mixed signals about compliance on both sides of the deal, it is likely that a second Trump term would see the US-China trade war deepen. The trade conflict has started to take on a militaristic aspect in the South China Sea, and it would seem likely that a second Trump term would result in a rekindled US – China trade aggressions, as well as further tensions with allies like the European Union, Japan, and South Korea.

Biden – While a Biden administration would likely take a similarly hard line on China, there would likely be moderation in the US-China trade war, with some efforts at removing tariffs and trade barriers that were constructed during the first Trump term. But even if the US-China trade war doesn’t revert back to its pre-Trump status (Biden is truly starting to sound more like Trump on China), it would be likely that trade relations are normalized with allies like the European Union, Japan, and South Korea.

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Conclusion

The composition of Congress will also shape a future US economy. A Biden administration with a Democratic House and a Republican Senate will get little accomplished. Similarly, a Trump administration with a Democratic House and a Republican Senate – what we have now – will get little accomplished. Under both, even in a split Congress, it is highly likely that the federal deficit continues to rise, bringing the deficit hawks out of the woodwork.

Unless both chambers of Congress align with the president’s party after November 3 – either Biden has a Democratic House and Democratic Senate, or Trump has a Republican House and a Republican Senate – we will be stuck with gridlock, making the US economy’s recovery from the coronavirus pandemic all

the more anemic.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist





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