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Dependent on Presidential Election Outcome

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USDMXN Chart

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USD/MXNFundamental Forecast: Neutral

This past week we’ve seen uncertainty return to the markets and the Mexican Peso losing its winning streak against the US Dollar as US stimulus hopes fade given political impasse in Congress. The safe-haven Dollar managed to regain some upside momentum as traders fled from riskier assets in another intense selling spectacle in equity markets. USD/MXN managed to regain the 21.50 mark on Thursday but solid selling pressure continue to keep upside momentum capped.

Fundamentally, the Mexican Peso isn’t predicted to perform too well in the lead up to November 3rd as a contested election is likely, and the Mexican currency performs best when there is political stability an market optimism. Despite Biden having a lead in the polls, Donald Trump has already stated he will not offer an easy transition of power if he is seen as the loser, given he believes that mail-in voting is inefficient. This uncertainty is likely to keep a solid bid in the Dollar even if the Democrats continue to hold a solid advantage.

US Dollar (USD) Presidential Election Performance May Prove Anything but Typical

That said, the long-term effect of the elections on the Mexican economy are somewhat unclear. This is likely to depend on the future of the commercial relationship between the North American countries. Despite the US and Mexico having a largely stable relationship over the last few years, this situation depended mostly on Donald Trump’s mood swings and sudden bursts of protectionist measures. Analysts predict that a Biden presidency will bring more stability to commercial relationships, whilst promoting transparency, which would be a big boost for the Mexican Peso.

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A lot is also going to depend on the stimulus efforts unveiled by the next President, as the Mexican economy is largely dependent on the recovery of the US economy, and some analysts believe that Biden is unable to offer the kind of support the economy needs right now. Also, let us remind ourselves that Kamala Harris was one of the 10 senators that voted against the creation of the US, Mexico and Canada trade agreement (USMCA) which passed congressed in January this year as the new ratification of the North American Free Trade Agreement (NAFTA).

She cited that “trade agreements can open up new markets to American products and forge new alliances with foreign countries, but they can also lead to job losses, depressed wages, and environmental degradation” and after a “careful study and consultation with environmental and conservation leaders, I have concluded that the USMCA’s environmental provisions are insufficient—and by not addressing climate change, the USMCA fails to meet the crises of this moment.

This alone could increase the uncertainty around the future relationship between the two countries, although not much is likely to change given USMCA can only be modified after 5 years. Overall, a Biden presidency is likely to unwind the Trump risk factor whilst boosting a profitable trade relationship, whilst another four years of Trump presidency is likely to keep investors on edge.

So looking ahead at the next few weeks, a Biden lead is theoretically positive for the Mexican Peso but the uncertainty around a smooth change in power is likely to keep the US Dollar supported, leaving USD/MXN again at the mercy of news headlines as we head straight on to the final weeks of the election run.

USD/MXN 1-hour chart (15 September – 16 October 2020)

USDMXN Chart

From a technical standpoint, not much has changed since last week in regards to important areas to look out for. There continues to be a confluence of bullish pressure between 21.30 and 21.24, despite an attempt this past week to break below this level. Any further downside pressure is likely to take USD/MXN towards the 21.04 mark, where further buying support can be found, before approaching the lows since the beginning of March at 20.84, last seen in mid-September before staging an impressive rebound.

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On the flipside, an increase in US Dollar demand is likely to take USD/MXN towards its monthly high in September around 22.70, despite there being important resistance areas ahead. The 50-day simple moving average is likely to bring increased selling pressure around the 21.60 area whilst a continued push higher could see the 21.85 resistance as a further challenge for the pair.

— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin





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Forex

Nasdaq 100, DAX 30, Nikkei 225 Forecasts Ahead of Big Tech Earnings

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Nasdaq 100 chart

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Nasdaq 100, DAX 30, Nikkei 225 Forecasts: Neutral

  • The Nasdaq 100 eagerly awaits earnings from Apple, Amazon, Facebook and more
  • German and Euro area GDP data is also due in the week ahead, a key event for the DAX 30
  • The Nikkei 225 will set its sights on the fast-approaching interest rate decision from the Bank of Japan

Nasdaq 100 Forecast

Outlook: Neutral

Earnings season is in full swing and the week ahead will see the release of quarterly reports from some of the world’s largest publicly traded companies. Apple, Amazon and Facebook are scheduled to report after Thursday’s close, a set of stocks that collectively account for more than 27% of the entire Nasdaq 100. Blue chip names like Boeing, General Electric, Pfizer and Ford will also report next week, but the speculative appetite in the big-tech names should afford them the most influence and market-moving potential.

NDX weights

Source: Slickcharts

To that end, market participants have high expectations for the FANGMAN group given their lofty share prices and after their blowout reports last quarter. Therefore, stocks like Apple, Amazon and Facebook will be highly scrutinized and could see a less-than-perfect report result in a seemingly drastic price decline.

Nasdaq Trading Basics: How to Trade Nasdaq 100

Either way, forecasting directional moves following an earnings report is incredibly difficult, so strategies that can benefit from heightened implied volatility may be ideal at this stage.

Nasdaq 100 Price Chart: 4 – Hour Time Frame (September 2020 – October 2020)

NDX price chart

Regardless, the Nasdaq 100, Dow Jones and S&P 500 may wait to stage serious moves until the Presidential election has passed. Given the massive uncertainty surrounding the vote, many traders are likely hesitant to hold significant exposure ahead of such an important event. It could be argued post-earnings price moves might be hampered to some degree, at least until the political landscape has returned to more stable footing.

DAX 30Forecast

Outlook: Bearish

The DAX 30 is set to receive more traditional economic data in the form of Euro area and German GDP readings followed by an ECB rate decision. Struck with another coronavirus wave, Europe may be on pace to disappoint growth forecasts as a slowdown was already hinted at by economic figures toward the end of the prior quarter.

DAX 30 Price Chart: 4 – Hour Time Frame (June 2020 – October 2020)

DAX 30 Chart

The DAX might take notice of a poor result, but I would suspect a GDP-miss might already be priced in to some degree. Nevertheless, the DAX seems tilted to the downside in the week ahead. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.

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Nikkei 225 Forecast

Outlook: Neutral

Shifting our focus to the Japanese Nikkei 225, traders will have their hands full with an upcoming interest rate decision from the Bank of Japan. After staging an admirable recovery from the coronavirus, Nikkei 225 gains have slowed to a crawl and the index has made little progress since early September. While the upcoming BOJ meeting will likely see a continuation of the norm for Japan’s monetary policy path, the lack of progress might suggest the Nikkei 225 is awaiting a broader uptick in risk appetite.

Nikkei 225 Price Chart: Daily Time Frame (November 2019 – October 2020)

Nikkei chart

With that said, the Nikkei might track moves in US indices as they await earnings and the looming Presidential election. Since little change is expected domestically in Japan, these outside factors could very well deliver the spark required to push the Nikkei above its recent highs. Still, the outlook remains encouraging. Until these outside issues are resolved, however, the forecast remains neutral or cautiously bullish.

–Written by Peter Hanks, Strategist for DailyFX.com





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ECB Meeting to Determine Next Major Move in EUR/USD

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EURUSD Chart

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Fundamental Euro Forecast: Neutral

  • The European Central Bank’s Governing Council meets this coming week and its statement Thursday, followed by its President’s news conference, will likely be important in determining the Euro’s direction over the next month or so.
  • The ECB will leave all its monetary settings unchanged but President Christine Lagarde could well start preparing the markets for a further easing of monetary policy in December.
  • Meanwhile, there are few signs of a breakout from the broad 1.16 to 1.20 range for EUR/USD that has confined the pair since mid-July.

ECB Meeting Critical for EUR/USD

The statement Thursday at the end of the next meeting of the European Central Bank’s Governing Council, and the subsequent comments by ECB President Christine Lagarde at her news conference, will be critical in determining the future direction of the Euro.

There will be no changes in interest rates or Eurozone monetary policy this coming week but Lagarde could hint at a further policy easing as early as December – a move that could weaken EUR/USD and the Euro crosses. The problem is that the Governing Council seems split on the issue.

Some members seem willing to act, fearing a “double dip” in the Eurozone economy as GDP falls again after a brief respite, hit by a second wave of Covid-19 infections that forces more countries and regions into lockdown. Easier monetary policy might help alleviate the resulting economic impact, help lessen deflationary pressures in the Eurozone and offset any damage to the region’s trade caused by the Euro’s advance since EUR/USD hit a low under 1.07 in March.

Others, though, seem more circumspect, worried that after hitting its highest level for more than a month last week EUR/USD may be vulnerable to a setback. There may also be concern about hinting at easier monetary policy so close to the US Presidential election and that more wary view seems to be that of the markets, where pricing suggests the rate on the ECB’s deposit facility will be minus 0.6% by the end of next year, only marginally below the current minus 0.5%.

You can find an FX traders’ guide to the ECB by clicking here

Putting all these factors together suggests that EUR/USD will continue to trade for a while yet in a broad range between the September 1 high at 1.2011 and the September 25 low at 1.1611.

EUR/USD Price Chart, Daily Timeframe (July 22 – October 22, 2020)

EURUSD Price Chart

Source: Refinitiv (You can click on it for a larger image)

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Week Ahead: Data Also Important for EUR/USD

Turning to the economic data on the calendar, the week ahead is a busy one, with German inflation and unemployment figures due Thursday, followed by Eurozone inflation and GDP numbers Friday. Both the German and the Eurozone price data could show steeper falls – emphasizing the ECB’s concerns about deflation – while the GDP data for the third quarter will likely show a strong rebound.

That would do little though to ease double dip concerns so more important might be Monday’s Ifo index of the German business climate in October, the first month of the fourth quarter, and it would be no surprise if that were weaker than in September.

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— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex





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Crude Oil Prices May Rise on US Stimulus Hopes, PMI Data

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CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices edge up on US fiscal stimulus hopes, upbeat data flow
  • Soundbites from Washington DC, US PMI surveys now in the spotlight
  • Gold prices down as US Dollar gains alongside Treasury bond yields

Crude oil prices managed to retrace some lost ground Thursday after the prior day’s selloff, the largest one-day loss in over a week, as an improvement in market-wide risk appetite helped buoy sentiment-geared assets. Tellingly, the WTI benchmark tracked higher alongside bellwether S&P 500 futures.

Markets seemed to be cheered by the appearance of a positive turn in US fiscal stimulus negotiations after House Speaker Nancy Pelosi said a deal is “just about there”. Data flow was also supportive: existing home sales surged to a 14-year high while jobless claims registered lower than expected.

Gold prices fell as the chipper mood buoyed Treasury bond yields, tarnishing the appeal of non-interest-bearing alternatives. Interestingly, the US Dollar managed to shed the anti-risk trading profile defining recent price action and rose in tandem, hinting the day’s new-flow may have curbed Fed easing bets.

CRUDE OIL, GOLD PRICES EYE US FISCAL STIMULUS AND PMI DATA

Soundbites shaping fiscal stimulus expectations are likely to remain in focus through the end of the trading week. Flash US PMI surveys headline the data docket, with forecasts pointing to a slight pickup in the overall pace of economic activity growth in October compared with the prior month.

A brighter view of the near-term business cycle might keep crude oil prices supported in the near term. A lasting rally seems unlikely however as weak demand continues to weigh. In fact, an EIA implied demand gauge published this week slumped toward Covid outbreak lows registered in April.

Gold may continue to suffer if yesterday’s trade dynamics remain in play, with hopes for a strengthening recovery boosting yields alongside the Greenback. However, disappointing data flow or souring stimulus prospects in the face of opposition in the Republican-controlled Senate might buoy the yellow metal.

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CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are hovering just below range resistance in the 42.40-43.88 area. A downswing from here sees initial support in the 34.64-36.15 zone, with a break below that likely exposing the 27.40-30.73 region next. Alternatively, a daily close above resistance may open the door for a test of the $50/bbl figure.

Crude Oil Prices May Rise on US Stimulus Hopes, PMI Data

Crude oil price chart created using TradingView

GOLD TECHNICAL ANALYSIS

Gold prices recoiled from resistance in the 1911.44-28.82 area, marked by a former range bottom and a falling trend line set from mid-August. Support is eyed in the 1848.66-63.27 zone, with a daily close below that seemingly setting the stage for a move below the $1800/oz figure. Alternatively, claiming a foothold above resistance may be followed by another test above $2000/oz.

Crude Oil Prices May Rise on US Stimulus Hopes, PMI Data

Gold price chart created using TradingView

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COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Head APAC Strategist for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter





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