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Dow Jones Rebounds on Stimulus Hopes, Nikkei 225 May Lead Asia Lower

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DOW JONES, NIKKEI 225 INDEX OUTLOOK:

  • Dow Jones rebounded amid reignited US stimulus hopes, weaker-than-expected jobs report
  • The US Dollar climbed to one week high. US retail sales, Michigan consumer sentiment in focus
  • Japan’s Nikkei 225 index edged lower, Singapore’s NODX fell short of expectations.

Dow Jones Index Outlook:

The Dow Jones Industrial Average (Dow) had a ‘V-shaped’ rebound on Thursday and closed marginally lower at 28,494, fueled by renewed hopes for a relief aid that is critical to the recovery of the world’s largest economy. House Speaker Nancy Pelosi said that the stimulus package won’t wait until January, while President Trump said he’d go ahead with a US$ 1.8 trillion package, according to Bloomberg. This contrasted a dismal picture painted by Treasury Secretary Steven Mnuchin, who made it clear that the chances of a deal before the election remained thin earlier this week.

Market sentiment, however, was fragile as a second viral wave seemed to have ramped up in parts of the world, leading to partial lockdowns and travel restrictions. US initial jobless claims unexpectedly tiled up last week, showing early signs of weakness in the employment market. The actual reading came in at 898k, versus a 825k forecast. The US dollar climbed to a one week high of 93.8, pointing to resurging demand for safety.

Weekly US Jobless Claims – Week October 10th

Dow Jones Rebounds on Stimulus Hopes, Nikkei 225 May Lead Asia Lower

Source: Bloomberg, DailyFX

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Corporate earnings continued to deliver more positive surprises, which may help to cushion the downside of stock markets’ consolidation. All of the five S&P 500 constituents, which released their Q3 results on Thursday, beat analysts’ forecasts (table below). Honeywell and Bank of New York Mellon are among the major US companies to release earnings on Friday, alongside US retail sales and the University of Michigan consumer confidence data.

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Sector-wise, 6 out of 9 Dow Jones sectors closed in the green, with more than half of the indexe’s constituent companies rising on Thursday. Energy (+0.77%), consumer discretionary (+0.59%) and consumer staples (+0.53%) were leading, whereas information technology (-0.89%) and healthcare (-0.29%) were lagging.

Dow Jones Index Sector Performance 15-10-2020

Dow Jones Rebounds on Stimulus Hopes, Nikkei 225 May Lead Asia Lower

Source: Bloomberg, DailyFX

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Technically, the Dow appeared to have entered into a consolidative period after coming off a six-week high. Fibonacci retracement drawings (chart below) suggest that immediate support levels can be found at 28,390 (23.6%) and then 28,040 (38.2%). The 20-Day and 50-Day Simple Moving Average (SMA) lines can also be viewed as dynamic support levels.

Dow Jones IndexDaily Chart

Dow Jones Rebounds on Stimulus Hopes, Nikkei 225 May Lead Asia Lower

Nikkei 225 Index Outlook:

Asia-Pacific stocks look set to trade mixed on Friday as investors attempted to digest news on US stimulus, virus conditions and macroeconomic data. Japan’s Nikkei 225 index opened mildly lower, setting a downbeat tone the rest of the day. Singapore’s Non-Oil Domestic Export (NODX) came in at 5.9% YoY, falling short of a 10.8% forecast.

Dow Jones Rebounds on Stimulus Hopes, Nikkei 225 May Lead Asia Lower

Source: DailyFX

Technically, Nikkei 225 has likely formed a ‘Rising Wedge’ in its daily chart (shown below), with an immediate resistance level found at around 23,740 (161.8% Fibonacci extension). Its near-term momentum remains bullish-biased, as the 20-, 50- and 10-Day Simple Moving Average (SMA) lines are all sloped upwards. An immediate support level can be found at 23,380 (20-Day SMA) and then 23,250 (50-Day SMA).

Nikkei 225 Index Daily Chart

Dow Jones Rebounds on Stimulus Hopes, Nikkei 225 May Lead Asia Lower

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GBP/USD Shrugs Off Dire UK Borrowing Data

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GBP price, Brexit news and analysis:

  • UK public sector borrowing in the first half of the current financial year was more than six times the figure a year earlier due to the economic cost of the coronavirus pandemic.
  • Official data also showed that public-sector debt rose further above the £2 trillion level and reached its highest as a percentage of GDP since 1960.
  • UK inflation in September rose to 0.5% from 0.2%.
  • Nonetheless, GBP/USD held its ground as “risk-on” assets benefited from rising hopes that a US fiscal stimulus package can be agreed.
  • The FTSE 100 index, though, is falling back.

GBP/USD edging up despite poor UK economic data

GBP/USD largely ignored a very poor set of UK borrowing, debt and inflation data early Wednesday, suggesting some continuing underlying vigor as “risk-on” assets benefited from rising hopes of a US fiscal stimulus package, and economic strength in China.

There are also hopes that US-China relations could improve if Joe Biden wins the US Presidential election on November 3.

GBP/USD Price Chart, One-Hour Timeframe (October 16-21, 2020)

Latest GBP/USD price chart.

Chart by IG (You can click on it for a larger image)

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FTSE 100 falls back, Brexit talks still a focus

By contrast, the FTSE 100 index of the major London-listed stocks was weaker in early trading Wednesday and there was mixed news on possible trade deals. While the EU-UK negotiations on their relationship once the Brexit transition period ends on December 31 continue to show no signs of progress, the US and the UK have launched a new round of talks focused on goods and tariffs.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -6% 9% -2%
Weekly 24% -25% 3%

UK borrowing, debt and inflation all rise

Turning to the UK economy, the cost of the coronavirus pandemic was evident in a very poor set of borrowing, debt and inflation data released Wednesday before the UK markets opened. Government borrowing in the first half of the 2020/21 fiscal year was more than six times the level a year earlier due to the cost of supporting the UK economy during the coronavirus pandemic.

Public sector debt climbed further above £2 trillion to 103.5% of GDP, the highest debt/GDP ratio since 1960.

However, the potentially negative impact of the borrowing and debt data was offset by the news that UK inflation rose to 0.5% year/year in September, up from 0.2% in August.

UK borrowing, inflation data.

Source: DailyFX economic calendar

You can find a guide to reading an economic calendar here

We look at currencies regularly in the DailyFX Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts

— Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex





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Dollar Falls To One-Month Low on Stimulus Hopes By Investing.com

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© Reuters.

By Peter Nurse

Investing.com – The dollar weakened in early European trade Wednesday to a one-month low, as increased optimism surrounding a new U.S. stimulus package helped boost the demand for riskier currencies, to the detriment of the greenback. 

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 92.787, falling to its lowest level for a month. was up 0.3% at 1.1859, reaching a one-month high, while was down 0.3% at 105.23. 

News that President Donald Trump was willing to accept a large aid bill, as a string of negative opinion polls puts pressure on him to get a deal done before the Nov. 3 election, has raised hopes for a stimulus breakthrough.

Negotiations between House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin will continue on Wednesday.

That said, the dollar losses haven’t been extreme as there remains strong opposition from within Trump’s own Republican Party about a package of any real size being agreed.

“All in all, a fresh stimulus bill before the elections remains far from certain and we suspect there is not much of it currently being priced in by the markets, which should keep the downside for risk assets relatively limited if prospects of a bipartisan-deal eventually collapse,” said analysts at ING, in a research note.

Aside from the political maneuvering in Washington, traders will look to the release of the Federal Reserve’s October for clues of the extent of the U.S. economic recovery. It will provide a snapshot from businesses and communities about how the resurgence of Covid is being felt across the country.

Elsewhere, traded 0.4% higher at 1.2997, after annual inflation in the U.K. accelerated in September. rose 0.5% on year in September compared with a 0.2% rise in August, driven by higher transport costs, as well as higher prices at restaurants.

Separate figures showed the government borrowed 36.1 billion pounds ($46.75 billion) in September, the third-highest total for any month since records began in 1993, to help finance various coronavirus-relief packages for the economy.

“Whilst it’s clear that the coronavirus pandemic has had a significant impact on our public finances, things would have been far worse had we not acted in the way we did to protect millions of livelihoods,” British finance minister Rishi Sunak said.

Additionally, traded 0.5% lower at 6.6411, falling to its weakest level since July 2018, a consequence of the Chinese economy’s relatively strong rebound from the pandemic.  

“China is the strongest economic story in town, relative to Europe and the U.S.,” said Bank of Singapore currency analyst Moh Siong Sim,in a Reuters report. A Joe Biden presidency, he added, could also provide support by calming Sino-U.S. relations.

On Monday, China reported that its grew 4.9% in July-September from a year earlier.

 





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Crude Oil Prices Edge Higher on Weaker US Dollar, EIA Report in Focus

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CRUDE OIL OUTLOOK:

  • WTI crude oil attempts to challenge a key resistance level at US$ 41.50
  • The US Dollar index fell for a second day on stimulus hopes, improving sentiment
  • Oil traders eye key EIA data, expecting further drop in stockpiles amid softening demand outlook

WTI crude oil prices edged higher on Wednesday, challenging a key resistance level at US$ 41.50. Oil prices were boosted by stimulus hopes and a falling US Dollar after US House Representatives Speaker Nancy Pelosi self-imposed a deadline for the White House to approve the relief package. The DXY US Dollar index fell for a second day to 92.92 – the lowest level seen in a month.

Oil traders are also eyeing Wednesday’s EIA inventory reports, expecting a 1.02 million barrels fall in US crude oil stockpiles. Oil prices have historically exhibited a negative correlation with inventory changes, and the past 12 months’ data can be viewed on the chart below.

Crude Oil Prices Edge Higher on Weaker US Dollar, EIA Report in Focus

Source: DailyFX

In the medium term, falling crude stockpiles would likely underpin WTI prices. Total US inventories (excluding strategic petroleum reserves) have declined from 536.7 million barrels in Mid-July to 489.1 million barrels recently. Yet, the current level of US crude oil inventories is about 11% above the 5-year average for this time of year.

It is worth noting, however, that falling crude inventories should not mask a weakening demand outlook, which remains a key drag to oil prices. Recent EIA reports have pointed to declines in refinery inputs, gasoline production and distillate fuel production, as downstream demand weakened. Refineries operated at 75% of their operable capacity in the week ending October 9th. US crude oil imports have also fallen by nearly half a million barrels a day from the previous week.

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Flight data compiled by flightradar24 has also shown a slower pace of recovery in global flights numbers, which may serve as a good proxy for transportation fuel demand (chart below). The 7-day moving average of total flights tracked by the website was at 143,572 on October 20th, down by 26% from the same period last year. The number of daily flights appeared to have come off its recent peak seen in end September as the effects of pandemic-related measures may have resulted in less travel.

Crude Oil Prices Edge Higher on Weaker US Dollar, EIA Report in Focus

Source: Flightradar24

Technically, WTI crude oil prices look set to re-test a key resistance in the US$ 41.00-41.50 area (highlighted on the chart below). Breaking above this level may offer room for more upside potential towards US$ 43.8 – the previous high. A retreat from current levels may lead to further consolidation at around US$ 40.00 (20-Day SMA).

WTI Crude Oil PriceDaily Chart

Crude Oil Prices Edge Higher on Weaker US Dollar, EIA Report in Focus

IG Client Sentiment shows that 48.82% of retail traders are net-long oil, with the ratio of traders short to long at 1.05 to 1 (chart below). Compared to a day ago, retail traders have significantly increased their short positions (+27.5%) while reducing long positions (-16.8%). Compared to a week ago, the number of traders net-short has increased by 45% while the net long side has decreased by 19%. From a contrarian point of view, a drastic change in retail traders’ sentiment towards a shirt-side bias may infer further strengthening in crude oil prices.

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Crude Oil Prices Edge Higher on Weaker US Dollar, EIA Report in Focus

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— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter





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