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Intermarket:
- SP Futures 3465 (+0.87%)
- EUSTXX 3166 (+0.38%)
- Crude Oil 38.48 (-1.75%)
- US 10YR 0.77 (-1.14%)
- EurUsd 1.1737 (+0.13%)
- UsdJpy 104.34 (-0.15%)
- DAX 12364 (+0.48%)
Despite a potential policy gridlock in the US, risk assets are rallying and VIX has declined notably. Although Team Trump wants to take this to the courts and all the way up to the Supreme Court, the decline in VIX would suggest hedges are being removed and market participants are back into the risk taking game. Perhaps traders are betting that a gridlock will block Biden from hiking corporate taxes and there will be no massive fiscal stimulus to finance.
The focus for today in Europe will be the Bank of England. Consensus is for an expansion in QE by £100bn and updated forecasts on growth/inflation will likely support the case for additional QE as the downside risks that the BoE worried about in August have materialised. There is actually the risk that the Bank could surprise markets as an article in the Sun suggests £200Bn in QE is a possibility today. Negative rates are not expected, but an article in the Telegraph put fourth speculation that NIRP is being considered.
Looking Ahead: tonight we get the FOMC decision. The pressure is increasing on the Fed to deliver more easing, as more fiscal aid has yet to arrive. A divided Congress will likely lure the FED into further easing.
Matters that Matter:
• Biden predicts victory in U.S. election; Trump launches lawsuits to stop vote counting
• Republicans on track to dash Democratic hopes of U.S. Senate majority
• SF Fed Daly to vote at FOMC meeting in place of absent Minneapolis Fed’s Kashkari, Daly less dovish
• BoE said to be considering a move into negative rates -Telegraph
• BoE poised to take bond-buying plan above $1 trillion
• EU’s Barnier says ‘very serious’ gaps still in Brexit trade talks
• UK ChancExch Sunak – Furloughed workers to get 80% of wages if businesses mandated to shut - Telegraph
• Apple: To face shortages in power chips for iPhone 12
• AFR: PM Scott Morrison says he takes at “face value” China’s denials it is not banning Australian products as he seeks to avoid inflaming tensions. Australian exporters are on edge over unverified claims a swathe of goods will be banned from Friday.
• New Zealand PM Ardern: Announces extended small business lending program; to increase funding for employers to take on more workers
• Giuliani: National lawsuit over votes possible; Trump team to file second lawsuit against Pennsylvania
Majors 1-Day View:
USDJPY
- Prices posted a volatile session on Wednesday, which ended with a little changed close. As such, trend signals are weak, but a moderate bearish bias remains on balance.
- Support seen at 104.00, but JPY crosses on back foot.
- Opex today: 104.45-80 460Mln, 105.00 1.0 Bln
EURUSD
• Prices posted a volatile session on Wednesday, which ended with a little changed close. As such, trend signals are weak, but a moderate bullish bias remains on balance.
• Fundamentals bias still down on ECB easing bias and lockdowns spreading across Europe. Better odds on the crosses perhaps.
AUDUSD
• Prices posted a volatile session on Wednesday, which ended with a little changed close. However, the market was able to post the 2nd higher daily high & low in a sequence. As such, there is a bullish bias going into Thursday.
• AUD to track risk assets in the aftermath of the Elections.
GBPUSD
• Prices posted a volatile session on Wednesday, posting an 8 Day high at 1.3139 before declining to 1.2913 before closing in the bottom 50% of the day’s range at 1.2983. As such, trend signals are weak but further selling in Asia trade keeps the bias slightly bearish on balance and the outlook is to sell on a rally to 1.3080 or sell through 1.2912.
• BOE said to be considering Negative Rates, and extending QE to 200Bln.
• Brexit still going nowhere.
FX Relative ATR Grid
Comment: Ranges expanded on Wednesday, and intraday trading conditions remain favourable into Thursday
FX Relative Strength Grid
Comment: the main signal into Thursday are GBP weakness vs CHF strength and CAD strength