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Risk assets remained contained within tight ranges last week, awaiting the outcome of US fiscal talks and the US presidential election race. Instead, bearish bets were placed on the USD which underperformed all other currencies last week. The Pound benefitted from an extension of Brexit talks.
Going into the week, trading may remain rangebound and headline driven ahead of the resolution of key risk events. There may be some directional movement to be had from Wednesday onwards as the Bank of Canada and ECB meet and we get GDP and CPI readings from the US and the EU.
Themes for the Week
- Trump or Biden: as we enter the last week of the US presidential election race, Biden remains favoured in the polls. Both candidates plan to increase government spending which is benign for the markets in the short term.
- US Fiscal Talks: it seems that any agreement on further stimulus will have to wait until after the elections.
- ECB Decision: this will be the most influential meeting of the week as markets are poised for a dovish meeting and expected the ECB to ease by year-end. With the Euro continuing to rise, there may be attempts to at least talk down the currency.
- BOC and BOJ: no change is expected from either central bank, but the BOC might lower growth forecasts.
- Brexit: the negotiations continue, keeping the Pound supported for now.
Data in the Week Ahead:
- China Communist Party Meeting
- GER IFO (Mon) à Could be weaker, but last week’s PMIs beat expectations so confidence is low.
- RBA’s Bullock Speech (Tue)
- AU CPI (Wed) à Should be weaker.
- BOC Rate Decision (Wed) à A cautious tone is expected.
- BOJ Decision (Thur)
- ECB Decision (Thur) à Expectations are for a dovish slant.
- US Q3 GDP (Thur) à Positive growth is expected in Q3 but may not beat expectations.
- GER Q3 GDP (Fri) à Should come in weaker based on Trade Balance and Retail Sales.
- EU CPI (Fri)
- US CPI (Fri)
Correlation Report:
Comment: The 20 and 10 day scale show common movement in Metals, USD, and Indices. On the 5-day scale, Commodities and Metals are more closely linked.
On the Radar:
Into Friday’s Close, the strongest signals were weakness in USD with strength in EUR, NZD and CHF. Also, selected AUD pairs also remain in trending mode ahead of the Nov 3 RBA decision.