Analysis,Educational | November 5, 2020

KTM FX Daily: Positive risk moves; Charts you need to see

  • No Blue wave, as expected.
  • No projected winner Yet, uncertainty reigned
  • Who will finish the race first?

Positive risk moves:  Unfortunately, there is no election result in the U.S. even, but markets reacted to the non-result in a schizophrenic way. Wednesday’s post-election equity rally was much stronger than before, with Nasdaq surges nearly 4%, S&P 500 jumps almost 2%.

In Europe, stocks followed the U.S. indices footprint with France benchmark index CAC 40 index rallied 2.50%, Germany DAX rallied 2%, and London FTSE closed 1.70% higher.

270 Electoral votes are needed to win the presidential race, now the scoreboard is Democratic party Joe Biden won 248 Electoral votes and Trump win 214. However, swing state results yet to come.

What sources are saying about the election outcome? 

  • “The outcome of the U.S. presidential election is on a knife-edge, with Donald Trump and his rival Joe Biden neck and neck in key swing states.” BBC.
  • “Democratic nominee Joe Biden just took a big step toward winning 270 electoral votes and defeating President Trump with Decision Desk H.Q. projecting he’ll win both Michigan and Wisconsin” Business Insider Australia.
  • There will be a delay before the U.S. election outcomes are known. Pennsylvania may take a couple of days to give its presidential result (because why hurry?), and of course, lawyers are getting involved. The composition of the Senate may not be known until the end of today.
  • UBS said Markets are likely to focus on actual votes and actual lawsuits, rather than on announcements from either candidate.
  • Preliminary results show that neither Republican President Donald Trump nor former Vice President Joe Biden, his Democratic challenger, had yet secured the minimum 270 electoral votes (out of a total of 538) to be declared the winner. Election results in key battleground states, including Michigan, Wisconsin, and Pennsylvania, are still outstanding, Moody’s Analytics.
  • As we do not know the election results, we briefly touch upon what to expect both from a policy and market perspective in the three different scenarios: (1) Biden clean sweep, (2) Biden victory with divided Congress, and (3) Trump victory with divided Congress. We do not know at this point, which is more likely. That said, it seems like the Republicans are doing better than expected in the Senate election, Danske Bank.
  • ING cited, “Biden has the edge, but no Blue Wave.”

Turning to the foreign exchange market, traders sent USD and bonds yield lower but equities higher. In G10 FX, high beta currencies like the Australian dollar (AUD), Swedish Krona (SEK), and Norwegian krone (NOK) witnessed huge swings on Wednesday and will remain at the same phase until Friday. Besides, Mexican Peso saw a massive swing on the Asia session.

E.M. space: At one-point, MXN was down by 4% but managed to erase all the losses into close against the dollar. Besides, CNH gained by 0.90% into close.

In commodities, Gold lost $6 or 0.30% and Silver down by 3%. Brent crude oil rallied 2.50%, and Copper rallied 0.50%.

In cryptos, Ethereum leads the pack with 5.50% gains flowed by Bitcoin 2.50%. The price of Bitcoin closed above the $14k mark for the first time since November 2017. A monthly close above $14k would mark the highest close ever.

 Data review: 

  • Final Eurozone Services PMI printed above flash readings, but U.K. service sector PMI printed below flash readings.

According to IHS Markit, Final Eurozone Services PMI at 46.9 (Flash: 46.2, September Final: 48.0).

  • U.K. Services PMI Business Activity Index registered 51.4 in October, down sharply from 56.1 in September but slightly above the crucial 50.0 no-change marks. The latest reading was lower than the earlier ‘flash’ reading for October (52.3) and signaled the weakest service sector performance since June, as per IHS Markit.
  • We got the ADP employment report, and it was disappointed. Private-sector employment increased by 365,000 from September to October vs. 650,000 expected.

  • The widely watched ISM services PMI also slipped in October. According to ISM, The Services PMI registered 56.6 percent, 1.2 percentage points lower than the September reading of 57.8 percent. This reading represents a fifth straight month of growth for the services sector, which has expanded for all but two of the last 129 months.

 The day ahead: We will see Germany factory orders, September Retail Sales, and BoE’s policy meeting.

 Chart patterns: Charts you need to see. 

The bottom of the range holds overnight on AUDUSD, EURUSD, USDCAD, USDJPY, USDSGD, and USDSEK. But how long?

USDCNH trading at 28-month low, USDMXN to follow soon if traded below 20.80.

VIX (KTM symbol USVIX): Overnight the CBOE Volatility index tumbles 17% to closed at 29.57. The VIX index also called a fear index and the CBOE stands for Chicago Board Options Exchange. This index measures the near term expected volatility of S&P 500 index options trading.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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