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Market Wrap – October 2019



The most dominant issues in October were the looming deadline for Brexit and whether the United States Federal Reserve (Fed) would cut rates again.  The Brexit deadline of 31st October 2019, which has now been spoken about for a considerable time is no longer as the European Union agreed to extend the deadline by three months.  European Council president Donald Tusk said the EU's 27 other countries agreed to accept "the UK's request for a Brexit flextension until 31 January, 2020".  "The decision is expected to be formalised through a written procedure," he added. The latest extension allows the United Kingdom to leave earlier if a deal can be done.  The Fed approved a widely anticipated quarter-point interest rate cut in the last week of October however signalled that there won’t be an more movement any time soon. “The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate,” the post-meeting statement said.


During the month of October, the EURUSD has enjoyed a steady resurgence after months of decline.  It has been able to reach its highest levels in more than seven weeks including a strong surge to finish the month which pushed it through the key 1.11 level again, after just easing back a week or so ago.  At the beginning of the month the EURUSD dropped to a two-year low below 1.09 and started to look precariously placed with no more obvious support levels below it, so it is encouraging that it has had such a positive month.  The 1.12 level is now likely to play a role and offer some resistance.  


In October, the European Central Bank (ECB) kept its rates unchanged after last month announcing a new large bond-buying program, in another attempt to revive the ailing economy.   The ECB also kept its forward guidance unchanged, indicating that its main interest rates will remain at their current or lower levels until there’s strong evidence of a pickup in prices.  “Incoming economic data continue to point to moderate, but positive growth in the second half of this year,” Draghi told the media after the rates announcement.  


Like the EURUSD, the GBPUSD also enjoyed a generally positive month of October pushing up to multi-month highs.  It has finished the month off strongly after easing ever so slightly from its five-month high just above 1.30 a week or so ago, after smashing through the key 1.25 level which has resisted prices strongly in the last month three weeks ago.  The 1.25 level may now reverse roles and provide some support should the sterling decline from its current highs. It may also use this current consolidation period as a base for higher prices as it may look to test any possible resistance at 1.30.  


The Brexit deadline of 31st October 2019, which has now been spoken about for a considerable time is no longer as the European Union agreed to extend the deadline by three months.  European Council president Donald Tusk said the EU's 27 other countries agreed to accept "the UK's request for a Brexit flextension until 31 January, 2020".  "The decision is expected to be formalised through a written procedure," he added. The latest extension allows the United Kingdom to leave earlier if a deal can be done.  Britain will head to the polling booths on 12th December after the House of Commons voted in favour of Prime Minister Boris Johnson's bid to break the Brexit deadlock.  British MPs voted in favour of Britain's first December election in almost a century, 438-20. "It's time to unite the country and get Brexit done," Mr Johnson said following the House of Commons vote.


The AUDUSD also experienced a very positive October moving from a more than ten-year low below 0.67 back up through some key levels and back up to a three-month high to finish the month approaching 0.70.  Having previously met strong resistance around the 0.6850 level, it did well to push so strongly through there in the last week. Looking higher, the 0.7050 has been a very significant level for the AUDUSD over the last 12 months so this level looms large should the AUDUSD continue to move higher from its present trading levels.  


In the first week of October, the Reserve Bank of Australia (RBA) cut its official interest rate another 25 basis points down to a historic low of 0.75%, as it fights to head off rising unemployment and stimulate a stalling economy.  The latest cut was the central bank’s third rate cut since June and comes after jobs data showed the unemployment rate had risen from 4.9% at the start of the year to now 5.3%. As markets start to talk about the possibility of Australia entering negative rates territory, the RBA Governor Philip Lowe said it is "extraordinarily unlikely".  "I'm not going to speculate on negative interest rates and quantitative easing [large-scale money printing] in Australia, other than to say that negative interest rates are extraordinarily unlikely in my country", he said.  


The US30 index has had a reasonably positive October as it enjoyed support at the key 26000 level and was able to return to the 27000 level and challenge the resistance there.  Leading up to this level, the index surged higher ably supported by the 26000 level which propped up the index after a strong fall several weeks ago. It was again the 26000 level which allowed the index to move well to a one month high above 27000 mid-September.  Not far away is the all-time highs which it achieved in July and this level may provide some resistance if it rallies just a little further.  


Earnings season in US equities has been enjoying better than expected earnings which has buoyed markets.  This along with positive updates about trade talks between the United States and China seem to have progressed a little, enough to de-escalate the situation.  Whilst there is a glimmer of positive signs for the U.S. economy, there had been a strong argument for the U.S. Federal Reserve (Fed) to cutting interest rates again, which they did in the last week of the month.  The ongoing trade wars have hit global manufacturing hard and U.S. growth is expected to slow in the second half of the year.


Gold had another very stable month in October trading right around the key $1500 level.  For almost two months now gold has settled around the current key $1500 level, moving back and forth around this level, seemingly content to not move anywhere.  Earlier last month gold fell sharply from its multi-year highs above $1550 down back below the $1500 level however it has been well supported and it has kept its head about this key level, or thereabouts.  It was support from $1500 that allowed it to make a run and push higher to achieve a six year high above $1550 before the recent drop down to $1500. Should gold break lower through $1500 and remain below there, it may start to meet resistance at this level.  


The International Monetary Fund has warned that 2019 global growth will slow to its lowest levels since the 2008 financial crisis, thanks to the ongoing United States – China trade war.  They cautioned that the economic outlook could worsen if those trade tensions are not resolved. The IMF announced that its latest World Economic Outlook projections show 2019 GDP growth at 3.0%, down from 3.2% in a forecast in July.   “The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,” IMF Chief Economist Gita Gopinath said in a statement.  Under the current tariff arrangements, the IMF forecast China’s GDP output falling 2% in the near term and 1% in the long term.  

UK Oil

Oil has also experienced a steady climb in October moving up above $60 before easing back to his level to finish the month.  It has now traded between $58 and $63 for the most part of the last two months as it looks likely to test the resistance at $63 again.  Prior to its recent steady move higher it had fell sharply from a three-month high above another key level in $68 which has provided some resistance in the last three months, which it reached after an incredible surge higher.  Just prior to the surge it has eased back towards the key $60 level, as throughout most of August UK Oil traded within a narrow range mainly between $58 and $60 with the former level providing some support, as it has done again recently.


For a long time now the ongoing saga that is the US – China Trade Wars has had a flow on effect on oil raising concerns about a further hit to global economic growth and demand for oil.  However, in more recent times, as some positive news has been released on possible progress in trade negotiations between to the two superpowers, oil has responded positively. In the last week or so oil has also been supported by possible OPEC action to extend output cuts as well as falling U.S. crude inventories.  Even though there has been some optimism in the oil market about possible strong demand due to a breakthrough in trade talks, the upside has been capped by lingering concerns over weakening global economic growth. A Reuters poll of economists have said a steeper decline in global economic growth is more likely than an economic recovery.



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