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Market Wrap – September 2020

   

coronavirus trading

Another month and another increase in the number of coronavirus cases all around the world as this now passes 33.5 million with over 1 million deaths, and this pandemic continues to dominate the economic landscape.  With the world now dealing with the coronavirus pandemic for more than six months, it has become obvious to most that it is not going away any time soon, and it continues to impact everyday life and more importantly the global economy.  In an approach matched by many central banks around the world, the U.S. Federal Reserve (Fed) at its most recent two day policy meeting, maintained its promise to keep interest rates near zero and keep them there until inflation rises consistently.  Fed officials changed their economic forecasts to reflect a smaller decline in GDP and a lower unemployment rate in 2020.  Some individual Fed members indicated interest rates could stay anchored near zero until 2023.

Central banks all around the world have dug deep into their toolboxes this year to attempt to save their countries from total economic collapse.   Likewise, the European Central Bank's (ECB) which kept its interest rates and coronavirus-stimulus program unchanged at its latest meeting.  ECB President Christine Lagarde said, “Euro-area domestic demand has recorded a significant recovery from low levels,” while warning that “elevated uncertainty about the economic outlook continues to weigh on consumer spending and business investment.”

EURUSD

During the month of September, the EURUSD has spent most of its time attempting trading under the key resistance level at 1.19, before finishing the month drifting lower and breaking down through the other key level of 1.17.   In doing so, it has fallen to a two-month low.  The EURUSD made repeated attempts at 1.19 and always met stiff resistance pushing prices lower again.  Only a few weeks ago the EURUSD made another run and reached a two year high above 1.19 as a result, however it has also reversed strongly after meeting solid selling pressure.  The 1.19 level has established itself as a key level as it has been resisting prices for the last six weeks or so as the EURUSD consolidates in a range between 1.17 and 1.19, before the recent break lower.  The key 1.17 level may now provide some resistance to the EURUSD should it attempt to rally and move back within its popular range.  

EURUSDDaily (12)

A few weeks ago, the European Central Bank (ECB) kept its interest rates and coronavirus-stimulus program unchanged.  The Euro dollar’s strong appreciation over the last four months has given the ECB some cause for concern and it was discussed at last week’s policy meeting, and they said they will “carefully monitor” the exchange rate going forward.  Some analysts have questioned whether the recent gains could prompt further monetary easing from the central bank.  “The Governing Council discussed the appreciation of the euro, but as you know we don’t target the exchange rate,” ECB President Christine Lagarde said in a press conference after their meeting last Thursday.  On its potential impact to inflation, Ms Lagarde added that the ECB will “have to monitor carefully such matter.”   Ms Lagarde announced a “strong” economic rebound in the euro area.    

GBPUSD

The GBPUSD in September has generally fallen from a nine-month high above 1.35 down to a previous key level at 1.2650, falling to a two-month low.  Back in June and July the 1.2650 level was influencing prices, as the GBPUSD was meeting resistance at the key 1.2650 level, remaining within a narrow range consolidating between another key level of 1.25 and 1.2650, whilst enjoying support from the 1.25 level.  Therefore, it was no surprise that the 1.2650 level has offered some reasonable support to finish out the month.  After dropping through the key 1.30 level a few weeks ago, it made a strong rally back towards this level however the resistance was strong and forced the GBPUSD around and lower falling to the two-month low.   In the week before dropping through 1.30, the GBPUSD has reached a nine-month high near 1.35, and just prior to that high, the GBPUSD made repeated attempts to break through the significant level of 1.3250 which had repelled prices.  All these levels are likely to have some influence should the GBPUSD rally in the next few weeks.  

GBPUSDDaily (12)

Two weeks ago, the Bank of England (BOE) left interest rates unchanged and maintained its current level of asset purchases, but warned that the outlook for the economy remains “unusually uncertain.”  The central bank has cut rates twice from 0.75% since the beginning of the COVID-19 pandemic and on this occasion, all members of the Monetary Policy Committee (MPC) voted to keep the main lending rate at 0.1%.   The BOE was open in advising that they are considering how to use negative interest rates, as the MPC was briefed on the bank’s plans to explore how a negative bank rate could be implemented effectively.  The United Kingdom officially entered a recession after dropping a record 20.4% in the second quarter however it has recovered better than expected with a 6.6% monthly expansion in July, as government restrictions were lifted.  A recent spike in coronavirus cases in the U.K. has forced the government to impose restrictions again.

AUDUSD

Like the GBPUSD, the AUDUSD has also experienced a decline during September moving back to a key level at 0.7050, and a two-month low.  In the two weeks of the month, the AUDUSD fell sharply through the key 0.7250 level, after spending a week or so resting on support at this level.  It had reached a two year high above 0.74 at the beginning of the month, before the resting on support at 0.7250.  In the week leading up to the high the AUDUSD was able to push through the resistance at 0.7250, which had been placing downward pressure on the currency pair, and this level is likely to continue to play a role in the AUDUSD, should it rally soon.  The 0.7050 level has also played a key role in the last few months first providing resistance to the AUDUSD and more recently supporting price.  Should the support at 0.7050 fail, this level may reverse roles and provide some resistance again.  The 0.6750 and 0.6850 levels are also a chance to support the AUDUSD should they be called upon.

AUDUSDDaily (12)

In its September board meeting earlier in the month, the Reserve Bank of Australia (RBA) kept the official cash rate at its historic low of 0.25%, however speculation has since arisen that the RBA may cut further towards zero.  The minutes from that meeting showed a subtle change in wording, with the central bank saying it will “continue to consider how further monetary measures could support the recovery”.  Westpac chief economist Bill Evans has led the speculation saying the RBA has provided clues it is considering a further rate cut to support the economic recovery.  “This is the first time since the major policy changes in March that the board has noted the possibility of further monetary measures,” Mr Evans said.  “That could mean even more easing of the current policy stance or a new approach to policy easing.”  RBA governor Philip Lowe has ruled out Australia moving to a negative interest rate position, saying its measures were providing enough support.

US30

The US30 index has experienced a strong fall throughout September falling from a six-month high above 29000 down to two-month low below 27000.  In the second half of the month the US30 index fell from one key level at 28000 down to another key level at 27000 where it has enjoyed some solid support in the last week or so.  The latest decline comes on the back of a similar decline a few weeks ago when it dropped sharply from its six month high above 29000 back to a one month low near 27000, before it slowly but steadily rallied back to the key 28000 level.  Any support received at 28000 was convincingly broken after having provided some support for a few days and it is currently offering some resistance.  For a few weeks in July the US30 index meet resistance at another key level of 27000 whilst bouncing off support at 26000, which is why the 27000 level is now offering some support to the index, and the 26000 level may also assist if needed.  

US30Daily (9)

At its most recent two-day meeting, the U.S. Federal Reserve (Fed) maintained its promise to keep interest rates near zero and keep them there until inflation rises consistently.  The central bank also addressed their new policy in which they will allow inflation to be above the 2% target rate before raising rates to control inflation.   US equities have fallen sharply since the meeting and after the Fed Chairman Jerome Powell addressed the media and the central bank released its post-meeting statement and its latest economic forecast.  Mr Powell described the Fed’s guidance as strong and “powerful.”    “We’re going to continue to monitor developments, and we’re prepared to adjust our plans as appropriate,” Mr Powell said.  Mr Powell said the Fed expects inflation to ultimately improve.   “That’s very strong forward guidance, and we think that will be durable guidance that will provide significant support for the economy,” he said.

Gold

For the most part of September, gold sat on and enjoyed support from the key $1900 level, before in the last week or so when it finally broke through the strong support to fall to a two month low around $1850.  In early August, it fell sharply from its all-time high around $2075 however it was stopped well by the support around the $1900 level which has been able to buffer the fall and allow it to consolidate in the time since, even allowing it to rally back above $2000 before returning to support.  Now that the $1900 level has been broken through, it is likely to provide some resistance to the any potential rallies soon.  Throughout June and July, gold steadily climbed higher off support at the key level of $1675, to its all-time highs.  Just before its most recent surge higher, XAUUSD consolidated around then eight year highs above $1800 mid-July after moving steadily higher in the previous few weeks, and this level may provide some support now that gold has fallen back through support at $1900.

XAUUSDDaily (12)

As the world continues to tackle the coronavirus pandemic, gold has been enjoying a resurgence as investors flock to this haven, although it has lost some lustre in the last two weeks.  After the latest U.S. Federal Reserve (Fed) meeting, Fed Chairman Jerome Powell said referring to a different approach to inflation, “These changes clarify our strong commitment over a longer time horizon,” at his post-meeting news conference.   “With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the post-meeting statement said.  The Fed added that “it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

UK Oil

After not moving much at all during August, UK Oil has been on the move during September dropping to a three-month low before rallying back to the key $43 level.  In the last two weeks of the month, UK Oil has made repeated attempts to break through the long-time key level of $43 after sharply dropping through this level to start the month.  After settling in a narrow range right around $40 mid-September, UK Oil did well to rally back to this key level before easing below again.  For the last four months the $43 level has played a key role in UK Oil and continues to do so as it is currently providing resistance.  Several weeks ago, UK Oil reached the six-month high, after very slowly but steadily moving higher in a period of very low volatility.  It very slowly moved through the key level at $43 in July and has since ever so slightly crept higher.  It was able to enjoy some strong support from the $43 level, however this has now been strongly broken through and is providing some resistance as expected.  

UKOilDaily (9)

Even though oil has rallied in the last few weeks, post COVID-19 economic recovery concerns remain strong.  Some states in the United States have seen another jump in case numbers in the last two weeks adding to that concern, whilst one of the heaviest clashes between Armenia and Azerbaijan since 2016 broke out over the weekend raising concerns about the South Caucasus oil and gas corridor.  Even Russian Energy Minister Alexander Novak has warned of the risks of a second wave of COVID-19 cases, even though the global oil market had been stable for the past few months.  More crude is being exported from Organization of the Petroleum Exporting Countries (OPEC) producers Iran and Libya, despite the efforts of OPEC and its allies to limit output.  In its monthly report from two weeks ago, OPEC cut its forecast for oil demand growth this year.    “ … risks remain elevated and skewed to the downside, particularly in relation to the development of Covid-19 infection cases and potential vaccines,” the group said in the report.  “Furthermore, the speed of recovery in economic activities and oil demand growth potential in Other Asian countries, including India, remain uncertain,” it added.

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