Weekly Review and Outlook: Politics Overshadowed Fundamental Events, US Election in Focus

Politics overshadowed a week that’s fully packed of central bank meetings and economic data. Investor sentiments turned very cautious as the US presidential race between Hillary Clinton and Donald Trump narrowed, following Clinton’s latest email scandal. It’s now seen as too close a call for the result of the November 8 elections. S&P 500 closed down for the ninth straight day on Friday, marking the longest losing streak since 1980. For the week, S&P 500 lost -41.2 pts, or -1.93%. Dollar ignored the relatively solid set of non-farm payroll data and closed the week down at -1.45 pts at 96.89. The greenback closed down against all major currencies except Canadian Dollar. Gold rose on Dollar’s weakness and surged to close at 1305.2, back above 1300 handle, and gained 29.2 pts for the week. The fate of Dollar and stocks will depend on the result of the election.

Sentiments were also weighed down by extended decline in oil prices. WTI crude oil closed the week at 44.13, down from -4.53 pts or, -9.3%. It’s reported that tensions resurfaced between Saudi Arabia and Iran regarding the deal on production cut. It’s reported that Saudi Arabia has indeed threatened to increase output even though that was denied by OPEC. A deal was originally agreed back in Algiers for production cut. And the details should be discussed at the next OPEC meeting on November 30. But analysts are skeptical on whether an agreement would finally be reached. The development also weighed down global equities as well as making Canadian Dollar the worst performing one.

On the other hand, Sterling surged and ended as the strongest major currencies. Firstly, the High Court ruled that prime minister Theresa May’s trigger of Article 50 for Brexit must have parliament approval. That could force May into adopting a “softer” approach. The process of Brexit could also be delayed and even be stopped. May’s government said it would appeal the ruling to Supreme Court and that will be the next focus in UK. Secondly, BoE removed rate cut bias from its post meeting statement. Governor Mark Carney suggested the central bank has “a neutral bias around policy going forward” as the “monetary policy can respond in either direction”.

Technically, dollar index is still staying inside near term rising channel in spite of last week’s sharply decline. Indeed, the index could stabilize initially this week after getting temporary support from 55 days EMA. Right now, the general view is that a Trump win will be dollar negative. And in that case, the dollar should at least have a take on channel support (now at 95.7). Sustained break there will probably pave the way back to 91.91 low again. Meanwhile, a Hillary win is seen as dollar positive and could likely send the index back to 99.11 and above.

Overall, the dollar index is bounded in the sideway pattern that started at 100.39. Price actions since then are corrective looking and give no hints on up trend resumption yet. The picture could only be cleared with a firmer rate path of Fed. Otherwise, any upside attempt would be limited by 100.39 while downside attempts should be contained by 91.91 in medium term.

Regarding trading strategies, we’ll keep our hands off first.

GBP/USD’s strong rally last week suggests that rebound from 1.1946 short term bottom has resumed. Initial bias remain son the upside this week for 55 days EMA (now at 1.2682) and above. At this point, we’d expect strong resistance from 1.3444 (50% retracement of 1.5016 to 1.1946 at 1.3481) to limit upside. On the downside, break of 1.2088 support is needed to confirm completion of the rebound. Otherwise, further rise will remain in favor.

In the bigger picture, the down trend from 2005 high of 2.1161 is still in progress and met 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 already. Oversold condition in both weekly and monthly RSI suggests a bounce is due. However, there is no clear sign of bottoming yet. And sustained trading below 1.2457 could pave the way to 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

In the longer term picture, no change in the view that down trend from 2.1161 is still in progress. Current momentum suggests that the down trend will go deeper than originally expected.

GBP/USD 4 Hours Chart

GBP/USD Daily Chart

GBP/USD Weekly Chart

GBP/USD Monthly Chart

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