Weekly Market Outlook: Stimulus and global economic data in focus

October 12, 2020 10:00


The first full week of October saw traders digest a huge amount of economic and political news, causing some major swings in the market. US President Donald Trump’s decision to halt stimulus negotiations surprised many on Wall Street, as well as some in his own camp. While indices initially fell, they recovered well after Trump announced he went ahead anyway to approve a revised stimulus package.


For now, markets are likely to continue to move based on the narrative from the US, especially so near to the presidential election. Institutional investors are more likely to take stock of the big picture after the election where the four-year election cycle typically shows a tendency for a bullish year.


Other risk-assets, such as the Australian dollar, New Zealand dollar and Canadian dollar also received a boost from the news and traders may look for continuation in some of those moves this week.


All eyes may also be on the Chinese Yuan which has just recorded its best quarter in 12 years. China’s strong domestic recovery and high yields have helped lift its currency on both domestic and international demand. Many analysts are predicting the potential for more upside – especially if Joe Biden wins the presidency in November.

  • Stock market volatility remains elevated on the hope of a new round of stimulus from the White House
  • Investors have so far dumped safe-haven currencies such as the Japanese Yen and Swiss Franc
  • The US dollar has continued to remain the weakest G7 currency
  • The Chinese Yuan recorded its biggest rally in more than 12 years on a domestic recovery
  • British pound in focus after UK Prime Minister Boris Johnson tells French President Emmanuel Macron that the UK is open to all avenues for a deal, but not at ‘any cost’


Forex Calendar provided by Admiral Markets UK Ltd.Source: Forex Calendar provided by Admiral Markets UK Ltd.


This week, there are core economic announcements due from a variety of countries which could impact volatility levels in the currency market. One of the best ways to prepare is to make sure you have the right tools at your disposal.


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Key economic reports and markets to watch

US Inflation & Retail Sales


It’s a big week for the US dollar with a calendar full of possible major and minor impact economic news announcements and the continued uncertainty on when – and maybe ‘if’ – the next presidential election debate will be. These are some of the key announcements we know about for the week:

  • Tuesday 13 October:
    • USD Inflation Rate YoY – 1.4% expected, 1.3% previous
  • Friday 16 October:
    • USD Retail Sales MoM – 0.6% expected, 0.6% previous


The US Federal Reserve has been notable in their determination to push inflation higher from its current lows which it considers to be dangerously low. However, with the Fed planning to keep rates at record lows near zero, it has skewed the yield curve for bond traders. Even more challenging has been the decision in 2018 to review its policy-making which has brought inflation expectations front and centre.


To measure inflation expectations, the Fed traditionally has used the forward markets and looked at the five-year forward breakeven rate which is traders’ projections for rates in half a decade, as shown below:

Federal ReserveSource: Federal Reserve via
Bloomberg


It makes this week’s inflation numbers hugely important. Although, in this unique period traders may well focus on the election outcome and possible stimulus plan more. What will be interesting this week are comments from different central bank officials and how they view the data coming out – making it an interesting week for the US dollar.


In the long-term chart of the
US dollar index below, price action has been contained in a long-term range between the $103 and $89 price level. Currently, the price sits in the middle of this range with current weakness driving the price back down to the lower support line around the $89 price level. However, the price is stalling around intermediate support around the $93 price level.

Admiral Markets MetaTrader 5 Web, USDX, MonthlySource: Admiral Markets MetaTrader 5 Web, USDX, Monthly – Data range: from Nov 1, 2004, to Oct 12, 2020, performed on Oct 12, 2020, at 6.00 am BST. Please note: Past performance is not a reliable indicator of future results.


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Corporate trading updates and stock indices


The divergence between global stock market indices has continued into October. European stock market indices continue to lag their American counterparts as investors digest the potential impact of the second wave of coronavirus which is causing local lockdowns in many countries. On top of this, the higher euro has also caused investors to question the profit margins of corporate companies.


However, while the US continues to be impacted by a rising infection rate from Covid-19 – with witnessed by President Donald Trump and members of his administration testing positive for it – investors have preferred to focus on the potential of a stimulus package. Last week, Trump halted negotiations of a stimulus deal between Republicans and Democrats but later stated that he has approved a fresh stimulus package but with no additional details.


US stock market indices rallied higher on the news at the end of last week and traders may well look for that momentum to continue with eyes on the previous all-time high price levels. The daily price chart of the S&P 500 index below, shows the recent move higher:

Admiral Markets MetaTrader 5 Web, SP500, DailySource: Admiral Markets MetaTrader 5 Web, SP500, Daily – Data range: from February 17, 2020, to October 12, 2020, performed on October 12, 2020, at 7.30 am BST. Please note: Past performance is not a reliable indicator of future results.


Last five-year performance of the S&P 500 circa: 2019 = +29.09%, 2018 = -5.96%, 2017 = +19.08%, 2016 = +8.80%, 2015 = -0.82%, 2014 = +12.32%


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Technical Insight Lookup indicator from the MetaTrader Supreme Edition platform provided by Admiral Markets.A screenshot of the Technical Insight Lookup indicator from the MetaTrader Supreme Edition platform provided by Admiral Markets.


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INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

1.This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

2.Any investment decision is made by each client alone whereas Admiral Markets UK Ltd (Admiral Markets) shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.

3.With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.

4.The Analysis is prepared by an independent analyst Jitan Solanki, Freelance Contributor (hereinafter “Author”) based on personal estimations.

5.Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis.

6.Any kind of past or modelled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.

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Source: https://admiralmarkets.com/analytics/traders-blog/weekly-market-outlook-12-oct

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