Investors’ appetite softened somewhat in the aftermath of the US session, as Treasury Secretary Steven Mnuchin said he was ending emergency loan programs adopted by the Fed. All this has hurt investors’ faith that both the US government and the central bank will do whatever it takes to support the wounded economy.
Risk Appetite Softens after Mnuchin Pulls Plug on Fed Stimulus
The US dollar continued to trade lower against all but two of the other G10 currencies on Thursday and during the Asian morning Friday. It lost the most ground versus NOK, EUR, GBP, and NZD, while it was found virtually unchanged against AUD and JPY.
The weakening of the safe-havens dollar and yen suggests that markets traded in a risk-on fashion yesterday. However, the weakening of the risk-linked Aussie points otherwise. Thus, in order to get a clearer picture with regards to the broader market sentiment, we prefer to turn our gaze to the equity world. There, major EU indices were a sea of red, but appetite improved during the US session, with all three of Wall Street’s main indices ending their trading in positive territory, perhaps following headlines that Senate Democratic Minority Leader Chuck Schumer said that Republican Majority Leader Mitch McConnell had agreed to resume talks over a new fiscal relief package. That said, the joy did not last for long. After the closing, US futures slid, while during the Asian session today, sentiment was softer, as US Treasury Secretary Steven Mnuchin said he was ending emergency loan programs adopted by the Fed.
All this has hurt investors’ faith that both the US government and the central bank will do whatever it takes to support an economy severely damaged by lockdown measures due to the coronavirus pandemic. Now it remains to be seen whether the Fed will find other ways to stimulate the economy, and whether any measures will be adopted in December. Nonetheless, even if market sentiment stays subdued for a while more due to reduced hopes over an economic recovery, and due to the fact that the coronavirus continues to spread at a fast pace, the optimistic developments around a vaccine, combined with a Biden presidency, may keep any setbacks limited and short lived. As we noted yesterday, we will treat them as corrective moves. We expect the prevailing uptrends to eventually resume at some point in the not-too-distant future.
IBEX 35 – Technical Outlook
From the beginning of November, the Spanish IBEX 35 index has been moving strongly to the upside. Only this week we saw the price halting and entering into a small consolidation pattern. That said, the index still remains above its short-term steep tentative upside support line taken from the low of November 2nd. For now, we will continue aiming higher, especially if IBEX 35 stays above that upside line.
A push above the 7992 barrier, marked by the highest point of June and the high of November 18th, could invite more bulls back into the field. IBEX 35 might then get lifted to the current highest point of November, at 8104, where it may stall temporarily. However, if the price remains attractive for the buyers even at that area, this might help the index to move further north, possibly aiming for the 8308 level, marked by the low of March 6th.
Alternatively, if the previously mentioned upside line gets violated and the price slides below the 7663 hurdle, marked by the low of November 12th, that could signal a change in the current short-term trend and open the door to some lower areas. IBEX 35 could then travel to the 7526 zone, a break of which may open the way to the 7319 level, which is marked by the highest point of August.
EUR/USD – Technical Outlook
EUR/USD continues to quietly form higher lows, while balancing above a short-term tentative upside support line drawn from the low of November 11th. However, so far, the pair has been struggling with the 1.1894 barrier. Although we had a few overshoots, the rate is struggling to remain above that resistance area. For now, we will take a cautiously-bullish approach and wait for a strong move above that 1.1894 zone, before targeting higher levels.
A good move above that 1.1894 hurdle may attract more buyers into the game, as such a move might increase the pair’s chances of traveling further north. EUR/USD could then rise to the current highest point of November, at 1.1920, a break of which may clear the path for a move to the 1.1960 level. That level marks an intraday swing high of August 31st.
In order to consider a move lower, we would need to wait for a break of the aforementioned upside line and then see a rate-drop below the 1.1816 hurdle, marked by yesterday’s low. EUR/USD could then get pushed to the 1.1788 obstacle, a break of which may clear the path to the 1.1758 level, marked by the low of November 12th.
As for Today’s Events
During the early European morning, we already got the UK retail sales for October. Both the headline and core rates slid somewhat, but much less than the forecasts suggested. Once again, the pound did not react, confirming the notion that GBP-traders have their gaze locked on developments surrounding the Brexit landscape, rather than on economic data.
We get more retail sales data later in the day, this time from Canada. Both headline and core sales are expected to have slowed to +0.2% mom, from +0.4% and +0.5% respectively.
As for the speakers, we have three on today’s agenda: ECB President Christine Lagarde, ECB Governing Council member Jens Weidmann, and Dallas Fed President Robert Kaplan.
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