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EUR/USD & Gold Outlook Remained Unchanged

EUR/USD & Gold Outlook Remained Unchanged

Stocks and treasury yield rally on a strong risk-on sentiment.

The FED Warns

The Federal reserves expressed concerns about rising numbers of the coronavirus in the US may put some states on track to impose a new lockdown similar to the one in Europe.

This will lead the US economy to contract to -2.0% and the contract percentage could be more depending on the severity of the lockdown measures. Additionally, it will affect companies’ ability to pay their debts and their employee’s wages.

Japan’s New Package

Japan PM Mr. Suga asked his government to work on a new stimulus package to help the economy to recover from the COVID-19 negative effects on the macro and microeconomic levels and to attract private investments however, it is not clear yet the size of this package. Meanwhile, the Japanese Yen and other safe-haven assets were under pressure on Monday due to risk-on sentiment in the market.

It is noteworthy that, the Japanese economy benefitted previously from two stimulus packages, including business loans and helicopter money to households.

COVID-19 Vaccine 90% Effective!!

On Monday, risk-related assets rallied sharply on Pfizer’s announcement of its coronavirus vaccine. The company stated that the vaccine was “more than 90% effective” in preventing infection according to findings from a large-scale trial.

Stocks mainly affected by the coronavirus like airlines benefited from yesterday’s news and led the S&P500 with the Dow Jones to all-time highs while the NASDAQ (technology stocks) retreated as a gradual return to normal life would affect these companies’ profits.

Although the news of an over 90% might sound promising, however, there is still a lot of time to wait until the vaccine gets the regulatory health approval and produced and distributed on large scale.

Stock Market

Change %

S&P 500

+1.2%

Dow Jones

+2.9%

NASDQ

-0.8%

Japan 225

+3.7%

DAX 30

+4.1%

FTSE 100

+4.3%

CAC 40

+6.7%

EUR/USD and Main FX Markets

The US Dollar declined at the start of Monday’s session however, it recovered some territory as the vaccine’s updates increased expectations of future growth of the US economy. The US Dollar index technical outlook remains neutral while above 91.72.

The EUR/USD tested on Monday its highest level in ten weeks however, the pair failed to close above 1.1909. A close above this level could change the market’s outlook from neutral to positive.

The GBP/USD tested a multi-week high at 1.3197 then retreated and closed in the current trading zone 1.2916- 1.3184 highlighting bulls indecision. While Jonson’s internal market bill was defeated in the house of Lords the UK PM admitted that the UK-US trade deal won’t be a “Pushover” under Biden.

Gold and Oil

The crude price edged higher on Monday due to the coronavirus vaccine’s updates that could increase expectations of global demand in 2021. Additionally, the OPEC + hints at an extension of production’s cut in 2021. The Brent Crude rallied by 6% to $43.45. The price could trade towards $43.58 and a close above that level could lead the price towards $44.50 a barrel.

The Gold price slipped to a six-week low at $1,850 due to the inverse correlation between Gold and treasury yield. On Monday, the 10 years treasury yield rallied by 14% and neared 1.0%. The outlook of the precious metal remains neutral while above $1,860, a close below this level could change it to negative.

Looking Ahead

Markets expect French and Italian industrial production figures of September at 10:00 AM (GMT), then the Eurozone Zew index of November at 11:00 AM and the Fed Quarles’s testimony at 8:00 PM.

This information/research prepared by Mahmoud Alkudsi does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk. The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest. The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.