October 14: Overnight Market Wrap

October 14: Overnight Market Wrap

Key Points:

USD strength continues with DXY higher at 93.50 as risk slips

US indices dip into the red breaking recent winning streak

Wall Street concensus is for a contested election result next month

The US first day back from the long weekend saw equities fall into the red snapping a four day winning streak. The USD continued its new found (this week) strength with the DXY pushing back to close at 93.50 adding gravitas to the key support lows last week around 92.80/93.00. The US fiscal stimulus talks continued with the Republicans trying to get a short term fix and the Democrats holding firm for a full and complete package above 2 trillion. This stalemate and Wall Street consensus that we are headed to a contested election result saw risk aversion across the board resulting in weakness for all G10 with USD/JPY largely sidelined caught between strength in both the USD and JPY. EUR/JPY and  AUD/JPY continued their moves lower and Gold slumped $30 falling back through key 1905/10 support to touch 1886 before closing at 1894. The big surprise is that USD/CNH hasn’t made any great gains given the changes PBoC have made this week, gradually walking the onshore fix higher Monday and Tuesday has also been a catalyst for USD strength. Yesterday offshore CNH spiked to 6.7650 before falling back to 6.7350 but it’s likely we see further gains today and a higher CNY fix. The CAD was largely insulated from the risk off falls as WTI closed up almost 2% back above $40 and NZD was unchanged on the day pushing AUD/NZD lower. Concerns around Chinese coal exports and the strengthening CNY weighed on the AUD on the Asian open falling to 0.7165. Having failed on a spike to break back above 0.7200/10 the pair trickled lower along with EUR and GBP during the US session. Brexit noise the main catalyst for GBP weakness as we head towards deadline day on 15th October, with fishing rights the big hurdle apparently. Virus cases are rising rapidly across Europe with Amsterdam going into lockdown tonight and calls in the UK for a 2-3 week national lockdown to reduce the spread. With J&J announcing a halt to trials, Eli Lilly also confirmed the same status adding to fears around a vaccine anytime soon. Its Central Bank speak today. We will hear from ECB, Fed, BoE and Bank of Canada before RBA’s Lowe tomorrow morning.

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