LONDON — Risk turned lower in the US and again in Asia. The US stimulus package seems a bit vague and could skip a payroll tax cut. Also, the virus numbers continue to be precarious in the US. There was a lot of unhelpful tech news: disappointing Intel Q3 guidance; that the US House antitrust panel is looking at the FANGs, and that Apple is to delay 5G phone launch. Nasdaq has not had back to back down days in 48 trading days. The S&P failed to break above 3,280 for the third day finishing down 1.2 percent (NDX down 2.7%). Higher-than-expected initial jobless claims weighed at the margin (1,416k vs 1,300k, prior 1,307k), with initial claims higher than the prior month for the first time since the recovery. Today Asian stock markets have tumbled, with losses paced by a sharp sell-off in Chinese equities given escalating US-Sino tensions. China has revoked the operating permit of the US' Chengdu consulate, in a tit-for-tat retaliation for the US shuttering the Chinese consulate in Houston. President Trump commented that the US-Sino phase one trade deal "means less to me now than when I made it" given China's role in COVID-19. US Secretary of State Pompeo's speech was also notable for its bellicose rhetoric against China. We feel that equities are on the precipice of a move lower over the next couple of sessions as a result of the above-mentioned conditions. The PboC sets USDCNY at 6.9938 (from 6.9921). With equities weakening, AUD, NZD and NOK underperformed in G10 space. AUD retracing to around 0.7090 (.7182 has been high so far on this recovery) and EUR managing to grind up to a high of 1.1627 before gains were tempered trading around 1.1610 now. Gold almost touched 1,900 before retracing to just below 1,890, 1,921 is the historical high. An interesting comment from US Secretary Mnuchin overnight noting that "we will protect dollar, world's reserve currency; US wants stable dollar". At this juncture, while it feels that the USD will continue to weaken over the next year, though in a choppy fashion, we feel the market has hit some short-term extremes and will be tactical in re-engaging new positions. Tactically we will be looking at EUR, CAD and AUD at 1.1470/1.1500, 1.3460 and 0.7066 zones, respectively. UK Retail Sales released a little earlier at +13.9% MOM vs +8% expected, -9.5% QoQ, GBPUSD unchanged and likely to take direction from progress in Brexit talks. USDJPY – typically as we got bored of the position the pair finally has a decent move. A combination of risk off and a weaker USD and USDJPY has traded through our initial support of 106.75/80 down to the second support of 106.30/35. We think this will be key as to whether we stop here and go higher again like last time we were down here of whether we continue going down. Should the DXY turnaround and risk comes off like we are expecting it will be up to the pair to decide which route to take. Should USDJPY stop around here and risk continues to be softer, then we expect both EURUSD and AUDUSD to turn and begin coming off. 106.00 is the next support followed by 105.80. EURUSD – the single currency broke the 1.1600 level properly yesterday as the DXY continued trading heavy hitting a high of 1.1627, subsequently came back off towards 1.1590/95 area and this is where we closed on the session. As already mentioned I think the key today will be twofold, the flash PMI's we get later this morning out of Europe but more importantly how risky assets behave today. If equities trade heavy which we feel they will then we feel we could see the pair turn today. 1.1600 will be immediate support followed by 1.1560 and then 1.1480 on the topside 1.1625 proved formidable resistance yesterday followed by 1.1650. GBPUSD – for once traded pretty stable even with the negative headlines from Barnier yesterday regarding Brexit, where he said that a quick deal looks unlikely. Earlier this morning we had better retail sales 13.9% vs 8.3% exp however, we still feel GBP is stronger on the back of broad based USD weakness and not GBP strength and with this is mind we would not want to be long up at these levels and as long as we can stay below 1.2800 still advocate selling rallies. We also have to contend with a potential turn in risky assets and this if were to be the case could really see GBP's move to the downside accelerate rather quickly. Underlying issues still exist closer to home too with Brexit and COVID-19 effects on the economy. On the topside 1.2770 and 1.2800 are the main resistance zones whilst on the downside 1.2680 and the important 1.2630/35 level. FTSE100 – the FTSE 100 hit our resistance target at 6270 before tracking Wall Street lower on increased geopolitical tensions, mixed earnings, and weaker than expected economic data. The cable is printing higher on just released better than expected UK retail sales data, weighing down on the index with 6100 as the closest support target. DOW JONES – the Dow retreated after printing a double top around our resistance level at 27175 as investors fled market-leading tech shares due to mixed earnings reports and growing signs of a worsening Coronavirus pandemic as US deaths topped 1,100 cases for third consecutive day. With our support at 26600 now turned into resistance we look for further downside with 26400 as closest support target. DAX 30 – the Dax ended yesterday's session in the red as risk aversion picked up and global equities dropped on increasing geopolitical tensions after China ordered the US to close Chengdu consulate in a tit for tat retaliation. The 200 period SMA on the hourly chart is supporting higher prints, while bearish momentum remains in play as long as our 13000-resistance level holds with 12800 as the closest support target. GOLD – the yellow metal's run stopped a tat below our 1,900 resistance target as overbought conditions sparked profit taking while weaker than expected Initial Jobless Claims data and increasing geopolitical tensions kept the bullion supported. US -China tensions flared up further after Pompeo's latest speech continued to show a tough stance on China, with the latter retaliating and closing the American consulate in Chengdu. For the day, prints below 1870 key support level will favour further pullback. USOIL – WTI Crude printed a lower high below the latest highs and below our resistance level at 42.50 weighed down by demand concerns stemming from rising Covid-19 cases and weaker than expected US economic data as we look for an hourly close below 41 (coinciding with 200 period SMA) to favor further downside with 40.50 and 40 as next support targets. — The writer is chief market analyst, Squared Financial
