Weekly Market Outlook: US election and central banks in focus
The most important day of the week for the financial markets is finally here! Along with the US presidential election on Tuesday 3 November, there are three central banks all reporting this week, as well as a string of employment numbers from a variety of countries.
The Reserve Bank of Australia releases its latest RBA Rate Statement and provides an update on the official interest rate. The market is expecting a drop from 0.25% to 0.10% but all eyes will be on the accompanying text and rationale behind the move - if it happens.
The Bank of England provides its latest interest rate decision and Monetary Policy Summary report on Thursday. While no changes are expected, traders will be keen to understand more about the potential for negative interest rates which has been discussed by committee members.
Later in the day, traders will turn their attention to the US FOMC Press Conference. While Federal Reserve Chairman Jerome Powell is unlikely to shift from recent messaging, it will be interesting to see how the Fed views the latest spike in coronavirus infections. This is before Friday's all-important US Non-Farm Payrolls report.
- European Central Bank President Christine Lagarde hints at more monetary policy in December.
- European stock market indices suffer the most on new lockdown measures due to a spike in coronavirus infections.
- Apple reports a 21% fall in iPhone revenue and a 28.6% fall in Greater China revenue.
- Twitter shares sink as the social media platform missed its own user growth target.
- Alphabet shares surge higher after a 59% increase in third-quarter earnings.
Source: Forex Calendar provided by Admiral Markets UK Ltd.
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Trader's Radar - US Election
It's setting up to be another big week in the financial markets with a range of different high-impact news announcements. However, the outcome of the US presidential election on Tuesday 3 November is likely to set the tone for market movements this month. While opinion polls have Joe Biden comfortably in the lead they have been horribly wrong before.
Nearly all financial markets experienced heightened levels of volatility last week as traders readjust their portfolios. That volatility is likely to increase even more this week so good risk management principles will be key. The highest odds in bet makers is for a 'blue wave' victory or a Democratic sweep in which the party could win back control of both the House of Representatives and the Senate.
In this scenario, a huge stimulus package is very likely which could cause some major moves in US markets. However, so far the US dollar has continued to trade in a range. It may start to move much more rapidly this week as there is also the US FOMC Press Conference on Thursday and US Non-Farm Payroll report on Friday.
Source: Admiral Markets MetaTrader 5, #USDX_Z0, Monthly - Data range: from Mar 1, 2008, to Nov 2, 2020, performed on Nov 2, 2020, at 6:00 am GMT. Please note: Past performance is not a reliable indicator of future results.
The chart above shows the monthly price action of the US Dollar Index Futures CFD. It's clear to see the long-term consolidation that has developed since 2014 with price trading in between horizontal resistance at circa. $102 and horizontal support at circa. $88. However, the price has also found some intermediate support around the $92.50 level, as shown by the smaller black horizontal line.
A break below here could open the doorway for more selling back down to the long-term horizontal support level. Otherwise, traders may drill to the lower time frames to find higher high and higher low cycles to depict a potentially bullish scenario back to the top of the long-term consolidation. Traders may look to pair any strength or weakness in the US dollar this week with either the Australian dollar or British pound which could have big weeks due to the Reserve Bank of Australia and Bank of England announcements.
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Corporate trading updates and stock indices
All eyes will be on US stock markets this week and how they respond to the outcome of the US presidential election. While betting markets are predicting a 'blue wave' victory there is always the chance of a surprise and they have had it notoriously wrong in the past with Brexit and Donald Trump's election in 2016.
One key risk factor could be the potential of a contested election. If Trump loses but the numbers are very close, he could contest the election which would then go to the Supreme Court - of which he has appointed three of them. This could lead to uncertainty for quite some time but is one of the most bearish case scenarios.
There are also some key earnings announcements from companies this week which may not get as much attention as the election but could add to elevated levels of volatility. Some heavyweight companies reporting this week, include:
- Monday - Berkshire Hathaway
- Tuesday - PayPal
- Wednesday - Fitbit, Qualcomm, Expedia, Baidu, Marks & Spencer
- Thursday - Uber, Dropbox, Roku, Booking, Alibaba, AstraZeneca
Source: Admiral Markets MetaTrader 5, SP500, Daily - Data range: from February 18, 2020, to October 30, 2020, performed on October 30, 2020, at 7:30 pm 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%
Last week, many global stock market indices recorded their worst-performing week since the coronavirus pandemic period. In the daily price chart of the S&P 500 stock market index above, the price fell through key areas of support - the 50-period and 100-period exponential moving averages.
While the 200-period exponential moving average is not too far away, where the market ends up after the election is currently a coin flip. However, after the dust settles and clarity prevails both traders and investors will be keen to get back into the market. Risk management will be essential when navigating the markets this week.
You can learn more about the potential opportunities after the election in the 'Stock Market Response to Presidential Elections' article. Did you know that you can download the Trading Central Technical Ideas indicator completely FREE by upgrading your MetaTrader 5 trading platform provided by Admiral Markets UK Ltd to the exclusive Admiral Markets Supreme Edition?
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