Uk’s nationwide lock-down fear weighs on pound

Fears that the coronavirus (COVID-19) resurgence will recall the UK’s national lockdown recently weigh on the pound. This ignores the US dollar’s latest corrective pullback amid a light calendar. Covid updates, Brexit news and the second-tier US data should be watched for near-term direction.

Tory government diplomats while citing the pressure to impose a national lockdown in England. The move, as spotted by the piece, takes clues from the recently rising COVID-19 figures as well as the update that two million people in West Yorkshire are moving into the highest level of coronavirus restrictions, as per the news. Also backing the government is the latest weekly surveillance report from Public Health England shows that the pandemic case rates in England are rising for all age groups except 10 to 19 year-olds.

And UK Prime Minister Boris Johnson-led army searches for the clues to combat the deadly virus and its economic impacts, the International Monetary Fund’s (IMF) managing director Kristalina Georgieva advises British finance minister Rishi Sunak to increase public investment and bolster welfare support for people who lose their jobs because of the crisis, as per Reuters.

Elsewhere, the British government refrains from backing down on the fisheries when it comes to Brexit negotiations with the European Union (EU). However, David Frost and the company also want progress in the talks. Hence, the deadlock continues to bore GBP/USD traders while praising the bears.

And as far as US is considered,  The dollar index (DXY), which tracks the greenback’s value against majors, is currently trading in a sideways manner around 93.85. On Thursday, the DXY rose by 0.59% to 94.10, the highest since Sept. 30, breaching the trendline falling from March 23 and May 18 lows.

The U.S. economy grew at a historic pace in the third quarter as the government injected more than $3 trillion worth of pandemic relief which fueled consumer spending, but the deep scars from the COVID-19 recession could take a year or more to heal.

GBP/USD 4 Hour Chart:

Support: 1.2862 (S1), 1.2799 (S2), 1.2718 (S3).

Resistance: 1.3007 (R1), 1.3089 (R2), 1.3152 (R3).

All the prevailing catalysts weigh on pound against greenback, we expect a bearish trend for GBP/USD.

Downgraded Japan’s growth prospects impacts yen

USD/JPY continues to trade higher with the Bank of Japan (BOJ) revising growth and inflation forecasts lower and keeping interest rates unchanged as expected. The central bank maintained the policy balance rate at -0.1% and retained the 10-year Japanese government bond yield target at about 0%, but downgraded the consumer price index (CPI) inflation forecast for the current fiscal year (April 2020 to March 2021) to -0.6% from -0.5%.

And the bank sees inflation rising to 0.4% in the next fiscal year compared to the previous estimate of 0.3%. And Japan’s gross domestic product (GDP) contracted by 5.5% in the current fiscal year versus the previous forecast of -4.7% and upgraded growth forecast for the next fiscal to 3.6% from 3.3%.

BOJ is set to maintain its massive stimulus programme on Thursday and vow to take further action if the economic fallout from the corona virus shock threatens a return to deflation. But the rising cost of prolonged easing and a dearth of policy tools may mean there is not much the BOJ can do beyond rolling over its crisis-response package or count on the government to unveil another spending package to re-ignite growth, analysts say.

Given the need to keep in place some restraints to economic activity to prevent the spread of the virus, the BOJ is not in a position now to push prices higher with further easing, said Naoya Oshikubo, senior economist at SuMi TRUST. He also said, “As a result, the key policy drivers under Prime Minister (Yoshihide) Suga will be fiscal policy, deregulation and growth strategies, leaving monetary policy on the sidelines.”

In a quarterly review of its projections, the BOJ is seen cutting this year’s growth and price forecasts as the pandemic hits domestic demand, sources told.

USD/JPY 4 Hour Chart:

Support: 104.10 (S1), 103.88 (S2), 103.66 (S3).

Resistance: 104.54 (R1), 104.77 (R2), 104.99 (R3).

In the prevailing environment creating pressure for yen in the downgraded growth prospects by BOJ, we expect a bullish trend for USD/JPY.

Lockdown imposition weighs on Euro

EUR/USD continues to drop as Eurozone’s biggest economies, France and Germany, consider imposing the economically-painful lockdown restrictions to counter the rising corona virus cases. France is reportedly considering a month-long national lockdown, which could take effect from midnight on Thursday.

While these measures look less severe than the ones implemented in April/May, they could still harm Eurozone’s already fragile economic recovery, resulting in a prolonged period of deflation. All things considered, the pressure on the European Central Bank to deliver more stimulus looks to be rising. As such, markets are offering euro’s. The sell-off will gather pace if the corona virus numbers continue to rise.

The US, too, is experiencing the second wave of corona virus. However, the Federal Reserve faces less urgency to boost stimulus as inflation expectations in the US are holding up relatively well. Coupled with expectations for additional fiscal stimulus, that is likely to support gains in the US dollar. The US fiscal largesse is positive for yields and the greenback.

President Donald Trump will hold two campaign rallies on Wednesday in the battleground state of Arizona, where polls show him narrowly trailing Democratic rival Joe Biden, as the White House race heads into its final six-day stretch. Biden, who has repeatedly criticized Trump for failing to contain the coronavirus pandemic, will receive a briefing from public health experts and deliver a speech near his home in Delaware on his plans to combat COVID-19 and protect Americans with pre-existing health conditions, his campaign said.

Biden still leads Trump comfortably in national opinion polls in a race dominated by the pandemic, which has caused more than 225,000 U.S. deaths, cost millions more their jobs, and spurred a rush to vote early by many Americans looking to avoid health risks from exposure. The race is tighter in several battleground states where the election might be decided.

EUR/USD 4 Hour Chart:

Support: 1.1778 (S1), 1.1762 (S2), 1.1732 (S3).

Resistance: 1.1825 (R1), 1.1855 (R2), 1.1871 (R3).

Amidst all the catalysts creating pressure on the Euro due to the spread of the corona virus, we expect a bearish trend for EUR/USD.

Australia’s GDP favors Aussie

The Australian dollar held firm on Tuesday as both countries’ relative success in combating COVID-19 supported local sentiment in the face of a darkening global outlook. While the resurgence of the corona virus is threatening economic growth in Europe and the United States, most of Australia has little to no new cases and the country’s second-largest city Melbourne is finally re-opening having contained a major outbreak.

This relative success helped consumer confidence climb to an eight-month high, according to a weekly survey from ANZ. “People remain cautious about the current economic outlook,” said ANZ’s head of Australian economic David Plank.

And Australia’s gross domestic product growth looks likely to have turned positive in the third quarter after two back-to-back quarters of contraction, a senior central bank official said on Tuesday. As the drag from strict lockdowns in Australia’s second-largest state of Victoria was a “little less than first feared” and not enough to pull down overall GDP, said Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle. Debelle was responding to questions from lawmakers at a parliamentary economics committee via video conferencing. Reporting by Swati Pandey and Wayne Cole; Editing by Sam Holmes

Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said that it looks like the third quarter recorded a positive GDP growth for the economy, as he testified along with Deputy Governor Michele Bullock before the Senate Economics Legislation Committee on Tuesday.

A jobless rate under 6% is a reasonable goal. Drag from Victoria little less than first feared, not enough to pull down GDP overall. Cannot comment on the chance of QE being announced at the RBA meeting next week.

Whereas negative news flows in for greenback –  Sales of new U.S. single-family homes fell in September after four straight monthly increases, but the housing market remains supported by record-low mortgage rates and demand for more space as the COVID-19 pandemic drags on.

AUD/USD 4 Hour Chart:

Support: 0.7101 (S1), 0.7080 (S2), 0.7058 (S3).

Resistance: 0.7145 (R1), 0.7167 (R2), 0.7189 (R3).

Australia shows improved GDP making it stronger against greenback. We expect a bullish trend for AUD/USD.