Optimisms on greenback weighs on yellow metal

Gold prices fell on Friday, weighed by a stronger dollar, as investors kept a close watch on the final U.S. presidential election debate and sought further clarity on a corona virus aid package.

U.S. House Speaker Nancy Pelosi on Thursday said negotiators were making progress in talks with the White House over a new corona virus fiscal aid package and a deal could be reached “pretty soon”. White House economic adviser Larry Kudlow however cautioned that there were still “significant policy differences” unlikely to be resolved before the election.

Also, A section of the Treasury yield curve continues to steepen on strengthening hopes for additional US fiscal stimulus. The spread between the US 10- and two-year yields have risen to 71 basis points, the highest level since June 5. The spread has widened by 12 basis points this week alone and is up more than 30 basis points from August lows.

Investors are also watching out for the final U.S. presidential debate that began at 9 P.M ET on Thursday. Democratic presidential candidate Joe Biden is leading polls, the bond market looks to be pricing a surge in spending and deficit. According to Moody’s analytics, Biden’s spending plan would boost the total deficit to $2.6 trillion on a dynamic basis by 2030. Besides, some analysts believe Biden victory would force the Federal Reserve to hike interest rates sooner-than-expected.

U.S. data showed that weekly jobless claims dropped more than expected, while home sales surged to a more than 14-year high in September. With time fast running out, Britain and the European Union began intensified daily talks on Thursday, in a final push for a Brexit deal.

Refinitiv Metals Research said that Investors are likely to hoard gold at a faster pace in 2021, keeping prices elevated amid reduced demand from Jewellers and central banks. Jewelry demand will fall 31% to 1,327 tons this year before rising 9% to 1,447 tons in 2021. Central bank purchases will plunge by half to 312 tons this year and recover slightly to 385 tons next year and Exchange-traded funds (ETFs), which store metal for investors, are seen stockpiling 1,205 tons this year, three times the amount in 2019, and another 1,362 tons in 2021, the most ever.

XAU/USD 4 Hour Chart:

Support: 1891.5 (S1), 1877.9 (S2), 1861.4 (S3).

Resistance: 1921.7 (R1), 1983.2 (R2), 1951.8 (R3).

The yellow metal failed in the fight against the greenback and we expect a bearish trend for XAU/USD.

US stimulus delay impacts Aussie

Australian shares fell on Thursday, weighed down by energy and financial stocks, as talks on a new U.S. fiscal coronavirus aid package dragged on, raising fears of a delayed deal. The S&P/ASX 200 index.AXJO fell 1.5% in intraday trade before miners helped it recoup some of the losses to settle 0.3% lower at 6,173.80, its lowest close since Oct. 12.

Overnight, Wall Street’s three major averages closed lower, after U.S. President Donald Trump accused Democrats of being unwilling to craft an acceptable compromise on stimulus. House Speaker Nancy Pelosi also expressed doubts over the passage of a deal before the presidential election.

Brad Smoling, managing director at Smoling Stockbroking. Said that “I’m very doubtful that we will get any stimulus agreement being this so close to the election… It has the potential to put either party at a disadvantage if they were to agree with something now.”

Australian energy stocks.AXEJ closed 1.9% lower as oil prices extended losses after a build in U.S. inventories pointed to a deteriorating outlook for fuel demand.

Initial jobless claims are predicted to drop to 860,000 in the week of October 16 following a jump to 898,000 in the prior week. Unemployment claims have lost their pandemic prediction panache. Gone are the weeks of April and May when markets would wait breathlessly on the 8:30 am release for the latest on the sinking depths of the US economy. Even though the exceedingly slow improvement and occasional reversals in claims have been the major disappointment of the recovery.

AUD/USD 4 Hour Chart:

Support: 0.7060 (S1), 0.7004 (S2), 0.6966 (S3).

Resistance: 0.7154 (R1), 0.7192 (R2), 0.7248 (R3).

Amidst all the catalysts making the investors to loose confidence, we expect a mixed trend for AUD/USD.

CPI expectation favors Pound

The cost of living in the UK as represented by the Consumer Price Index (CPI) for September month is due on Wednesday at 06:00 GMT. The key inflation data will pave the way for market forecasts despite the current Brexit drama and the US stimulus headlines that dim the charm of the crucial economic releases.

The headline CPI inflation is expected to recover from 0.2% prior to 0.5% on an annual basis. The Core CPI that excludes volatile food and energy items can also follow the suit with market forecasts suggesting 1.3% YoY print versus 0.9% previous readouts. Talking about the monthly figures, the CPI could reverse the previous -0.4% figures with a +0.5% level.

Since Boris Johnson pulled the plug on Brexit negotiations last Friday, we’ve seen the Pound receive plenty of support. In spite of the British PM’s decision to end talks, the Pound has avoided a meltdown. Leaving the door ajar for the EU was key for the Pound.

Downing Street was clear in its message that there remained a willingness to talk should the EU be “willing” to change its stance. Things have not advanced since Friday’s decision to end talks. This is in spite of negotiators continuing talks in the early part of this week.

In reality, the EU is also reportedly looking for the UK to soften its stance in spite of Johnson’s decision to walk away. Access to UK fisheries continues to be the hurdle, one that French President Macron has drawn a line under.

Should Britain and the EU part ways without a deal, many will see Macron as the reason behind such an outcome.

On the other hand, The White House and Democrats have moved closer to the agreement on a new corona virus relief package as President Donald Trump said he was willing to accept a large aid bill despite opposition from his own Republican Party. Want to do it even bigger than the Democrats,” Trump said in an interview with Fox News on Tuesday. Democrat and House Speaker Nancy Pelosi, when asked whether an agreement could be reached next week, told reporters: “I hope so. That’s the plan.”

GBP/USD 4 Hour Chart:

Support: 1.2911 (S1), 1.2877 (S2), 1.2843 (S3).

Resistance: 1.2980 (R1), 1.3014 (R2), 1.3048 (R3).

Pound gains strength from the CPI expectation despite Brexit delay, we expect a bullish trend for GBP/USD.

Euro rises despite covid-19 lock-down

The Italian-German 10-year bond yield spread, also known as Italy’s risk premium, rose by seven basis points to 1.34 basis points, according to a data. Meanwhile, Spain’s risk premium increased by over four basis points, and France’s rose by 1.5 basis points. The risk premiums increased as investors rotated money into the safe-haven German bonds on fears of a deeper corona-virus-induced economic recession.

That trend may continue as many Eurozone countries are reimposing lockdown restrictions. “Several Spanish regions toughened their corona virus restrictions on Monday, seeking to curb the second wave of contagion that looks set to drive the country with Western Europe’s highest caseload above one million infections this week,” the Singapore-based news agency noted. Inflation has already dropped into negative territory. As such, markets expect the European Central Bank to deliver additional stimulus before the end of the year.

According to the latest corona virus statistics released by Germany’s Robert Koch Institute (RKI), the European powerhouse reported 6,868 new infections on Tuesday.

The total tally stands now stands at 373,167. The death rose sharply by 47, bringing up the total count to 9,836. The daily death count has reached the highest since late May.

Despite the worrying German stats, the optimism over the COVID-19 vaccine continues to play out, with the latest update from Moderna Inc.

The US pharma giant’s CEO said Tuesday, the COVID-19 vaccine interim results will be out in November following which the federal government could authorize emergency use of the company’s experimental vaccine in December, as cited by the Wall Street Journal (WSJ).

EUR/USD 4 Hour Chart:

Support: 1.1716 (S1), 1.1664 (S2), 1.1626 (S3).

Resistance: 1.1807 (R1), 1.1845 (R2), 1.1898 (R3).

The fear of covid-19 makes the investors move towards the German bond, we expect a short term bullish trend for EUR/USD.