Uncertainty Pulls USD Lower, Pushes Equities Higher

Global equities benchmarks have been mostly firmer this week as a fresh bout of selling in the US Dollar creates better demand for risk assets. The Dollar is falling amidst heightened political uncertainty in the run up to the US elections. News of Trump’s COVIV diagnosis, as well as Biden’s growing lead in the polls, has further muddied the outlook for the November 3rd vote. Trump was hospitalised over the weekend with breathing difficulties though has delivered messages to the public reassuring them that he is recovering well. Nevertheless, given his age, the issue is still being closely monitored by voters and traders alike.

Equities are also being supported by increased easing expectations in response to a weaker than expected US labour report for September. Jobs growth slowed to below 700k last month, missing expectations and marking a firm decline from the prior month’s 1.375 million reading. With the recovery in the labour market losing momentum and with building concerns over the need for fresh lockdowns in the UK and Eurozone, traders are eyeing further central bank easing in the coming months which should keep equities well bid.

On the data front this week the key releases to note will be comments due from Fed's Powell and ECB's Lagarde, who are both due to speak later today. both central bank heads have cited concerns over the path of the pandemic and the market is expecting further dovish comments. Any mention of EUR strength from Lagarde should likely see the DAX supported. Then, midweek, the market will turn its attention to the FOMC minutes, looking in particular to see how close the Fed might be to any further easing, which could again provide upside impetus for equities.

Technical Views

DAX (Bullish above 12290.40)

From a technical viewpoint. The DAX continues to trade within the sideways range between 12290.40 and 13322.69, currently testing the midway pivot at 12916.11. While price holds above the 12290.40 level, the near-term view remains bullish, in line with the rally off 2020 lows.

S&P500 (Bullish above 3226.50)

From a technical viewpoint. The S&P continues to recover off the 3226.50 level support and is now once again retesting the 3391.75 level. Above here, attention will turn back towards the 3586 all-time highs and a resumption of the bullish trend with a retest of the broken bullish trend line coming in just ahead of that.

FTSE 100 (Bullish above 5626)

From a technical viewpoint. The FTSE continues to trend lower within the bearish channel which has developed over the correction from the 6543.4 level highs. It’s worth noting bullish divergence in momentum studies over this recent decline posing risks for an upside reversal while price holds above the 5626 level support.

NIKKEI (Bullish above 21758.9)

From a technical viewpoint. Following the breakdown below the rising channel which has framed the recovery off 2020 lows, the NIKKEI has been trading in a much shallow, local bullish channel, oscillating around the 23273.6 level. While price holds above the 21758.9 level, the near-term view remains bullish with 24069.4 the next upside level to break.

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