GBP/USD makes a climb from 1.2940 to 1.3040 after the BOE decision
The initial response saw cable jump up from 1.2940 to 1.3000 before settling back around 1.2970. But cable is getting another push higher now to 1.3040 as we also see the dollar weaken across the board to start European morning trade.
On the BOE decision earlier, the central bank delivered more QE with a £150 billion increase to its gilts purchases - more than the £100 billion expected.
The BOE also doubled-down on their commitment to the economy while reaffirming that QE is the main policy tool for the time being, steering clear of any real hints of negative rates - at least for now.
Despite that, I don't see much reason for the pound to be overly optimistic. As long as the virus situation continues to plague the economy and fiscal support could still prove to be insufficient, worsening economic conditions will keep the pressure on the BOE.
Adding to that is still concerns surrounding the Brexit drama, so that could very well push the BOE over the edge and start to firm up their communication on negative rates.
Looking at cable, price action has now broken back above both key hourly moving averages so buyers are in near-term control. But the key will be to try and keep a push above the 1.3000 handle as the high now runs into some minor resistance @ 1.3031.
104.46-50 below is support. 104.796 followed by 104.88-944 is resistance
The USDJPY is trading in an up and down confined range in pre-election trading. The high in the Asian session was matched in the London morning session at 104.796. Above that level is the 50% midpoint of the range since October 19. That level comes in at 104.88. In trading yesterday, the price squeezed above that level to a high at 104.944. Move above is more bullish.
On the downside the pair stalled in a swing area going back to October 21. That area comes in at 104.46 to 104.501. The low today reached 104.472. Near that level is the rising 100 hour MA at 104.549. Move below each is more bearish.
In between the extremes (where we trade of course) is the 200 hour MA and 38.2%. Those levels may be rudders that may guide the intraday flows, but I expect the extremes to control the bias going forward. Move above 104.88-944 is more bullish. Move below 104.46-50 is more bearish. That is the roadmap that "the market" will likely follow today.
Taking a broader look at the daily chart, on more weakness, the recent low at 104.018 is a key area. Going back to the end of July, the low price bottomed at 104.18. In September, the price broke below that level (taken the price to the lowest level since March) but found support buyers at 103.995 (call it 104.00). The low from last week at 104.018 found buyers against that area.
On more weakness going forward - and through the election - breaking below the 103.995 to 104.180 would be more bearish. Keep that area in mind going forward.
Price pushed above trend lines and 100 hour MA today
The GBPUSD has moved sharply higher in trading today and trades near session highs. The pair has been moving up from the start, but picked up steam in the early European session.
Technically, the price rise was helped by moves above trend lines (two of them (see red and green numbered circles), the 100 hour MA (blue line currently at 1.29453) and the 38.2% at 1.29765.
More recently, the price has extended above the 200 hour MA at 1.29973 level but is having some 2nd thoughts against the 50% retracement at 1.30146.
The buyers are taking back control with those moves. Traders who went with the breaks today have been pleasantly rewarded.
Now with the 50% as the next hurdle - after moving 100 pips or so - there is some stall as traders take some money off the table against the midpoint level. A move above however, should see more upside probing with 1.30253 high from last Thursday, and then the 61.8% at 1.30527.
Drilling to the 5 minute chart, there was a corrective run lower after the pair initially moved above the 200 hour MA for the first time at 1.30043. That corrective move took the price to and through the 38.2% at 1.29699 level but only briefly before swinging higher. The rising 100 bar MA on that chart (blue line) will be technical clue on the downside. Stay above on dips and the buyers are still in control.
Recall the price fell below it's 100 day MA yesterday at 1.28756, but the break was quickly reversed. The falls below the 100 day MA in September were also rejected (no closes below the 100 day MA). Going forward, keep that MA in the back of your mind. It remains a key barometer for buyers and sellers in the longer term (not close now).
Corrects to the 38.2% of the range since October 21
The EURUSD spent nearly two days below it's 100 day MA at 1.16599. The price fell below on Friday during the NY morning session. It lasted below that MA line all day yesterday. Finally at around 3 AM ET/8 AM GMT, the price moved above the 100 day MA and has trended above it's 100 hour MA at 1.16816 and a swing area in the 1.1687 to 1.1693.
The 100 hour MA is the close risk for traders now. If the price moves below the level and then the 100 day MA, the sellers will be firmly in control.
On the topside, the pair moved up to test the swing low from last Wednesday at 1.1717. The 38.2% of the move down from the October 21 high comes in at 1.17201. A move above would be the one of the minimum hurdles (the 100 hour MA is the first today), that is needed to switch the bias from bearish to bullish.
The next key target is up at the 200 hour MA at 1.17507. That is right where the 50% of the move down comes in and increases the areas importance.
Overall, the run higher today took the pair in a more neutral area before the election and the inklings of the winner. It makes sense to do that give the uncertainty and also give traders the ability to define risk and limit risk.
Can there be volatility and moves outside the bearish/bullish extremes?
Sure, but I would not be surprised if the price hung between the levels until that time "the market" decides the bias for the dollar (and the EUR for that matter). That may not come until election results and speculation off those results start coming in.
Nevertheless, it is nice to have a technical roadmap that will give traders some basis - from the price action from all traders around the world) - to the bias (bullish or bearish). The price and the technical tools applied to that price do help to tell the story of what "the market" is thinking.
PS Looking at the daily chart, the low from September came in at 1.16109. The low yesterday reached 1.1621 (within 10 pips). Move below those levels on more bearish going foward, opens up the downside more. Be aware of the level.
What are the odds of the election result getting delayed?
It is finally election week. It has been a long wait but this may not be all over in a jiffy when tomorrow comes. As much as the pollsters are pinning Biden for a win tomorrow, nothing is for certain and Trump may still be triumphant as he was back in 2016.
In my view, the key risk for the market is that we see a tightly contested election where there is no clear winner just yet. That could see neither side submit defeat and there might be a bit of a limbo that could take days - or even weeks - to settle.
It may very well be unlikely, but this is a scenario well worth considering.
In that lieu, let's keep the focus on the six key swing states that both sides will be contesting tomorrow and branch out from there; that being Florida, Arizona, Pennsylvania, North Carolina, Michigan and Wisconsin.
What's all the fuss about with these states?
Generally, they provide a bellwether for how election night usually plays out when the results are tallied. In terms of electoral college votes, the break is as such: Florida - 29, Arizona - 11, Pennsylvania - 20, North Carolina - 15, Michigan - 16, Wisconsin - 10.
They account for 101 of the 270 electoral college votes needed to win the White House.
For some historical context, the presidential candidate for Florida has gone on to claim the "throne" in 13 out of the last 14 elections.
How is the polling like ahead of tomorrow?
Almost all polls have Biden in the lead, though the margin has decreased over the past few weeks in the lead up to tomorrow. The latest NYT/Siena poll (conducted on 23/10 to 31/10) for the six states above shows that:
These are six states that Trump won back in 2016 with Pennsylvania, Wisconsin and Michigan being ones he pipped by a <1 margin. That said, the gap has arguably narrowed compared to the same poll when conducted at the start-to-middle of October:
The tighter polling in Florida especially could be an indication of a late swing or at least a more even contest, so that is something to be mindful about when looking at tomorrow.
When will we know the results?
There are two things to consider when viewing the results tomorrow, the first being that some states have prepared for tabulating mail-in ballots in advance (so they will be able to count faster) while some states don't adopt that kind of system.
The second being that some states also allow for mail-in ballots to arrive after election day so that may temper with the timing in which we will know the true winner.
That said, I'd argue the second point is less of a factor if Biden has a sizable lead considering that Trump supporters have been rather vocal about voting in-person instead.
Anyway, back to the six states above, Florida, Arizona and North Carolina are the three that have a system in place to get a head start in counting the mail-in ballots.
Hence, we could likely get a quicker projected winner into the night from them rather than Pennsylvania, Wisconsin and Michigan.
That said, in the event of a highly contested race, mail-in ballots could matter and in the case of North Carolina, that may take up to 12 November.
Should we see such a situation, there might even come a point where the court will be involved to assess the validity of mail-in ballots and that may take several weeks to play out; that is if the race is too close to call and it hangs in the balance of these states.
Technically, all states have until 14 December to finalise the count and make it official.
I would argue that the odds are slim for all this to happen but you never really know. If pollsters are just as wrong as they were in 2016, we could see a really tight race tomorrow and these scenarios will start to play into market expectations.
GBP/USD falls to a session low of 1.2863 on the day
That is the lowest the pair has traded in nearly 3 weeks, as we see sellers try to push the agenda and contest the 100-day MA (red line) @ 1.2878. The level previously held at the end of last week and also during October alongside the 200-day MA (blue line).
The last time we saw the pair firmly trade below the level was all the way back in July.
That will be a key focus level as we look towards the close today as such.
The pound is being dragged lower today after UK PM Johnson announced a second lockdown, lasting through to 2 December, which is weighing on the economic prospects in the UK - not to mention expediting the need for more easing measures by the BOE.
Brexit murmurs are that talks are making progress and getting "closer" to an agreement. But we've all been led down that road one too many a time, and the focus on that is being overshadowed by the lockdown news for now.
Elsewhere, EUR/GBP is also back up to test its 100-hour moving average @ 0.9035. The pair has been running into resistance from its key hourly moving averages since last week but a firm break above 0.9050 may see the pair set sights on 0.9100 next.
The pound is weighed lower as the UK goes back into lockdown
Major currencies aren't doing a whole lot to start the day, with the greenback keeping steadier across the board for the most part. The ranges are relatively narrow, though the pound is the active mover with cable knocking on the door of 1.2900.
The slight nudge lower still sees sellers in near-term control as price tests some support around the 1.2900 region with further support then seen closer to the 100-day MA (red line) @ 1.2878. The latter will be a key spot to watch in trading this week.
Despite some murmurs of optimism in Brexit talks, all of that is being overshadowed by the news of the UK returning to lockdown until 2 December.
Meanwhile, the euro is also marginally lower within a 25 pips range so far today:
Notably, sellers are looking to keep a push below the 100-day MA (red line) @ 1.1657 and a firm break below that will allow them to establish more control in the sessions ahead.
Further support is seen closer to the late September lows @ 1.1612-27 now.
Elsewhere, AUD/USD is testing support at 0.7000 while USD/CAD is also contesting its own 100-day moving average at 1.3328 as oil prices are being dragged lower amid the more pessimistic virus developments in major economies over the past few weeks.
2nd verse same as the 1st in the GBPUSD
Yesterday in a post on the GBPUSD I wrote:
....The headline news in the GBP pairs can come from a number of different directions. There is Covid. There is the flows from stocks and there is also Brexit. That can make trading particularly volatile as we just witnessed.
Technically, the 200 hour moving average (green line) is near the 50% retracement of the range since October 16 and at 1.3017 area. Ahead of that is the swing area between 1.29921 and 1.3000. Stay below tilt the bias more to the downside.
On the downward extreme we know the 1.2910 area is a support level that the market leaned against earlier. Below that and traders will be looking toward the 100 day moving average at 1.28644 ahead of the October 16 low at 1.28554.
Looking at the hourly chart above, the 200 hour moving average and 50% retracement was joined today by the falling 100 hour moving average (blue line) near the same area (between 1.30157 1.3025). The highs today reached in the late Asian/London morning session peaked right against those moving average lines (and marginally above the 50% retracement). Traders leaned and pushed the price back to the downside into the New York session.
The price is approaching the lower swing area between 1.2910 at 1.29183 as outlined yesterday the support. The price is currently still off that level I.29343, but be aware on further weakness today.
To buyers come in against level again?
The 2nd verse can be the same as the 1st. That is risk can be defined and limited, so there is always the expectations that low risk traders will lean against support with stops below. If the level was broken, the 100 day moving average remains the next target at 1.2868.
Stay above the swing area below, and there is always the chance for a run back higher.
Remember as well that headline news can come at any time for this pair. So be careful.
Stocks rebounded after US GDP
The USDJPY has snapped back higher after the better than expected US GDP. Stocks are doing better and that seems to have helped the pair (along with the JPY crosses as well). Technicals have also had an influence.
Looking at the daily chart above, the fall today reached 104.018. That was just above the September swing low at 103.995. The July low came in at 104.18. The current price has move back above those swing lows. Yesterday, the pair also bottomed within the range of the July and September lows and bounced higher.
With the swing lows holding for the 2nd consecutive day, technically that should increase the areas importance as support. Risk now for traders is a move back into that area. I would expect the buyers to lean against 104.18 on dips, with a close stop if the level gives way.
Drilling to the hourly chart below, the rebound off the bottom has approached the 38.2% retracement of the move down of this week range at 104.412. Getting above that level is the minimum if the buyers are to take more control. Above that and traders will behind the 50%/downward sloping trendline near 104.534 followed by the falling 100 hour moving average (blue line) at 104.573. Those are the targets that would need to be broken to give buyers more comfort and confidence after holding support on the daily.
The EURUSD gets closer to October lows
The EURUSD is trading a little higher after the rate decision kept rates and bond buying unchanged, although they left the door open for additional stimulus in December.
The pair is currently trading just above the 1.1700 level. The low reached 1.1694. After the decision, the price moved up to 1.17171. That was right near the low price from yesterday's trade. Keep that level mind going forward a move above would tilt the bias a little more to the upside intraday.
Technically, the pair at the lows pushed the October lows from October 15, and October 16. The October 16 low came in at 1.16931. The October 15th low came in at 1.16878. Buyers came in just above those levels. A move below would be more bearish.
Looking at the daily chart, there is a swing area between 1.16878 and 1.17103. The recent move took the price back above that swing area (see yellow area on the daily chart below). That area represents a key barometer for the bias going forward. Move below is more bearish, stay above is more bullish. On the downside, the next target on the daily chart would be at 1.16488. That represents the 100 day moving average. The price has not been below the 100 day moving average since May 27