Markets Plunge as Covid-Cases Surge and Europe Re-Enters Lockdown | - International

  • It was a bloodbath for markets overnight, with rising cases in US and news that France and Germany will re-enter lockdowns.
  • The DAX 30 (DE30) suffered its worst session in a month and fell to its lowest level since May whilst and the CAC 40 (FR40) fell to a 1-month low.
  • 12 states in the US recorded their highest numbers of hospitalised patients for the day, and 32 states have seen a 10% increase in cases this past week alone. Furthermore, investors remain nervous of a contested election next week alongside the fact a covid-19 relief package will not materialise soon.
  • US indices sold off sharply near the end of the session with the Nasdaq 100 (USTEC) leading the declines. Precious metals and oil markets were also dragged lower in the carnage as risk-off sentiment ensued.
  • The Bank of Canada (BOC) held rates and expect they will continue to do so until 2023, warning of a long economic recovery. USD was lower against all but CAD, which saw USD/CAD rally due to falling oil prices.


Today’s Calendar Events (Time are GMT+10 Sydney)

  • BOJ hold their monetary policy meeting. No change is expected although it would be no surprise to see economic forecasts lowered again.
  • US GDP and ECB’s interest rate decisions are the highlight of the US session. GDP is forecast to rebound a whopping +31% in Q3, although this high number becomes less impressive when remembered it is simply recovering the gigantic losses in Q2. However, Fed Atlanta’s GDPNow model currently estimates Q3 GDP to rise by 36.2%. If this is correct, we’d expect equities to rally, USD weaken and allow in a risk-on environment.
  • Despite the surge of Covid-cases in Europe, we expect the ECB to hold rates today although they may announce an increase of bond purchases for their next meeting. ECB seem to want to tie policy more closely with staff forecasts which will not be available until December’s meeting.


AUD/JPY: Key Support Breaks

  • Prices broke beneath 97 support to suggest a longer-term top is in play.
  • Over the near-term, the bias remains bearish beneath the resistance zone around 74.00.
  • Traders could seek to fade into minor pullbacks towards this level or enter on a period of consolidation.
  • Next bearish target is around the 72.53 lows.


AUD/CHF: Bearish Outside Day at Key Resistance

  • Prices rolled over after a minor (and momentary) break above 0.6500 resistance and the 20-day eMA to print a bearish outside day.
  • Bears could consider fading into minor rallies towards the resistance zone to increase the potential R:R (reward to risk).
  • A break below 0.6375 brings the 0.6230 lows into focus.


Bitcoin (BTCUSD): Potential Flag on the Hourly Chart

  • Just yesterday our bias remained bullish on the daily chart but, given the volatile drop from its highs, we see potential for another leg lower on the hourly chart.
  • A bearish flag or wedge is forming which suggests bears could be set to re-enter. The flag projects a target around 12,575 (although 12,656 may provide a more realistic target) whilst the wedge projects a target around 28,875.
  • A break of the pattern’s trendline assumes bearish continuation. A burst of bullish volatility on H1 removes it from the watchlist.


Watchlist Update:

EUR/JPY: Initial target around 122.34 support reached. Bias remain bearish but we’d prefer to see some consolidation or a minor retracement before considering fresh shorts.

GBP/USD: Removed from watchlist. Prices did not confirm a breakout above Tuesday’s high, but instead broke beneath the Fibonacci support zone and the bullish trendline.

USD/CNH: The bias on D1 remains bearish below the 6.7648 high. We continue to monitor for a lower high beneath this key level.

Nasdaq 100 (USTEC): After a slow start, prices finally rolled over again from 11,600 resistance and reached our target around the 11,200 lows.

EUR/USD: Removed from watchlist. Prices did not confirm a breakout above Friday’s bullish engulfing candle, but instead broken below 1.1786-1.1770 support.

Nikkei 225 (JP225): The bearish wedge on the weekly chart may be confirmed sooner than we though, with prices now testing the lower trendline. If successful, the pattern projects an approximate target near the 21,700 lows.

Gold (XAU/USD): Removed from watchlist. Prices did not confirm a breakout above 1933 resistance, but instead broke below 1891 support.

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