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GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

2020-11-12 04:00:00
John Kicklighter, Chief Strategist
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Nasdaq, USDCNH, GBPJPY and USDMXN Talking Points:

  • Risk trends measured by US indices were treading water this past session but DAX, FTSE100 and Nikkei 225 were meaningfully progressing
  • China’s biggest shopping holiday – Single’s Day – recorded an incredible $54 billion in sales but an approximate $250 billion drop in market cap on regulations news offset
  • Top market movers in the upcoming session are the British Pound on UK GDP and a run of data as well as the Mexican Peso with an expected 25bp rate hike
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The Top Risk Performers Eventually and Inevitably Lose Their Leads

Risk trends across the global markets are still struggling for a common bead – whether bullish or bears. Heading into Thursday’s trading session, the most prominent fundamental themes have noticeably lost some sway while correlations across risk-leaning assets have flagged. Among my preferred, imperfect, measures of speculative appetite, the US indices were once again spinning their tires this past session. The S&P 500 and Dow were little moved on the day. Notably, the tech-heavy Nasdaq 100 which has led the charge even among these American indices managed to bounce back Wednesday. Yet, it does so within a comfortable range. True conviction doesn’t come into play until we recovery lose ground, so there remains some runway in my mind before we should entertain a serious risk-on possibility.

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Chart of S&P 500 Overlaid with Nasdaq-S&P 500 Ratio (Daily)

GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

Chart Created on Tradingview Platform

While the Dow, S&P 500 and Nasdaq are in different stages of firming up their traction to tempt a return to proximate record highs, global indices have made a far more impressive drive this week. In Europe, the German DAX has rallied 15 percent this month to fully recover lost ground from late October. Similarly, the UK’s FTSE 100 is up 8 consecutive trading days having recovered a similar 15 percent lost ground on trade concerns and Covid shutdown fallout. In Asia, the Australian ASX200 has broken through 6,200 range resistance that has held for months, but it is the Japanese Nikkei 225 that truly impresses. The 24,500 break has pushed the index to its highest in decades.

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Chart ofNikkei 225 with 50 and 200-Day Moving Averages (Daily)

GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

Chart Created on Tradingview Platform

Open Ended and Focused Event Risk

The top themes to start the week of US election results and news of Pfizer’s vaccine success have all but faded as active market moving fodder. That is not to mean that these drivers can no longer urge the market to volatility or trend in the future; but they likely need a fresh update draw focus back to their influence. Donald Trump has yet to concede after the President-Elect Joe Biden surpassed the 270 electoral vote threshold this past Saturday which has seen Google search for ‘election uncertainty’ hit a record high, but that isn’t stopping the market from moving on with its speculation. As for PFE’s vaccine news, confidence for a quick resolution to the economic shutdown anticipation in a second wave of pandemic lasted only slightly longer than the stocks rally. AstraZeneca’s charge has similarly ebbed and Moderna was in focus this past session with its own trails going to review and Dr Fauci’s optimism, but it will be months before mass distribution is in effect.

Chart of Google Trends Search Interest in ‘Vaccine’ and ‘Recession’ (Daily)

GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

Chart Created onGoogle Trends

Offering a little more of a speculative punch giving its timing, this past session recorded a record-breaking $56 billion Single Day shopping holiday. The 11-11 holiday started by Alibaba has proven a mass consumption event that has far outstripped the sales power of Amazon Prime Day which itself has eclipsed Black Friday figures. From the world’s second largest economy, this would be a rousing sign for domestic consumption – and perhaps raise expectations for massive exporter to start offering some global lift as shifting to importer, but news on the same day that the Beijing was introducing anti-competitive behavior regulation sent local markets reeling. The Chinese Yuan wobbled on the news, but the Government is more interested in keeping the peace on the exchange rate.

Chart of Shanghai Composite Overlaid with Inverted USDCNH (Daily)

GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

Chart Created on Tradingview Platform

Pairs to Watch

Looking ahead to Thursday’s trading session, there are a host of pairs that offer an appealing combination of technical and fundamentals to play off the market’s backdrop. The charge for the Yen crosses held up even when the US indices suggested risk trends were easing back Tuesday, but this group of deflated carry trade pairings has not been known for overriding trends these past months and years. I like to keep open options, and a bullish option looks practical in USDJPY above 106 or NZDJPY north of 73. Yet, the likes of GBPJPY holding the line at the midpoint of the past four years’ range at 140 looks more practical. Though that all depends on the UK event risk ahead.

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Chart of GBPJPY with 100-Day Moving Average (Daily)

GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

Chart Created on Tradingview Platform

The UK docket is loaded Thursday. Earlier this week, the UK employment statistics urged the Sterling along with noteworthy breaks for the likes of the GBPUSD (above 1.3200) and EURGBP (below 0.8950). However, a steady claims count last month does not offset the realities of a national shutdown for the next four weeks. Perhaps if a run of data from September and 3Q GDP to trade to construction activity can offer favorable tail wind, it can produce another charge for the Sterling. Then again, if it flags in the face of what lies ahead, a pullback can turn Cable into a false breakout reversal or hold to a GBPJPY range reversal. Looking to always have an alternative on hand, for a candidate better suited technically should the Pound rally, I like GBPNZD.

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Chart of GBPNZD (Daily)

GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

Chart Created on Tradingview Platform

Another single event risk ahead that will fold into a bigger fundamental flow is the Mexican central bank rate decision. The group is expected to cut rates 25 basis points to 4.00 percent. That is a easing of yield advantage, but it is nevertheless still a hearty carry relative to the essential-zero of the US benchmark. If this holds a neutral tone – or especially a neutral rate bearing – it can feed into the favorable risk position of the Peso as risk trends drift higher and the outlook for a more favorable trade relationship with the United States under a Joe Biden Presidency.

Read our special report on what is likely to happen with trade wars after the US elections.

Chart of USDMXN with Consecutive Session Moves (Daily)

GBPJPY and USDMXN Offer Key Tech Levels and Event Risk, Nasdaq Recovers

Chart Created on Tradingview Platform

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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