European markets got off to a disappointing start to the week yesterday, despite an apparent thaw in EU/UK trade talk relations after EU chief negotiator Michel Barnier offered to begin discussing detailed legal treaty texts later this week, in an attempt to arrive at a deal by mid-November.

With rising coronavirus cases across Europe prompting fresh measures to contain the spread, there is rising concern that a lack of will to pass fresh stimulus measures was likely to temper investor willingness to push stocks higher in the short term.

This probably helps explain why US stocks, after initially opening higher, started to roll over after markets in Europe had closed, as it became apparent that for all the warm words from Democrat House Speaker Nancy Pelosi that she wanted to see a fiscal deal in place before 3 November, the likelihood of a deal taking place appears no more likely now than it was a week ago, with the window for it happening appearing to be closing fast, as tonight’s Pelosi imposed Tuesday deadline for getting a deal agreed comes into view.  

The lack of action is especially concerning given reports that coronavirus cases are rising in excess of 5% or more a day in 38 US states raising concerns that the second wave that is currently sweeping across Europe, is starting to build into a possible third wave in the US as winter closes in.  

The sombre tone wasn’t helped by a succession of central bankers who painted a rather gloomy picture of the economic outlook.

US Fed vice chair Richard Clarida voiced concern that the US economic recovery was likely to take another year at least, while ECB President Christine Lagarde expressed concern that new restrictions being implemented across Europe, would setback any recovery even further in the absence of new monetary and fiscal stimulus measures, neither of which appear to be forthcoming in the short term.

While equity markets appear to be struggling in the short term, the lack of a fiscal stimulus deal in the next two weeks is probably neither here nor there. Most investors expect to see some sort of fiscal stimulus in the next six months, whoever gets in, with the only unknown being around the size and scale, and the timing. The problem for stock markets is that they want to see it now.

This late weakness in US markets is likely to see markets here in Europe remain under pressure, after yesterday’s weak start to the week.  

Oil prices also came under pressure as a result of concerns about lower demand, and the prospect of Libya looking to raise its output.

EUR/USD – while below the 1.1800 level the focus remains for a move back towards the 1.1615 area. Above 1.1800 retargets the 1.1830 level.

GBP/USD – has been surprisingly resilient, hitting a one-month high last week at 1.3082, and struggled to move above 1.3025 yesterday. Currently has solid support at the 1.2850 area, with a break targeting a move back towards the September lows at 1.2675. Brexit headline risk is likely to continue to be the primary driver here, with the risk very much to the upside, and for a move towards 1.3220, while above 1.2800.  

EUR/GBP – currently finding support above the recent lows at 0.9005, but needs to move beyond trend lines resistance from its September peaks currently at 0.9125 to push higher. While below here the risk is tilted towards the downside. A move below the 0.9000 area, has the potential to open up further declines towards 0.8920.

USD/JPY – still appears to be finding support just above the 105.00 area, and while above the 104.80 level is vulnerable to a squeeze higher. A move below 104.80 targets a return to the September lows at 104.00.  Resistance remains all the way back at cloud resistance at the 106.20 area.


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