Market Outlook

While risk appetite sounds back, the dollar slipped a bit. Gold price returned to the $1880 mark area as investors seek for another haven before the “first debate”. Democrat Joe Biden and Republican Donald Trump will square off later in the day (Wednesday 0900 GMT+8). It should be alerted that any wording from Trump and Biden may spark shocks.

The economic data from the US housing were outstanding over the recent weeks, even under the doubtful recovery situation. On Thursday, it may be the main reason for “bottom fishing”, pushing up the three major indexes. ZFX analyst Jacob Leung said that, of course it may be showing the buying interest, but technically speaking, the trends were still bearish. The retracement of the dollar was limited, made a “Doji” alike, meaning that the sentiment was just still cautious. The market is also closely watching the negotiations of the US Congress. It is reported that Democrats in the House of Representatives are preparing a draft of a relief bill of up to $2.4 trillion, which to some extent propped up the sentiment.

These day, coronavirus pandemic developments are the hot topics, weighing on investor sentiment. The dollar is strengthening against most of the major currencies amid risk aversion. Investors are worried the return of the lockdown measures, which will slow down the economic recovery. The worries have sparked another wave of the adjustment in the financial markets, especially under such unclear direction.

Risk aversion is now the main theme in the markets. Market sentiment is bearish due to the fears of another coronavirus outbreak. Not only European countries, but also the US, may impose lockdown measures again if the daily confirmed cases further soar in the coming days. Investors once again are worried about the economic recovery. Globally speaking, restrictions means a relatively pessimistic figure of the GDP ahead. Safe-haven demand drove the dollar up sharply on Monday, reflecting “Cash is King”. Gold, usually deemed as another shelter, again did not find any support during such panic movement, with gold price dropping more than 3% to $1882 level on Monday US trading session.

Stepping to the European trading session, investors are still cautious. The dollar index dropped a bit, but overall is still steady, ranging around 93 level, implying no clear direction so far. Traders are a bit doubted about the economic recovery in the US amid mixed performance of the US figures. Last Friday, the University of Michigan Consumer Sentiment Index in September was 78.9, beat expectation of 75, while the leading index in August was up 1.2% monthly, slightly missed expectation of up 1.3%.

ZFX analyst Jacob Leung said that the dollar clearly strengthened after FOMC meeting, implying three points. First, the investment market is more concerned about Powell’s comment on the economic outlook. Second, investors may have already fully anticipated all the information from Fed, causing a “buy the rumor sell the news” effect. Third, after eliminating the potential bearish of the dollar, risk aversion dominated again. The sell-off pressure in the stock markets may once again trigger the demand of the safe-haven.

Investors are focusing on the FOMC’s meeting. Besides the update of the GDP, unemployment situation and inflation prediction, the Fed may further hint its policy stance and rate expectations. The meeting's result is scheduled as the afternoon of Wednesday in the US.

The recent Sterling has become key focus of FX market as investors are worried about no deal situation, causing pressure on the Sterling. The GBP/USD dropped to 1.28 level, setting a clear downtrend these days against the dollar. On Monday, the Asian stock markets were generally trading higher as the sentiment improved and the futures of those US indexes were doing good. Although the global pandemic is still severe, with more than 29 million confirmed cases, more than 920000 deaths, the restart of the vaccine trials by AstraZeneca and Oxford University in the UK boosts optimism.

Traders are closely watching the trend of the greenback, which can spark the volatility of global equities. A slip of the dollar is normally suggesting an improvement in risk appetite. On Wednesday, the dollar fell against all major currencies and commodities. Gold price reached a high around $1950 despite the recovery of risk appetite.

“Cash is King” once again reflected the recent strength of the dollar. Dollar index has bounced around 2% from 91.75. Investors sold riskier assets in a such bearish condition, turning back to hold dollar, driven by risk aversion demand. The fears of “hard”Brexit pushed the Sterling to 1.29 level, dropping around 200 pips against dollar on Tuesday.