The moves in equity markets this month have been breathtaking, while FX is attempting to join the ri...
Volatility Dies as Investors and Traders Still Hope for Stimulus
10/09/2020 10:01 am EST
It’s been a very quiet night of trading in Asian and early European sessions with equity futures mildly up, but essentially treading water as investors and traders continued to hope for some sort of a stimulus deal before the election, states Boris Schlossberg of BK Asset Management.
After pulling out of negotiations earlier this week President Trump reversed course and directed Secretary Mnuchin to resume negotiations on a stimulus deal with House Speaker Pelosi but it is unclear whether the Democrats will offer any meaningful compromise, and furthermore, whether any sort of far-reaching support that helps many of the most Covid-ravaged states, which are mostly blue would pass the Senate.
Like Pavlov’s dogs, stocks continued to react to every promising headline, but the moves have become much muted in scope, and the only clear signal from the markets this week is that volatility has compressed markedly. Equities appear to have reached the end of their “stimulus” premium and may be vulnerable to some profit-taking if news fails to provide further evidence of progress.
With no other eco data on the docket today, headlines out of DC will continue to drive trade, and although the bias in the markets remains up, sentiment could quickly reverse course if investors grow frustrated with the lack of progress.
In FX today, the market will get a look at Canadian employment data, which is expected to show a gain of 156K versus 245K the month prior. Canada has seen a resurgence of Covid cases as temperatures drop and that fact is likely to weigh on the rebound.
USD/CAD has dropped by nearly 200 pips this week on better risk flow and stimulus hopes, but if the data proves disappointing, the pair could bounce back to test resistance at 1.3200. On the other hand, if the labor data proves resilient and matches last month’s numbers the pair has scope to test the 1.3100 figure especially if stimulus talks in DC prove supportive and provide and additional push from risk-on flows.
By Boris Schlossberg, Co-Founder, BKForex.com
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