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Market risk-on sentiment leads to a rise in the pound

The economic calendar is relatively quiet again today, so technical levels are in focus. Any breakouts are unlikely to have too much followed through with a lack of fundamental drivers so waiting for a retest of the level before a continuation is advisable.

Market Brief

The forex heatmap is showing a move out of the safe havens of the yen and Swiss franc into the higher-yielding commodity pairs and the pound. The risk-on nature is likely to continue as the US earnings are supporting equities.

Today's Asian equity markets are mixed, with the majority up following on from the rising US indices and good US corporate earnings. Chinese indices are down with the Hang Seng and Shanghai Stock Exchanges being dragged lower by concerns over continued problems in the Chinese property sector after another developer, Modern Land, defaulted on $250 million worth of US dollar bonds.

During this morning’s trading Brent crude oil rose above $86 per barrel as the London session capped the rising US dollar index at $93.92. Today’s economic calendar is relatively quiet but there are some US dollar data scheduled for release during the US session which may see a turnaround in the US dollar. Also, there are continued discussions over President Biden's fiscal package, with Biden reportedly eager to settle things this week before he flies to Europe for the COP26 UN climate conference. Congress, however, is still divided over several substantive issues.

On an H1 chart, the USDCAD has printed an inverse head and shoulders pattern which could be a signal that we get a pop higher in the Loonie today. With stops under the right shoulder any lower prices would accelerate to the downside should the 1.2300 level get tested as these patterns have a tendency to fail.

The GBPUSD is also benefiting from a US dollar that is failing to progress higher. The London session price action in Cable has seen a breakout of the descending trendline and from here we could get a test of the double top around 1.3840. The pound held up well following on from yesterday’s reports that the UK will raise the national living wage by 6.6% in Wednesday's Budget, bringing it to £9.50 an hour for workers aged 23 and over, and that the pay freeze for public sector workers will end. Bank of England policymaker Tenreyro reiterated yesterday her opposition to a rate hike prematurely, citing a host of uncertainties.

Today's UK CBI retail report will provide one of the first indications of consumer spending in October in a week that will see UK data dominated by the government's budget announcements. In August, the CBI survey surprised on the upside significantly, before dropping by much more than expected in September

Consumer confidence in the United States also appears to be under pressure. Last month, the Conference Board's indicator fell to its lowest level since February. This decline has been attributed to rising inflation concerns and an increase in US Covid cases over the summer. The second survey of consumer sentiment published by the University of Michigan fell in October which could be a leading indicator for the Conference Board's survey to fall further.

New home sales for September and the Richmond Fed's manufacturing index for October will be of interest in the US.

Gold is trading within a tight range around the $1800/oz price level. Friday’s price action is currently the mother candle and a break of yesterday’s high or low could be the catalyst for a further momentum move. Traders have been less inclined to buy into the safe have of precious metals as the corporate earnings are making the US indices reach new highs.

Today’s corporate earnings include big tech companies which include Alphabet, Microsoft, and Twitter.

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