US stocks rally in the hope of political gridlock and a Fed pivot. (Pivot Orderbook analysis)

…
This is a premium post.
[s2If !current_user_can(access_s2member_level4)]Please register for PREMIUM VERSION HERE to read full post below containing analysis. In case of any error or you think you are not able to read the full post below, please email us at support#nehcap.com [lwa][/s2If] [s2If current_user_can(access_s2member_level4)]

• US stocks rally in the hope of political gridlock and a Fed pivot.
• US CPI this week will be key as will the results of the midterm elections.

The pair currently trades last at 3853.87.

The previous day high was 3812.55 while the previous day low was 3748.95. The daily 38.2% Fib levels comes at 3788.25, expected to provide support. Similarly, the daily 61.8% fib level is at 3773.25, expected to provide support.

Following a bullish session in Asia, with the Japanese index Nikkei 225 (JP225) reaching its highest level since the 15th of September at around 27,861 points, US stock indexes rose for the third straight session as voting began in the crucial midterm election. The widespread belief is that a Republican win will make it really hard, if not impossible, for Democratic President Joe Biden to carry out proposed tax rises. At the time of writing, the Dow is up 1.43%, the S&P 500 is up 1.15% and the Nasdaq is higher by 1.63%.

When combining the bullish prospects of the elections with a recent turn in sentiment surrounding the Federal Reserve, risk-on is the name of the game this week. Investors are hoping for a political gridlock that could prevent radical policy changes and for a slowdown in the pace of rate hikes from the Fed. Control of just one chamber of Congress by Republicans would put a block on President Joe Biden’s legislative push for more business regulations. ”Congressional Republicans have threatened a debt ceiling showdown next year in an effort to cut entitlements and Medicare if they win a majority in the House. In recent weeks, polls have been tilting in favour of the Republicans in both the House and the Senate,” analysts at Brown Brothers Harriman explained.

The Telegraph explains that ”the first wave of vote tallies are expected on the East Coast between 7 pm and 8 pm EST (12 am and 1 am GMT). An early indication of Republican success could come if the races expected to be close – like Virginia’s 7th congressional district or a US Senate seat in North Carolina – turn out to be Democratic.

By around 10 pm or 11 pm EST, when polls in the Midwest will be closed for an hour or more, it is possible Republicans will have enough momentum for experts at US media organisations to project control of the House.”

Sentiment slipped on the back of last week’s nonfarm Payrolls data and a pivot is eyed by markets sooner than later, despite the Chair Jerome Powell’s pushback following last week’s Fed decision. In his presser, he advocated a higher terminal rate vs market expectations. However, the Unemployment Rate was a disappointment on Friday and investors are of the mind that a slower pace of tightening is on the cards. We will get one more jobs report and two sets of inflation and Retail Sales data before the December 13-14 meeting. Meanwhile, WIRP suggests a 50 bp hike then is fully priced in, with 30% odds of a larger 75 bp move. The swaps market continues to price at a terminal rate near 5.25%. This brings us to this week’s key event in the US Consumer Price Index.

”A below consensus print is likely to help push the pricing for the terminal funds rate modestly lower, likely bull steepening the curve in the process,” analysts at TD Securities argued. ”The risk of a lower reading is why we took profit on our 2s10s curve steepener last week and went long 10y Treasuries, which we viewed as attractive.” Ultimately, this would be encouraging for stocks as a softer core print will exacerbate positioning which has moved to swiftly reduce USD longs recently and support risk appetite.

Technical Levels: Supports and Resistances

EURUSD currently trading at 3853.87 at the time of writing. Pair opened at 3806.93 and is trading with a change of 1.23 % .

The pair is trading above its 20 Daily moving average @ 3743.99, above its 50 Daily moving average @ 3798.78 , below its 100 Daily moving average @ 3901.75 and below its 200 Daily moving average @ 4079.38

The previous day high was 3812.55 while the previous day low was 3748.95. The daily 38.2% Fib levels comes at 3788.25, expected to provide support. Similarly, the daily 61.8% fib level is at 3773.25, expected to provide support.

Note the levels of interest below:

• Pivot support is noted at 3766.4, 3725.88, 3702.8
• Pivot resistance is noted at 3830.0, 3853.08, 3893.6

[/s2If]
Join Our Telegram Group