EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(September 21 - September 25, 2020)
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US Dollar Fundamental Outlook: Powell Testifies Before Congress This Week, USD Keeps Neutral
The Fx market perceived the Fed meeting last Wednesday as not so dovish, and the USD was initially higher following Powell’s presser, but, by the end of the week, it fell and closed in the red. The USD bears camp seems to outnumber the bulls, and this makes it hard for the dollar to find a bid.
Still, when we consider the recent reactions in the Fx market to central bank events, they point to mixed sentiment on the dollar with sideways action likely to continue for a while. That is, of course, barring unexpected events that could lead to large breakouts and which wouldn’t surprise us if they occur given the uncertain environment of the COVID-19 pandemic, trade wars, and US election.
The USD Forex calendar for the week ahead is relatively light except for Fed Chairman Powell’s testimony before Congress that will take place on Tuesday, Wednesday, and Thursday. Usually, these events by themselves don’t cause much volatility in the Fx market, however, that may happen if Powell speaks about the new AIT (average inflation targeting) policy and gives more details about it. Other than that, the dollar
remains neutral here until some event moves the trend up or down.
Euro Fundamental Outlook: EUR Consolidation Continues After Central Bank Meetings Fail to Trigger a Breakout
The euro is also trading mixed, not only versus the dollar but also against the other major currencies. Last week, it declined sharply against JPY and was also down versus GBP. EURUSD and EURAUD closed the week unchanged, while EURCHF and EURCAD finished higher.
The highlight on the EUR calendar this week are the services and manufacturing PMIs, out on Wednesday. While these reports are unlikely to elicit much volatility at the time of the release, they have been an important factor for EUR”s direction, particularly in recent years. Consensus expectations are for the reports to be above but close to 50. Big surprises, either a beat or a miss on the expectations, may very
well be a factor that will lead EURUSD out of the current 2-month range.
EURUSD positioning is still long at extreme levels, which still favors some correction from here. However, we must keep in mind that such a correction may also only be shallow rather than something material or steep. It will all depend on how the US vs. Europe’s economies perform and who deals better with the pandemic. The outcome of the US election will also play a large role, with a Biden victory being the most
negative USD scenario and bullish for the euro.
EURUSD Technical Outlook:
The boring EURUSD correction extends into the new week, though it seems that it may be shifting toward a gradual downward trajectory after the 1.20 high. For instance, the first pair of lower low and lower high have formed on the daily chart. If we get another lower low that will likely trigger a breakout of the recent range, which may clear the road for a deeper correction.
The 1.18 - 1.1750 support zone remains key for triggering a larger correction. A distinct support level slightly lower in this area is 1.1725, where the support trendline and the 55-day moving average meet (see chart).
To the upside, the first key resistance is at the 1.19 zone and then at 1.1950. These resistance zones should hold if EURUSD is to extend the correction below 1.1750. Last week’s reversal from around 1.1750 rejected the bears’ attempt to push lower. However, this week, EURUSD is already below 1.18 again this Monday and may be making another attempt toward lower levels.
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