Hey! This is Philip with our new weekly outlook of the Forex market.

 

 

 

The road to 1.15 has been cleared. EURUSD broke the 1.1750-1.18 support last week and triggered the overdue correction that we talked about for weeks here in our weekly analysis posts. The powerful bearish weekly close also confirms that further continuation to the downside is likely.

However, in the immediate near-term (next few days), a correction of last week’s moves seems probable (yes, that is a correction of the correction, you got that right). EURUSD has hit the support trendline of the newly formed descending channel near the 1.16 round number level. At this point, this support here at 1.16 seems enough to trigger a moderate rally toward 1.17 – 1.1750.

But, looking to sell such a EURUSD rally seems like an appropriate strategy at this stage because this downside correction toward 1.15 looks far from over. In this regard, the former 1.1750-1.1800 support zone is now likely to act as resistance (see chart below).

 

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The USD correction that we were talking about for weeks here, finally occurred last week. The dollar rebounded broadly versus all of its peers, though the move was gradual in a rather uneventful Fx trading week, confirming the narrative that this correction is due to a reduction in heavy short dollar positioning rather than some material shift in the trend.

The consensus remains very much USD bearish; hence we can’t expect much more than a gradual USD appreciation at this stage. That being said, there is still scope for the dollar to move a little further higher in the near-term, however. Particularly, investors are likely to undertake some more positioning readjustments going into the US election, which should moderately support the dollar. We can also expect US election noise to intensify over the following weeks, as a source of volatility in Fx markets. Possibly that may happen as soon as this Tuesday on the first debate between Biden and Trump.

The main focus on the USD economic calendar is on the Nonfarm payrolls and other jobs data on Friday. The US also publishes PCE inflation, final GDP, the ISM manufacturing PMI, and the Chicago PMI earlier in the week. With the correction now underway, the dollar should find some further bid, especially if the data is good overall or beats estimates by a large margin.

 

 

Eurozone sentiment PMIs and the euro currency took a hit last week amid an unabating rise in the rate of COVID-19 infections across the old continent. Several countries are experiencing a much higher rate of infections than they did in the first wave during March and April. While the low death rate is a positive in the negative, the fears of new restrictions and lockdowns are hurting business sentiment in Europe, as last week’s PMIs showed.

The EUR correction completely makes sense in the current environment. During the summer, the euro was gaining versus the dollar, driven by the EU’s better management of the pandemic. That is now changing, and Europe is no longer faring better than the United States. Furthermore, the slowdown in the economic recovery is now more likely to trigger the ECB into additional easing sooner via rate cuts or QE. That will be bearish for the euro.

The focus on the EUR calendar this week is on Friday’s flash CPI inflation release. A negative surprise there should additionally pressure the euro to the downside.

 

 

If you have any questions or feedback, don't hesitate to reply to this email.

 

Best Regards,
Philip
Senior Forex Manager
FX Trading Revolution
w: www.fxtradingrevolution.com 

e: philip@fxtradingrevolution.com