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

 

 

 

The dollar finished lower for the second week in a row, and with that retraced all the gains it made in the days following the September Fed meeting. As we said in our previous weekly analysis, we expected only gradual action from the dollar in the current environment, and we saw that unfold. By the same token, after the two-week retracement, it may be time for the dollar to start rising again this week, albeit it ought to be gradual as well.

There is no new theme that would drive the USD a little stronger from here, other than the already existing ones. Markets are positioned overly short on the dollar, and in the face of the US Presidential election, some reduction of those positions is likely. Furthermore, the US is no longer the worse country in dealing with the COVID-19 pandemic, but other countries (particularly Europe) are experiencing worse numbers than the US with the second wave. These and similar factors should contribute to some more USD strength over the near-term.

Inflation and consumer spending are in focus on the US calendar this week. The CPI report will be released tomorrow (Tuesday), and retail sales is scheduled for Friday. While no big market movers by themselves, traders will watch the reports as an indication of how close or far is fresh stimulus in the US. Stronger actual numbers should, of course, prove a positive for the greenback.

 

 

The surging number of coronavirus infections in Europe during this second wave is proving to be a setback for the common currency. While it’s too early to estimate the economic impact at this stage, with many European countries imposing new restrictive measures, the damage is definitely done.

The ECB will be in need of more stimulus to support the economy and plunging inflation expectations. The optimistic theme that drove the euro higher over the spring and summer is slowly turning and suggests that the path of least resistance for the euro is lower. The heavily long EUR positioning should only help to get such a correction going.

This week’s EUR calendar is relatively light, with the focus being on the German ZEW economic sentiment index, which should give an insight into the degree of damage from the second coronavirus wave. A big miss in the actual numbers vs. the forecasts should weigh on the euro.

 

 

The retracement took EURUSD slightly above the 55-day moving average and the 1.1800 round number level. But, the resistance can’t be declared broken here just yet, particularly because this move up is lacking momentum and so far appears to be of corrective nature.

If the rally does stop here, then an extension lower toward the 1.15 area would still be on the cards. The previous leg down was of around 300 pips, and if we project it lower from current levels, we arrive at a target of 1.15. This could be the way things play out on EURUSD, though that is difficult to estimate with high conviction given the ongoing sideways, rangy price action.

To the upside, 1.20 remains the crucial barrier that keeps the pair capped. The 1.17 lows should provide moderate support to the downside, which if broken, should clear the road to 1.16 and 1.15.

 

 

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

e: [email protected]