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

 

 

 

Another unexciting week in the Fx market is behind us in which the US dollar gained back some recently lost ground, just as we suggested in our previous weekly analysis. The Fx market remains in a wait and see mode in anticipation of the US election, the final Brexit phase, and additional government and central bank stimulus aid for the COVID-19 induced economic crisis.

In the meantime, USD positioning remains elevated on the short side, which is still a factor that should support the dollar, all else being equal. However, it wouldn’t be wise to make big assumptions ahead of a potentially contested presidential election. For instance, the polls are widely suggesting that Biden has a comfortable lead over Trump and is the most likely candidate to win it. He is expected to be negative for the dollar, and the markets are already pricing in this outcome of the election. As a result, the dollar may have difficulties rallying here before the election since the odds for a Biden win are so high, even if other factors are aligned for a stronger USD near-term. That may as well happen (USD stronger) after the election - regardless of who wins – on a “buy the rumor sell the fact” price behavior.

The final Trump-Biden TV debate is taking place this Thursday and could be an event that spurs volatility across markets. That will be especially the case if Trump performs well and takes some points in the polls from Biden. Otherwise, the US calendar is relatively quiet for this week, with no major market-moving economic data releases scheduled.  

 

 

EU countries now officially have a higher number of new coronavirus infections than the US for the first time since the spring, or what was known as the first wave of the pandemic. The euro was gaining versus the dollar as the US was battling with a surge in infections, but now the tides have turned. Does this mean EURUSD should be trading lower? Most likely, yes. However, keep track of the high-risk events we highlighted above in the “US Dollar Fundamental Outlook” section. Lower EURUSD may not happen before the US presidential election is behind us.

New lockdowns across EU countries due to surging COVID-19 cases should ultimately hurt the economy, give rise to additional ECB stimulus and pressure the euro lower. Nonetheless, we must keep in mind that currencies are a relative play between the relative performance of countries and economies. So, with most other countries providing massive stimulus as well, there is not so much divergence between countries at the moment, and we are seeing Fx pairs entering a consolidation.

The European services and manufacturing PMIs due on Friday are in focus for Fx traders this week. A negative surprise is certainly a possibility given the worsening of the COVID situation. A potentially sizeable negative surprise in the PMIs may be what is needed to knock the EUR down and extend the correction lower from current levels.

 

 

EURUSD played out almost to the letter as we described here in last week’s analysis. The rally stopped in the 1.18 resistance area, and then EURUSD declined to 1.17, where this move was also stopped. Essentially, this the range intact, though the overall weekly technical picture leans somewhat to the bearish side.

The key to unlocking the downside potential remains at the 1.17 area we discussed last week. A breakout below the recent lows at 1.17 (viewable on the daily chart) should put the bears back in control and take EURUSD below 1.16.

Conversely, the 1.18 area remains a key resistance that should keep further gains at bay. If it doesn’t hold, EURUSD may potentially attempt to test 1.19-1.1950 again and even the big resistance at 1.20.

 

 

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

e: philip@fxtradingrevolution.com