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

 

 

 

The dollar ended the last week lower, though inconsequentially so as the greenback stayed within the established ranges. Among the highlights of the week, Republicans and Democrats didn’t reach an agreement on a new corona-relief stimulus bill, while the final Trump-Biden debate saw no strong performance by either candidate. Biden continues to lead by a wide margin in the polls almost a week before the election, which is a very desirable turn of events for him as this makes him the likely winner.

The calendar is busy for the week ahead, but markets may remain in ranges regardless of the numbers until the big event (November 3 election) is behind us. This week’s US economic data schedule is centered on the GDP report (advance, first estimate) and the PCE inflation report. Other data during the week include durable goods orders, CB consumer confidence, and the Chicago PMI.

As noted above, the presidential election outcome and the Republicans-Democrats debate for a new stimulus package is all that investors care about at the moment. Since we’ll have to wait at least a week (possibly longer) before the outcomes of these two affairs are known, the market is likely to remain range-bound until that happens.

 

 

COVID-19 cases are surging through the roof in Europe with a much worse infection rate for the whole EU region than the US. EU countries are implementing further and harsher lockdown measures, all of which will additionally hit the Eurozone economy.

Considering this situation, there is not much the ECB can feel optimistic about when it meets this Thursday. Inflation is already negative (deflation) for the past two months, and the fears for another COVID-induced contraction in Q4 are becoming more real by the day. While the ECB is likely to refrain from providing more stimulus at this meeting, they may and they should send a strong signal that they will go massive with stimulus in December. If they don’t, they will risk disappointing the markets and sending the euro on a surge, which would only additionally complicate their mandate objectives. So, the ECB will likely deliver a strong dovish message on Thursday, enough to keep the euro pressured.

Overall, there is little to support the euro in the current environment, other than investors’ bearish outlook on the USD. Elevated long positioning on EURUSD still poses downside risks for the pair and should only accelerate the decline once it starts. On balance, the path of least resistance for EUR remains lower, though it may take some time for that to materialize.

 

 

EURUSD underwent a potentially significant move last week as it closed above 1.18 and held there. The pair is holding levels north of this pivotal psychological level, which also concurs with the 55-day moving average (blue line on the chart).

One attempt to break back lower below 1.18 was already rejected on Friday. The main question on traders’ minds now is, are we going to move higher from here on EURUSD? The chances for that have certainly increased, but there are risks as well.

The weekly timeframe, in particular, shows how unconvincing the bulls’ case is. Still, EURUSD may progress higher from here and test levels such as 1.1900 and 1.1950. But there is lots of weekly and monthly resistance in this area, while momentum appears to have waned.

In the opposite case, a break back below 1.18 will be hugely significant now. That’s because it would indicate a fake breakout above the 55-day moving average and will put the bears back in control. A close below 1.18 may be the first indication of the next leg down in EURUSD.

 

 

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

e: philip@fxtradingrevolution.com