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

 

 

 

We are heading into what is sure to be the busiest week of the year, so much so that events like the Fed meeting on Thursday and Nonfarm Payrolls on Friday will be only of secondary importance. Instead, the US election on Tuesday will be all that matters for markets this week.

As we discussed in our last week’s Free Profitable Newsletter email, Biden is expected to win the election according to the polls and consensus forecasts, some even suggesting a landslide Democratic victory. This is likely to spur a positive risk-on reaction across markets, with the USD falling moderately on the results announcement.

However, be careful of “buy the rumor sell the fact” market action, in which case, the USD may strengthen regardless of who wins. This becomes a much more realistic scenario when we consider that USD positioning is still heavily short (albeit it has been reduced slightly in recent weeks).

The election result will have ramifications across all currencies, not only the US dollar. With that said, brace for uncertainty and volatile trading, especially if a low-probability outcome starts to materialize (such as a Trump victory or a contested/disputed election).
Expect tight ranges across all Fx pairs in the following two trading days before the election, and then volatility to surge once the results start coming in.

 

 

EUR will not be immune to risk-on or risk-off flows driven by the election results this week. On a broad basis, the euro may remain neutral and trade mixed, staying firm against some currencies and falling versus others, depending on whether the election triggers a risk-on or risk-off wave.

Turning to EUR specific factors, the euro fell last week on the ECB meeting after the central bank announced they will deliver more QE stimulus in the following months, leaving the specifics for their December meeting. On the COVID-19 front, the pandemic continues to rage across Europe, and that means more rainy days are in store for the EU economy. Hence, it will be no surprise if the ECB may need to do more than what they already pre-committed to for December.

Furthermore, EUR positioning is still overextended to the long side, so there is scope for the single currency to fall more, especially vs. JPY and USD (minding the election here, of course). More losses for the euro are likely driven by the factors outlined above. The volatile week ahead may blur the underlying drivers of the price action in the short-term, though.

 

 

A tall red candle that wraps the previous three candles on the weekly chart has turned the picture bearish again here. Last week, we said that a break below the 55-daily moving average would trigger a larger move down, and that’s exactly what transpired. Now, EURUSD is testing the 100-daily moving average and the support around the 1.1600 - 1.1650 lows.

• A break below this 1.1600 - 1.1650 would most likely mean that EURUSD will reach 1.15, and possibly even 1.14 or lower. The 1.15 area stands out as an important support on larger timeframes, though on the daily and intraday timeframes, EURUSD can pierce the support zone deeper.
• To the upside, 1.18 is the clear resistance now after it was reconfirmed last week.

 

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