EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(July 13 - July 17, 2020)
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US Dollar Fundamental Outlook: USD Holds to Its Ranges
As we suggested in our previous weekly analysis, the dollar remained in its broader ranges in quiet trading over the past week. Equities and risky currencies, in the meantime, continue to benefit from investors’ optimism that the world will better manage a second COVID-19 wave than the first one and that policymakers’ extraordinary stimulus measures will save markets and the economy.
The US sees new records of COVID-19 cases on a daily basis now, but luckily, for the moment, fatalities are not spiking up. The world is now watching whether that remains the case, or unfortunately, COVID-19 deaths prove only to be lagging a few weeks behind the number of new infections. These questions would be the key determiner of risk sentiment in the near-term.
The week ahead should be busier than the previous one at face value, but we must remember that in all the coronavirus uncertainty, economic data is mostly outdated and not impactful on markets as in normal times. The US will release CPI inflation, industrial production, retail sales, the Philadelphia manufacturing index, and the UoM consumer sentiment survey among the most important data. The Fed also publishes the Beige Book on Wednesday.
Considering all of the above, the US dollar may remain within the ranges for another week, unless risk sentiment or developments in other currencies kick-start volatility that would break these ranges.
Euro Fundamental Outlook: EU Council Meeting a Key Risk for EUR This Week
The EUR Fx calendar gets busier this week too. The main focus will be on the ECB meeting and the EU council 2-day meeting.
No major decisions are expected from the ECB on Thursday, but a lot of attention will go to their forward guidance as usual. This ECB meeting will likely be a non-event, eliciting only muted reactions in markets.
The EU council meeting on Friday and Saturday, however, will receive much more attention because EU leaders will decide on the €750bn recovery fund. Everyone remains optimistic that an agreement will be reached to approve the recovery fund in the end, so at least some progress in that direction at this meeting would keep investors optimistic. Such a scenario should be
positive for the euro.
On the other hand, if EU leaders fail to achieve any progress, the euro may finally plunge lower as investors will sell the currency in disappointment. It’s worth noting that the downside potential in such a scenario will likely be greater compared to the upside potential in a positive scenario (progress or recovery fund approved).
EURUSD Technical Outlook:
The gradually ascending channel on the EURUSD daily chart remains intact, where the price has been confined for around three weeks.
Strong resistance remains at 1.1350 that the bulls need to break to clear the road for further gains. However, the gradual and overlapping price action of the ascending channel is indicative of weak momentum. Perhaps, interesting bearish trading opportunities will be provided around the resistance instead?
To the downside, the 1.12 price zone is now established as clear support. The next support lower is at the 1.10 area without much other technical support between it and 1.12.
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