- Risk appetite fades, weakening NZD and AUD; CAD outperforms.
- AUD/USD off highs and about to test European session lows.
The AUD/USD pair peaked earlier at 0.7114, the highest level since last Thursday boosted by risk appetite and a weaker US dollar. After the beginning of the American session, the aussie lost strength, trimming gains. It pulled back to 0.7088 and as of writing it trades at 0.7090, up less than 15 pips for the day.
The retreat in AUD/USD is taking place as equity prices in Wall Street are now in red. The Dow Jones failed to hold onto gains and is falling 0.15% and the Nasdaq 0.5%. Both indexes opened in positive territory supported by expectations about new fiscal stimulus in the US and Chinese economic data.
The Aussie received a boost from Chinese data. GDP readings came in below expectations but retail sales and industrial production surpassed market consensus. On Tuesday, the Reserve Bank of Australia will release the minutes of its latest monetary policy meeting.
The decline in AUD/NZD is also adding pressure on the aussie. The kiwi is breaking the 1.0700 area, trading at the lowest in almost three months.
From a technical perspective, AUD/USD continues to move with a bearish bias after being unable to hold above 0.7100 and also as it trades back below the 100-day moving average that stands 0.7099. The immediate support might be seen at 0.7065, followed by the 0.7000 area. A firm recovery above 0.7130 (20-day moving average) would ease the negative momentum.
Gold has been clawing its way up above $1,900 as hopes for US stimulus have re-emerged. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin will hold another call. If they manage to agree on a multi-trillion relief package, it could boost the precious metal, while yet another failure could push it down.
How is XAU/USD positioned on the charts?
The Technical Confluences Indicator is showing that gold has robust support at around $1,904, which is a dense cluster of levels including the Fibonacci 38.2% one-month, the Fibonacci 38.2% one-day, the Simple Moving Average 5-4h, the SMA 200-1h, the SMA 10-4h, and the Bollinger Band 1h-Middle.
Looking up, a significant cap awaits at $1,915 – yet it is weaker than the support line mentioned above, opening the door to more upside. At $1,915, a juncture of lines including the SMA 200-4h, the Fibonacci 61.8% one-week and the previous daily high await XAU/USD.
Further above, the upside target is $1,927, which is the confluence of the Pivot Point one-day Resistance 3 and the 50-day SMA.
Low support is at $1,894, which is the meeting point of the PP one-day S1 and the Fibonacci 23.6% one-week.
Key XAU/USD resistances and supports
The Confluence Detector finds exciting opportunities using Technical Confluences. The TC is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.
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Gold’s medium-term uptrend remains intact, having held above the 200-week moving average at $1,398, however, the yellow metal needs to break above the September high of $1,973 to resume the uptrend, as pe Standard Chartered. On Monday, October 19, XAU/USD is on the rise, trading above the $1,900 level it has been battling in recent weeks.
“The fundamental drivers of gold remain intact, including low and falling real (net of inflation) yields and a weaker USD.”
“From a technical perspective, the retreat since August is viewed as unwinding of the extreme overbought conditions on longer-term charts, rather than the end of the uptrend.”
“The long-term uptrend remains intact given that gold is above the 200-week moving verage (now at $1,398). However, in order to resume the uptrend, gold would need to break above key resistance at the mid-September high of $1,973 (immediate resistance is at $1,929).”
“On the downside, there’s initial support at $1,890, but any break below subsequent support at the September low of $1,848 would raise the chances of a drop toward the 200-day moving average (now at $1,753), which could be a tough cushion to crack.”
Michael Gove, a senior UK minister, has said that the UK is increasingly well-prepared for an Australian-style exit from the EU, meaning no deal. Gove's official title is the Chancellor of the Duchy of Lancaster, and he is one of the leading ministers on Brexit.
Gove is speaking in parliament after Chief EU Negotiator Michel Barnier and his British counterpart David Frost held a phone call to discuss future relations. The minister added that there is no basis to find an agreement and that Brussels' proposals are inconsistent with sovereign status. He labeled potential talks now as "meaningless."
Barnier said the EU is available to intensify negotiations and visit London – a visit that was canceled.
GBP/USD has retreated from the daily highs and struggles just below 1.30.
The EUR/USD pair is up this Monday, approaching the 1.1800 area, as hopes for a US coronavirus stimulus package is weighing on the dollar. The pair is bullish in the near-term, as FXStreet’s Chief Analyst Valeria Bednarik notes, and could extend the rise on a break above the mentioned 1.18 mark.
“The greenback is being pressured by mounting hopes about a US stimulus package and encouraging Chinese data published at the beginning of the day. US representatives are working on some fiscal aid although it’s still unclear whether they will be able to clinch a deal. As per China, it reported Q3 GDP at 4.9% slightly below the 5.2% expected but above the previous 3.2%.”
“EUR/USD is bullish in the short-term, as, in the 4-hour chart, technical indicators firmly advance above their midlines. Also, the pair has advanced above all of its moving averages, which anyway lack directional strength.
“The 1.1800/10 area is the immediate resistance that the EUR/USD pair needs to surpass to confirm further gains in the upcoming sessions.”
President Trump is trailing Biden by a wide margin but skeptics point to 2016. Nonetheless, there are seven reasons why this time is different, according to FXStreet’s Analyst Yohay Elam. The Senate race is much closer and could be more consequential for markets.
US Elections: President Trump victory with a split Congress, the most positive outcome for financial markets – HSBC
US Elections: Blue Wave to extend USD decline and equities rally – Westpac
“Bigger gap: According to the RealClearPolitics, former Vice-President Joe Biden leads the president by 9% nationally and has consistently had a larger lead than Clinton's. The gap stands at 3.4% as of mid-October.”
“Fewer undecideds: Back in 2016, support for Clinton peaked below 47%. This time, backing for Biden has been above 50% with fewer undecideds. There are fewer people that could break toward Trump.”
“Poll mistakes go both ways: It is easier to compare to 2016, when the president shocked the world with a victory but looking back into history shows that surveys can miss in both directions. Back in 2012, surveys underestimated President Barack Obama by around 4% on the national levels and state polls missed Democratic support as well. Accounting for a 2012-style miss, Biden has an even larger advantage.”
“Pollsters have learned: Firms that survey public opinion need to defend their reputation toward the next elections and to rake in income from commercial firms. They would not want to repeat the exact same mistakes – and may even overcompensate and underestimate a potential Biden landslide.”
“Gap between states and national vote smaller this time: Not even the most ardent Trump backers believe he can win the popular vote, but build their hopes on an electoral college victory.”
“No shy Trump voters: Trump backers are not shy, there are just small quantities of them. The base is too small and Trump has failed to pivot to the center and enlarge his support.”
“October surprise? Trump and Biden are set to meet in the second and final debate on October 22, and that is probably the president's best chance to win back support. Can something like the Comey letter happen again? Anything is possible, but so far, nothing has stuck to Biden.”
- GBP/USD caught some aggressive bids on Monday and surged past the 1.3000 psychological mark.
- The technical set-up favours bullish traders, though warrant some caution before placing fresh bets.
- Sustained move beyond a one-week-old descending trend-line needed to confirm any further gains.
The GBP/USD pair added to its strong intraday gains and refreshed daily tops, around the 1.3025 region during the early North American session.
Given that the pair last week attracted some dip-buying near the 1.2865-60 horizontal zone, a sustained move beyond the 200-period SMA on the 4-hourly chart was seen a key trigger for bullish traders. The strong intraday positive momentum was further supported by bullish oscillators on hourly charts.
Meanwhile, technical indicators on the daily chart have just started moving into the positive territory, albeit are yet to gain any meaningful traction. Hence, it will be prudent to wait for some follow-through buying beyond a one-week-old descending trend-line resistance before positioning for any further appreciating move.
The mentioned hurdle is pegged near the 1.3025-30 region, above which bulls are likely to aim back towards monthly swing highs, around the 1.3080 supply zone. The momentum could then push the GBP/USD pair further beyond the 1.3100 mark, towards testing the next major hurdle near the 1.3160 horizontal zone.
On the flip side, the 1.2940 region (200-period SMA) now seems to protect the immediate downside. failure to defend the mentioned support might prompt some technical selling and turn the pair vulnerable to slide back to test sub-1.2900 level. That said any subsequent fall might still find decent support near the 1.2865-60 region.
GBP/USD 4-hourly chart
Technical levels to watch
- DXY remains depressed in multi-day lows near 93.20.
- Stimulus hopes keep weighing on the dollar on Monday.
- The NAHB Index improved further to 85 in October (from 83).
The selling bias around the greenback stays well and sound and drags the US Dollar Index (DXY) to the 93.20 region, or new 4-day lows.
US Dollar Index offered on politics
The index adds to Friday’s decline and drops to multi-day lows in the 93.20 region on Monday, managing to regain some composure soon afterwards.
The moderate pullback in the dollar comes amidst rising speculations that a new stimulus bill could be further discussed later in the week. It is worth recalling that Trump’s proposal last week came in significantly short of expectations, opening the door to further political uncertainty and extra wings to the buck.
In the US data space, the NAHB Index surpassed consensus in October at 85 (from 83) and reached a fresh record high.
Nothing worth mentioning from Powell’s discussion panel on digital currencies earlier in the session, while FOMC’s R.Clarida (permanent voter, dovish), New York Fed J.Williams (permanent voter, centrist), Atlanta Fed R.Bostic (2021 voter, centrist) and Philly Fed P.Harker (voter, hawkish) are all due to speak later.
What to look for around USD
The index met solid contention in the 93.00 region so far this month. Occasional bullish attempts, however, are seen as temporary, as the underlying sentiment towards the greenback remains cautious. This view is reinforced by the “lower for longer” stance from the Federal Reserve, hopes of a strong recovery in the global economy and rising bets of a “blue wave” win at the presidential elections. Developments around another US stimulus package also collaborate with the vigilant stance around the buck.
US Dollar Index relevant levels
At the moment, the index is losing 0.41% at 93.34 and faces immediate contention at 93.01 (monthly low Oct.12) followed by 92.70 (weekly low Sep.10) and then 91.92 (23.6% Fibo of the 2017-2018 drop). On the other hand, a break above 94.20 (38.2% Fibo retracement of the 2017-2018 drop) would aim for 94.74 (monthly high Sep.25) and finally 96.03 (50% Fibo of the 2017-2018 drop).
Having hit a high in the 1.2011 area in early September, EUR/USD subsequently moved into a lower trading band and the pair has been bearish since then. Economists at Rabobank forecast EUR/USD at 1.17 on a one-month view followed by 1.16 on a three-month view.
“From a technical perspective, the price action in EUR/USD has been bearish since September when a break below the key trendline occurred. Technicals also suggest that a strong rebound above this trendline – currently at around 1.1840 – is required to undermine the notion of the wave V below the September 25 low at 1.1612 unfolding in the coming weeks. In our view, fundamentals are also lining up to take EUR/USD towards 1.16 on a three-month view.”
“The second wave of COVID-19 is undermining forecasts regarding the strength of the region’s economic recovery. Already there are delays about the distribution of the EU’s Recovery Fund and any fresh demands for fiscal funds could trigger fresh debates about fiscal support. Against this backdrop, various ECB officials have been keen to air their dovish outlooks which has been preparing the market for more monetary policy action in the coming months.”
- Gold regained positive traction on Monday amid some heavy selling around the USD.
- The risk-on mood, surging US bond yields kept a lid on any strong positive momentum.
Gold spiked to multi-day tops, around the $1918 region during the early North American session, albeit quickly retreated around $10 thereafter.
The precious metal managed to regain some positive traction on the first day of a new trading week and built on last week's rebound from the $1882 region. The uptick marked the third day of a positive move in the previous four and was exclusively sponsored by the emergence of some fresh selling around the US dollar, which tends to benefit the dollar-denominated commodity.
However, the upbeat market mood – as depicted by a positive opening in the US equity markets – undermined demand for traditional safe-haven assets and kept a lid on any strong gains for the XAU/USD. The global risk sentiment was supported by reviving hopes for additional US fiscal stimulus and expectations of a COVID-19 vaccine by the end of this year.
The risk-on mood was reinforced by a strong intraday upsurge in the US Treasury bond yields, which further collaborated towards capping gains for the non-yielding yellow metal. Nevertheless, the XAU/USD has still managed to hold with modest daily gains and was last seen trading just below the $1910 region.
In the absence of any major market-moving economic releases from the US, the broader market risk sentiment will influence the safe-haven demand for the XAU/USD. This, along with the USD price dynamics might further assist traders to grab some meaningful opportunities.
Technical levels to watch
The return of no-deal headlines has put GBP under renewed pressure. The base case for an eventual deal supports a moderate recovery for sterling over the medium term, but economists at TD Securities expect cable to remain driven more by the USD leg overall. A no-deal surprise would naturally see a knee-jerk GBP sell-off but this may remain somewhat contained, however, as a lot of bad news is now in the price and the UK has larger problems on its hands.
“We are wondering whether a good portion of the challenges Brexit poses for sterling may now be priced. Now, to be clear, we think the shock value of failing to reach a deal by the end of the year will see GBP weaken — and probably sharply at that. We are no longer as confident, however, in stating it will stay that way.”
“Ultimately, the UK has bigger problems on its hands. The UK is among the hardest-hit of the major economies by the pandemic. The current second wave presents additional challenges that still need to play out. This is likely to be a much bigger factor for sterling next year than Brexit.”
“We continue to target a move up in GBP/USD to 1.35 for year-end and forecast of 1.38 for 2021-Q4. Within this, we note that we expect USD depreciation to be the primary factor. Indeed, our forecasts imply a path for EUR/GBP that stays mostly in the 0.90/91 range over our horizon.”
S&P 500 is holding support from the ‘neckline’ to its ‘head & shoulders’ base at 3447/28 and the Credit Suisse analyst team bias remains to view weakness as corrective ahead of an eventual challenge on the 3588 record high.
“The S&P 500 continues to hold above support from the ‘neckline’ to its base and the rising 13-day exponential average at 3447/28 and we continue to look for a floor above this zone and for the uptrend to resume.”
“Resistance remains at 3528, above which is needed to suggest the pullback is over for strength back to 3550, above which can see resistance at 3565 next and eventually the 3588/92 high, which is also the upper end of its ‘typical’ extreme (15% above the 200-day average). Whilst this should clearly be respected, we look for a break in due course, with the “measured base objective” at 3653.”
“Below 3447/18 would throw a serious question mark over the base, with support seen at 3396 next.”
- USD/CAD witnessed some selling for the second consecutive session on Monday.
- The upbeat market mood, US political uncertainties weighed on the safe-haven USD.
- Softer oil prices undermined the loonie and might help limit deeper losses, for now.
The USD/CAD pair traded with a mild negative bias through the early North American session and was last seen hovering near the lower end of its daily range, around the 1.3165-75 region.
The pair added to the previous session's losses and remained depressed for the second consecutive session on Monday. The downtick was exclusively sponsored by some renewed US dollar selling, albeit the downside remains cushioned amid a softer tone surrounding oil prices.
Reviving hopes of a US fiscal stimulus package, along with expectations of a vaccine for the highly contagious coronavirus disease by the end of this year triggered a strong risk-on rally in the equity markets. This, in turn, dented the greenback's relative safe-haven status.
It is worth recalling that House Speaker Nancy Pelosi said on Sunday that differences remained with the US President Donald Trump's administration on a wide-ranging coronavirus aid package. She, however, was optimistic that legislation could be pushed through before the Election Day.
Apart from this, the uncertain US political situation further weighed on the greenback. With about two weeks left until the November 3 presidential election, Trump and his Democratic challenger Joe Biden will debate for a final time on Thursday, which might infuse some volatility in the market.
Meanwhile, a strong rally in the US Treasury bond yields failed to impress the USD bulls or provide any meaningful impetus to the USD/CAD pair. However, a modest pullback in oil prices undermined the commodity-linked currency – the loonie – and might help limit deeper losses, at least for now.
There isn't any major market-moving economic data due for release of Monday. This makes it prudent to wait for some strong follow-through selling before traders again start positioning for the resumption of the USD/CAD pair's recent downward trajectory from levels beyond the 1.3400 mark.
Technical levels to watch
- EUR/USD extends the upside to the boundaries of 1.1800.
- Market chatter on US stimulus package gives legs to the pair.
- Fed’s Powell participates in a discussion panel on digital currencies.
The European currency and its risk-associated peers trade on a better mood and pushes EUR/USD to the proximity of the 1.18 barrier.
EUR/USD underpinned by risk appetite
EUR/USD has managed to test the area of 1.1790, an interim hurdle where sits the 55-day SMA, although the upside momentum lost some vigour on Monday.
In the meantime, renewed hopes of another package of US fiscal stimulus have been sustaining the improved sentiment in the risk complex, pushing high-beta currencies, stocks and yields higher at the beginning of the week.
On another front, ECB Chief C.Lagarde said earlier in the session that climate change is expected to affect monetary policy in the future, while VP L. De Guindos said the economic recovery seems to be losing some traction.
Nothing relevant from Powell’s discussion on digital currencies other than the Fed has not made a decision on the issue. Later in the week, the release of advanced PMIs in the region is forecasted to grab all the attention.
What to look for around EUR
EUR/USD extends the bounce off last week’s lows in the 1.1690/85 band. The outlook on EUR/USD still remains constructive, however, and bearish moves are deemed as corrective only. Further out, the positive bias in the euro remains underpinned by auspicious results from domestic fundamentals (despite momentum appears somewhat mitigated in several regions), the so far cautious stance from the ECB and the solid position of the EMU’s current account.
EUR/USD levels to watch
At the moment, the pair is gaining 0.58% at 1.1781 and a breakout of 1.1830 (monthly high Oct.9) would target 1.1917 (high Sep.10) en route to 1.1965 (monthly high Aug.18). On the other hand, the next support is located at 1.1688 (monthly low Ot.15) followed by 1.1612 (monthly low Sep.25) and finally 1.1495 (monthly high Mar.9).
- The emergence of fresh selling around the USD exerted some pressure on USD/JPY.
- The risk-on mood, surging US bond yields might help limit losses, for the time being.
The intraday USD selling bias picked up pace during the mid-European session and dragged the USD/JPY pair to daily lows, around the 105.30 region in the last hour.
The pair failed to capitalize on its early uptick to three-day tops and witnessed a modest pullback from mid-105.00s amid the emergence of some fresh selling around the US dollar. Expectations of a COVID-19 vaccine by the end of this year dented the greenback's status as the global reserve currency, which, in turn, was seen as a key factor exerting some pressure on the USD/JPY pair.
However, the downside remains cushioned amid the upbeat market mood, which tends to undermine demand for the safe-haven Japanese yen. The global risk sentiment got a strong boost on the back of reviving hopes for additional US fiscal stimulus measures. The risk-on flow was evident from a strong rally in the US Treasury bond yields, which might help limit deeper losses for the USD/JPY pair.
Nevertheless, the pair has now drifted into the negative territory for the second straight session and remains at the mercy of the USD price dynamics/broader market risk sentiment amid absent relevant market moving economic releases from the US.
From a technical perspective, the emergence of some dip-buying on Friday favours bullish traders. However, the lack of any strong follow-through warrants some caution before positioning for any further near-term appreciating move. On the flip side, bearish traders might still wait for a sustained weakness below the key 105.00 psychological mark.
Technical levels to watch
The US Election season is now well underway, with Congressional and Presidential elections set for November 3. Strategists at HSBC believe there are three possible outcomes and analyze the investment implications of each scenario. The fourth, a Republican sweep, is considered highly unlikely as Democrats are expected to keep control of the House.
“Status quo: Victory for President Trump, with a split Congress. In this scenario, everything remains the same. This would be the most positive outcome for financial markets, simply because it provides the most continuity and clarity around policy.”
“A Biden victory with a split Congress. Expect a small negative impact for markets short-term. Biden is an advocate for higher taxes and greater regulation of key sectors like technology so markets may react negatively immediately. But fiscal stimulus may also increase, boosting the economy and helping markets recover. Moreover, if Republicans keep control of the Senate, many of Biden’s current proposals may not be approved by Congress. This ‘gridlock’ could ironically be good for markets in the months following the US Elections since Biden’s planned changes to the tax and regulatory environment would be more restricted and markets can focus instead on a strengthening economy supported by fiscal and monetary measures.”
“Democratic Clean Sweep: a Biden Presidency with a Democrat-controlled Congress. This would initially be negative for financial markets, but they could soon rebound (after an initial bout of volatility) if spending is raised to stimulate the economy.”
“Trump victory: positive for US domestic stocks, the energy sector and high yield bonds.”
“Biden victory: positive for European stocks and green investment themes.”
“Technology stocks: we are optimistic about tech stocks in either scenario. Even with a Biden victory, we think regulation will take time to materialise, while the accelerated digital adoption among businesses and consumers continues to make technology companies attractive. Overall, tech stocks have been volatile in recent weeks but we see recent profit-taking as temporary.”
- EUR/USD regains buying interest in the vicinity of 1.1700.
- Extra gains now target the area of recent peaks around 1.1830.
EUR/USD trades at shouting distance from the key barrier at 1.18 the figure following a recent drop to the 1.1690/80 band, where some solid contention seems to have turned up.
If the buying impetus picks up pace, then the pair should look to the minor hurdle at the 55-day SMA (1.1795) ahead of the more relevant resistance in monthly tops at 1.1830 (October 9).
Looking at the broader scenario, the bullish view on EUR/USD is expected to remain unchanged as long as the pair trades above the critical 200-day SMA, today at 1.1283.
EUR/USD daily chart
- DXY rapidly loses momentum and drops to multi-day lows.
- The next support of note comes in around the 93.00 yardstick.
Following another failure at the tough 6-month resistance line in the 93.80/90 band, DXY sparks a correction lower to the 93.20 region so far, or new 4-day lows.
A deeper pullback now threatens to drag the dollar to the area of recent contention in the 93.00 neighbourhood. Further south emerges the mid-September lows in the 92.70 region.
While below the 200-day SMA, today at 96.82, the negative view on the dollar is expected to persist.
DXY daily chart
- USD/CHF witnessed a dramatic turnaround from the 0.9160-65 heady supply zone.
- The emergence of some fresh USD selling was seen exerting pressure on the major.
- The risk-on mood-led upsurge in the US bond yields failed to impress the USD bulls.
The USD/CHF pair continued losing ground through the mid-European session and dropped to four-day lows in the last hour, with bears now looking to extend the momentum further below the 0.9100 mark.
The pair continued with its struggle to break through the 0.9160-65 supply zone and witnessed a dramatic intraday turnaround from one-week tops on the first day of a new trading week. The pullback was exclusively sponsored by the emergence of some fresh US dollar selling and failed to gain any respite from the prevalent risk-on mood, which tends to undermine the safe-haven Swiss franc.
The USD failed to capitalize on last week's gains of around 0.7%, instead witnessed some heavy selling on the back of the US political uncertainty and was seen as one of the key factors that prompted some aggressive long-unwinding trade around the USD/CHF pair. Even a strong intraday rally in the US Treasury bond yields did little to impress the USD bulls or lend any support to the major.
Meanwhile, reviving hopes for additional US fiscal stimulus package, along with expectations of a vaccine for the highly contagious coronavirus disease by the end of this year boosted investors' confidence. This, in turn, was evident from a rally in the equity markets, albeit failed to ease the intraday bearish pressure surrounding the USD/CHF pair.
There isn't any major market-moving economic data due for release on Monday. Hence, the USD price dynamics might continue to act as an exclusive driver of the USD/CHF pair's momentum. However, the risk-on flow might extend some support and help limit deeper losses, warranting some caution for bearish traders or positioning for any further depreciating move.
Technical levels to watch
The USD/JPY pair trades lower in range this Monday, as a better market mood plays against the greenback, but also means absent demand for the Japanese currency. Dollar/yen is neutral in the near-term and needs to leave the 105.00/80 range to show signs of life, FXStreet’s Chief Analyst Valeria Bednarik reports.
“Speculative interest continues to focus on a US stimulus package and other pandemic developments. US President Donald Trump has expressed its willingness for a larger stimulus package, although he still has to convince hard-line Republicans. Meanwhile, House Speaker Nancy Pelosi set a 48-hour deadline for US stimulus talks in a last-ditch effort to clinch a deal before the election.”
“Japan published the September Merchandise Trade Balance Total, which posted a surplus ¥675 B, below the expected ¥989.8 B but above the previous ¥248.6 B. Imports decreased by 17.2%, while exports were down by 4.9%. Also, China published the Q3 Gross Domestic Product. The report showed a 4.9% growth in the three months to September, below the 5.2% expected but better than the previous 3.2% Industrial Production and Retail Sales in the country improved by more than anticipated. The US won’t publish relevant data, but Fed’s Chair Jerome Powell is due to offer a speech.”
“USD/JPY is neutral in the short-term, as it has been hovering around 105.40 for over two weeks. In the 4-hour chart, the pair is above the 20 SMA but below the larger ones, which converge around 105.55. The range is defined by 105.00 to the downside and 105.80 to the upside. The pair needs to clear one of those two levels to return to life.”
Poland is at war with the coronavirus and, therefore, economists at Rabobank do not expect the EUR/PLN pair to push lower. The cross is trading just above 4.55 while the September high at 4.5970 is the key to watch.
“If Poles become seriously concerned about their health and impose their own much stringent restrictions on social distancing than the official measures, the second wave may have a similar negative impact on private consumption the first wave had in spring. In fact, it could be worse if death toll rises sharply and sentiment deteriorates significantly.”
“We remain of the view that it is too early to expect EUR/PLN to start trending lower as the shortterm outlook has deteriorated. The September high at 4.5970 is the key level to watch ahead of the March top at 4.6342.”
“It is also worth noting that remarks from Finance Minister Koscinski imply that the government has a higher tolerance for a weaker currency. Koscinski said that a weaker zloty is a boost for Polish exporters. When Poland’s main trading partners located in Europe are at war with the virus as well, a softer zloty is unlikely to stimulate exports substantially in the short-term.”
“We are of the view that over the mid-term horizon Poland would benefit from an undervalued currency to gain a competitive advantage over other countries from the region. The CEE region has an opportunity to increase its share in global trade by attracting companies who may be keen to protect against supply chain disruptions by on-shoring back to Europe.”
- EUR/JPY moves to multi-day highs and flirts with 124.00.
- Next of relevance on the upside emerges the 125.00 level.
EUR/JPY bounces sharply and regains buying interest on the back of the improvement in the risk complex.
If the buying pressure gathers extra traction, then the cross is expected to meet the next relevant barrier around monthly tops in the 125.00 neighbourhood (October 9).
In the meantime, while above the 200-day SMA at1 121.07, the outlook on the cross is expected to remain constructive.
EUR/JPY daily chart
USD/CNH is forecasted to test the 6.6710 level in the next weeks, noted FX Strategists at UOB Group.
24- hour view: “The sudden and sharp sell-off in USD that sent it plummeting to a low of 6.6872 came as a surprise. While oversold, the decline has scope to extend lower but for today, any weakness is likely limited to a test of the month-to-date low of 6.6788 (minor support is at 6.6850). On the upside, a break of 6.7120 (minor resistance is at 6.7050) would indicate that the current weakness has stabilized.”
Next 1-3 weeks: “After trading in a quiet manner for a couple of days, USD lurched lower on Friday (16 Oct) and came close to the bottom of our expected consolidation range of 6.6850/6.7850 (low of 6.6872). While downward momentum is beginning to improve, the recent weakness in USD has yet to fully unwind from oversold conditions. That said, short-term downward has improved and USD is likely to trade with a downward bias towards the major support to 6.6710. Overall, USD is deemed to be under pressure unless it can move above 6.7300 (‘strong resistance’ level).”
Sterling is indifferent for now as Brexit talks head into crunch period. The pound is holding its ground with cable trading above the 1.2900-level and EUR/GBP below the 0.9100-level. The lack of pound movement is somewhat surprising considering that Brexit trade negotiations have deteriorated following last week’s EU Summit, economists at MUFG Bank brief.
“The lack of pound weakness strongly suggests that market participants continue to believe that a trade deal will be reached and are not overly concerned by the latest political posturing. Michael Barnier and David Frost are expected to seek a way out of the latest Brexit impasse when they meet today.”
“Market participants have welcomed a report from Bloomberg that suggest British officials are prepared to water down the controversial Internal Market Bill in a move that could help improve trade negotiations with the EU.”
“If a last minute deal can still be reached before year end, the end of October/early November is now seen as the real final deadline for talks. In the meantime, we expect market participants’ confidence over a trade deal will be more severely tested. The risk of political miscalculation still exists even if it is in both sides interests to reach a deal.”
EUR/JPY spotlight remains on the early October low at 123.03/01, a clear break of which can see a fall back to a cluster of supports at 122.38/23, which includes the September low and 38.2% retracement of the uptrend from May, analysts at Credit Suisse apprise.
“EUR/JPY continues to consolidate around the potential uptrend from May and with the EUR TWI holding a top as looked for, we stay biased lower for a clear break and another test of the early October spike low at 123.03/01.”
“A clear break through 1.23.03/01 would warn of a move back to retest the 122.38 late September low, then more likely we think key retracement supports seen at 122.27/23 – including the 38.2% retracement of the entire rally from the May low – which we continue to look to remain a stronger floor. A break though would instead raise the prospect of a deeper setback to the ‘neckline’ to the June/July base at 121.35, with scope for the 200-day average at 121.08.”
“Immediate resistance stays at 123.73/78, with a break above 123.94/98 needed to ease the immediate downside bias for a move back to 124.16, then price resistance at 124.47/51.”
GBP/USD has been advancing amid hopes for a Brexit deal and fresh US stimulus but PM Johnson is losing political credit amid his handling of coronavirus while Senate Republicans do not back Trump on stimulus, FXStreet's Analyst Yohay Elam reports.
“On Friday, the UK Prime Minister Boris Johnson told the nation that it should prepare for a no-trade deal Brexit after EU leaders refused to cede ground nor intensifying talks with Britain. However, Bloomberg is reporting that officials are ready to back down on the controversial Internal Markets Bill (IMB) which knowingly violates the Withdrawal Agreement that Johnson signed last year. Is there room to be optimistic about Brexit talks? Perhaps, yet the recent past has shown that the mood around negotiations tends to shift quickly.”
“The recovery is at risk due to a sharp increase in COVID-19 cases, compounded by a political crisis. Infections are rising especially quickly in northern England, where long-run grievances of dictates from London have resurfaced. The public is tired of limitations and also disapproves of the government's handling of the crisis. In turn, that may lead to incompliance and further lengthening the pain for the economy.”
“President Donald Trump has also contributed to lifting GBP/USD by stating that he wants a larger stimulus package than Democrats. However, Senate Republicans have taken the opposite direction and back only a ‘skinny’ relief deal.”
Gold (XAU/USD) looks poised to retreat toward $1,875 as safe-haven flows provide a stronger boost to USD than the yellow metal, FXStreet’s Eren Sengezer reports.
“With US stimulus talks coming to a halt and Brexit negotiations set to continue for a few more weeks, coronavirus headlines, especially from Europe, are likely to impact risk sentiment next week and USD could continue to capitalize on flight-to-safety.”
“On the downside, the initial support aligns at $1,895 (20-day SMA) ahead of the key support that seems to have formed at $1,875 (Fibonacci 50% retracement of June-August uptrend/100-day SMA). A daily close below that level could open the door for further losses toward $1,848 (September 28 low).”
“Resistances are located at $1,920/25 (50-day SMA/Fibonacci 38.2% retracement), $1,950 (static resistance) and $1,980 (Fibonacci 23.6% retracement).”
We will focus on achieving a good agreement on Brexit, Maroš Šef?ovi?, European Commission Vice President of Interinstitutional Relations and Foresight said this Monday. We are ready to work until the last minute to get a good agreement for both sides on Brexit. Any agreement must be fair for both sides, Šef?ovi? added further.
Meanwhile, the British pound remained supported by reviving hopes of a last-minute Brexit deal. In fact, the GBP/USD pair was hovering near the top end of its daily trading range, around the key 1.3000 psychological mark.
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