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October 10, 2020

First, a review of last week’s events:

  • EUR/USD. We have repeatedly written about the ECB's fear of strengthening the euro as it poses a threat to the recovery of the Eurozone economy. However, neither the head of the ECB Christine Lagarde nor her colleagues want to start a currency war with the US Federal Reserve. Therefore, try to turn the market around not by actions, but by words.
    The minutes of the September meeting of the ECB were to convince investors that, saving the economy from the second wave of COVID-19, the regulator could in the near future expand the quantitative easing (QE) program, and even reduce interest rates. And, judging by the quotes, at first the market believed in all this: EUR/USD pair went down, and the dollar went into growth. But all this did not last long: having lost about 80 points and reaching the 1.1725 zone, the pair turned around and went north again, ending the five-day period at 1.1825. As a result, it returned to the central zone of the side channel 1710-1.1920, the boundaries of which were outlined at the very beginning of August.
    Most likely, such a change in trend is associated with forecasts regarding the results of the US presidential elections on November 3. Expectations of Joe Biden's victory pulled up the stock market and triggered another fall in the American currency. So, the S&P500 rose by 265 points in a week and a half, and the dollar shrunk by 210 points in two weeks. Although, it's likely that everything is built on emotions. And it is unlikely that anyone can explain why Biden will be better and more useful for the U.S. economy than Trump;
  • GBP/USD. In general, the dynamics of this pair repeats the movements of EUR / USD, which suggests that everything depends not on the behavior of the common European or British currencies, but on the US dollar at the moment.
    Macro statistics characterizing the state of the British economy turned all red. Data from the construction sector, industrial production, GDP - everything went into negative territory. There has been no particular progress in the Brexit negotiations. But the market did not react to these data in any way. And, if we look at the results of the week, the pound, albeit a little, bypassed the dollar, having strengthened by over 100 points. This is due to the growth of the US stock market, which caused a general weakening of the American currency (the DXY index fell from 94.64 on September 25 to 93.06 on October 09). The GBP/USD pair placed the finishing chord at the1.3045, in the Pivot Point zone of the last ten weeks;
  • USD/JPY. Only 15% of analysts voted for the growth of this pair in the previous forecast. However, at the beginning of the week it listened to them and went north to the zone 106.00. Apparently, investors did not want to seek refuge in the quiet Japanese harbor and preferred risky sentiments. However, the situation calmed down a bit, the pair switched to a sideways trend, and it returned to the area where it had repeatedly stayed from September 25 to October 07 at the end of the week - to the zone 105.60. So the result of the last two weeks can be safely called zero;

As for the forecast for the coming week, summarizing the views of a number of experts, as well as forecasts made on the basis of a variety of methods of technical and graphical analysis, we can say the following:

  • EUR/USD. So, the next election of the President of the United States is getting closer, hour X is scheduled for November 03. But what can it change radically? In theory, we are talking about the normalization of monetary policy, which should strengthen the US currency. But in practice, the Fed's capabilities are already severely limited.
    The Wall Street Journal estimates that most analysts (57%) believe that no matter who ends up in the White House, the labor market will not be able to return to full employment until 2023 at the earliest. And this increases the likelihood of a weakening dollar and further growth of the pair EUR/USD. And here it is again just right to start talking about the currency conflict between the Fed and the ECB.
    As already mentioned, the European Central Bank does not like a weak dollar and a strong euro at all, and it would be glad if the pair turned south. Among the arguments that can convince investors to do this, experts most often refer to the serious deterioration of the epidemiological situation with COVID-19 in Europe, as well as negative forecasts on the state of the Old World economy, which could lead to an expansion of stimulus measures by the ECB, including an interest rate cut and a build-up to the QE program.
    And another strongest factor is the growth of the US stock market. As long as it grows. But if suddenly, on the eve of or following the results of the presidential election, investors begin to massively fix profits, this will lead to a sharp rise in the dollar and a fall in the euro and other currencies.
    Among the most important and interesting events of the coming week, one can note the speeches of the head of the ECB Christine Lagarde on October 12 and 13, the publication of macro statistics on the US consumer market on October 13 and 16, as well as the debate of the candidates for the President of the United States, which will be held at the end of the working week, on Friday October 16
    - EUR/USD. 100% of the trend indicators on H4 and D1 are colored green. Among the oscillators, the majority (75%) also point north, but 25% are already giving signals that the pair is overbought. Graphical analysis indicates that the pair will move in the 1710-1.1920 channel for the next few days, after which it will drop to the lows of September 25-28 in the 1.1600 zone. As for the experts, most of them (60%) believe that the pair, before going down, will first rise to the upper boundary of the specified channel. The remaining 40% expect it to fall sharply to 1.1600;
  • GBP/USD. Here, as in the case of other currencies, the forecast is based on the growth and fall of investors' risk appetites. GBR100 was able to grow following the American indices. And if the US stock markets continue to rise and the dollar to fall, then the GBP/USD pair will continue to grow. If mass profit-taking starts on stock markets in the run-up to the presidential election in America, then we can expect a downward turn. A lull, accordingly, will cause a lull.
    As for technical and graphic analyses, their readings also coincide with those of their “colleagues” in the EUR/USD pair. The cancellation of the correlation of these two pairs can occur only for two reasons: 1) if something extraordinary happens in the negotiations between the EU and the UK on Brexit, or 2) if the ECB nevertheless decides to take decisive new steps to support the Eurozone economy, and the Bank of England, as they say , "remain as is", that is, does not take any additional incentive measures. The next speech by the head of this regulator, Andrew Bailey, is scheduled for Monday, October 12, and it is not excluded that he will outline the priorities of the Bank of England for the next period.
    As was said, the pair finished last week in the medium-term Pivot Point zone at the 1.3045 horizon. The nearest support is 1.3000, the next ones are 1.2840, 1.2760 and 1.2675. Resistance levels are 1.3120, 1.3185 and 1.3265;
  • USD/JPY. Considering the result of the past two weeks, there is no clarity with the near future for this pair, and the opinion of experts (50% to 50%) does not allow any conclusions to be drawn. Although, if you look at the readings of graphical analysis and oscillators on D1, the advantage is still with the bulls, and there is an opportunity for the pair to rise first to the resistance of 106.00, then to 106.40, and finally to the height of 107.20.
    If we go from the weekly scenario to the monthly one, then there is a clear advantage among analysts, on the contrary, on the side of the bears. 70% of them expect the yen to strengthen and the pair to decline to the September 21 low at 104.00. Supports are 105.00 and 104.45;

NordFX EU


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