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October 17, 2020

First, a review of last week’s events:

  • EUR/USD. The market is now ruled by two main factors: the second wave of the COVID-19 pandemic and the upcoming November 3 presidential election in the United States.
    A rise of nearly 900,000 in applications for unemployment benefits showed that the labor market and the U.S. economy need more stimulus measures. And although, according to US Treasury Secretary Stephen Mnuchin, an agreement on such measures between Democrats and Republicans before the election is unlikely, negative statistics have tempered greatly the market risk appetite and pushed down stock indices such as the S&P500. This clearly benefited the US currency: by Thursday, the dollar gained 135 points, and the EUR/USD pair reached a local bottom at 1.1685. This was followed by a rebound downward, and the pair completed the five-day period at 1.1715;
    It is possible that the “American” would continue to strengthen its position, but the “European” is actively helped by the confident development of the economy of China and the ECB, which is clearly not going to increase the volumes of its quantitative easing (QE) program.
    The number of COVID-19 cases in Europe is growing, which could provoke the introduction of new strict quarantine measures that restrict economic activity. However, after the adoption of a program to support the European economy in the amount of €1.8 trillion at the end of July, the European Central Bank does not want to boost developments and expand its monetary stimulus program. At the moment, less than half of the funds have been spent within the framework of the already operating QE program, therefore, it simply does not make sense to talk about new incentives, according to the Vice President of the ECB Luis de Guindos;
  • GBP/USD. The uptrend of the first 12 days of October is over, and the pair has moved to the sideways movement in the range 1.2860-1.3080. Moreover, the end of the week was left to the bears, who managed to put the final point at the level of 1.2915. An obstacle to the growth of the pound was the introduction of additional restrictions due to the coronavirus in London, as well as the statement of the EU leadership that the bloc, although it seeks a fair partnership with the UK, will not compromise at any cost;
  • USD/JPY. This pair ended the weekly session at 105.40, in a zone of a very strong mid-term support, which has stopped its decline many times over the past 12 weeks. And now the question of what a safer haven for investors is, the dollar or the yen, remains open. The competition continues;

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. When looking at the chart of this pair, it becomes clear to the experienced trader that oscillators either on H4 or on D1 are unable to give any accurate predictions now. Among trend indicators, a certain advantage is on the red side - 70% on both timeframes. However, even despite the support of graphical analysis on D1, technical analysis cannot guarantee the continuation of the downtrend. The key word, as usual, is with fundamental analysis. Or rather, with those factors that were mentioned at the very beginning of the review.
    Of course, it may be that we will hear something new next week. It seems that the main goal of the heads of regulators is to achieve their goals solely with words. Speeches by the head of the ECB Christine Lagarde are scheduled for October 18, 19 and 21, while the speech of the head of the US Federal Reserve Jerome Powell will be heard on Monday, October 19. But that's not all — a debate is due to be held by US presidential candidates Donald Trump and Joe Biden on Friday October 23. Only 10 days are left until the “X” hour, so the duel of politicians promises to be unusually hot.
    Both Lagarde and Powell's speeches and the White House contenders’ debate could have a heavy impact on investor sentiment. And if the fall in stock indices continues, it will cause further strengthening of the dollar and further movement of the EUR/USD pair to the south. 60% of analysts agree with such a development, pointing out September lows around 1.1610 as a target. The remaining 40% believe that, having bounced off the level of 1.1715, the pair will go up. The nearest resistance levels are 1.1755 and 1.1825. The following barrier is located in zone 1.1900;
  • GBP/USD. Not only the heads of the ECB and the Fed, but also the Governor of the Bank of England Andrew Bailey will talk a lot in the near future. His speeches are scheduled for October 18 and 22. However, he will not be the main newsmaker. The pound still has potential for further growth, but this requires a real breakthrough in the negotiations between the UK and the European Union on Brexit terms. And they, apparently, will drag on for another two weeks, or even longer. The fact that the Prime Minister of the United Kingdom Boris Johnson is not going to move away from the negotiation process is a good signal and gives us hope that an agreement with the EU can still be reached. But not in the coming days. Therefore, 70% of experts, supported by graphical analysis on H4 and D1, as well as 80% of oscillators and 90% of trend indicators on H4, believe that the GBP/USD pair may well fall to the 1.2700 zone in the coming week. Supports are 1.2845 and 1.2770.
    The remaining 30% of analysts hope that the pair will remain within the boundaries of the channel 1.2845-1.3035 and will soon return to its upper border. The next resistance level is 1.3080;
  • USD/JPY. Currently, the Japanese currency is supported by falling risk sentiments and rising yields on safe bonds. However, the yen is close to the key support at 105.00, breaking through which is a very difficult task. Just look at the chart for the last 12 weeks. And the battles for this level in 2018-19 left many memorable, non-healing scars on the bodies of bears.
    The majority of experts (70%), supported by 75% percent of oscillators and 90% of trend indicators on D1, believe that the pair will still be able to overcome this barrier within two to three weeks and approach the September 21 low 104.00 at least for a time. Supports are 105.00 and 104.45.
    As for the remaining 30% of analysts and graphical analysis, they forecast that the dollar will grow, and the USD/JPY pair is expected to break from the horizon of 105.00 and rise first to resistance of 106.00, then to 106.40, and finally to a height of 107.20;

NordFX EU


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