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October 31, 2020

First, a review of last week’s events:

  • EUR/USD. It seems that the market has decided not to pay much attention to the US presidential election. Investors are much more concerned about what is happening with the second wave of the pandemic COVID-19 in the Old and New Worlds, and what steps will be taken by regulators on both sides of the Atlantic Ocean.
    In the United States - a record increase in the number of infected, which could lead to a collapse of stock markets, akin to March. However, in an effort to support the economy, the current White House administration is not yet going to introduce a lockdown, hoping for an early vaccination of the population. This decision was also influenced by the strong statistics of US GDP growth in the III quarter: plus 33.1% instead of minus 31.4% three months earlier.
    As for Europe, many countries, including Germany and France, have already begun to implement stricter quarantine measures. Moreover, although at the last meeting on Thursday, October 29, the ECB did not lower the already low interest rate, the head of the bank, Christine Lagarde, made it very clear that very serious steps could be expected from the regulator in a month and a half, aimed at easing the monetary politics and stimulating the economy of the Old World.
    Apparently, the European regulator decided to spend this time to determine the necessary amount of support for the economy, see how the situation with the coronavirus will develop and analyze the results of the US presidential election.
    The data released on Friday, October 30, showed the growth of GDP in the Eurozone in the III quarter from minus 11.8% to plus 12.7%. But this, firstly, is significantly lower than in the United States, and secondly, according to Lagarde, the prospects with the onset of COVID-19 are so gloomy that the ECB does not rule out a recession in the Eurozone in the IV quarter. As a result, the ECB will have to expand its QE program by another €500 billion in December, and, and maybe lower the interest rate on the euro.
    In general, the prospects for easing monetary policy in Europe seemed to investors much more real and large-scale than in the United States for now, which entailed a strengthening of the dollar by 220 points this week, a fall in EUR/USD to the level of 1.1640 and the pair's finish at 1.1645;
  • GBP/USD. Most experts (60%), together with graphical analysis on D1, had expected the pair to fall to 1.2860 within two to three weeks. However, it happened much faster: it found a local bottom at 1.2880 as early as on Thursday, October 29. And the reason for the fall of the pound is not so much in the increased risks of a second wave of coronavirus in the UK, but in Brexit, which remains the main topic in this case. And the situation in this case is not in favour of the British currency.
    Market hopes that the deal with Europe will be reached by the X hour in December this year are dimming like morning fog over London. And as former Bank of England governor Mark Carney used to say, a no-deal Brexit would come as a shock to the country's economy. And in anticipation of this shock, the pair set the last chord at 1.2950 after a week's hike to the south and a correction to the upper border of the descending channel;
  • USD/JPY. As we expected, the meeting of the Bank of Japan on October 29 went without the slightest surprises. In a country whose currency is a safe haven and protection from financial storms, everything must remain calm and quiet.
    More interesting is the tug of war between the dollar and the yen as safe haven currencies. And here, taking into account the pre-election and pandemic chaos in the US, 75% of experts, supported by 90% of oscillators and 100% of trend indicators on D1, preferred the Japanese currency as more stable. And they turned out to be right. As expected, having bounced off one significant level - 105.00, the pair made an attempt, the third one since July 31, to break through another significant level - support at 104.00. And again, it was unsuccessful. As a result, after the rebound, it returned to where it started from at the beginning of the five-day period, and completed the trading session at 104.65;

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 head of the ECB Christine Lagarde made it clear that her bank is ready to ease its monetary policy from next month. On the other hand, Donald Trump also speaks of possible support for the US economy. But the latter has elections on Tuesday, November 03, and all his rhetoric, as well as the rhetoric of his rival Joe Biden, can still be attributed to pre-election communications. it is hard to predict now what will happen in the US in reality, unlike in the Old World.
    It is just as difficult to predict what will happen with the pandemic. It was said at the beginning of the review that the current White House administration is very much counting on vaccinations and a medical solution to the problem. However, the situation may deteriorate sharply until this happens and the stock indices will go down, as it happened last spring.
    Then, against the backdrop of falling stock markets, the Fed began to flood the fire with cheap money, cut the interest rate, which led to the weakening of the American currency and the growth of the EUR/USD pair by more than 1300 points. Now, the EU is ahead of the United States in its measures of quantitative easing and the introduction of quarantine restrictions, which launched a sale in the euro last week and allowed the dollar to grow. However, it is clear that the weekly increase in USD by 220 points and the fall of 1300 points since March are two incomparable things.
    The main US elections are scheduled for next week. And, in case of Joe Biden's victory, and thanks to rising stocks of American companies and encouraging vaults from the front of the fight against COVID-19, the euro can very quickly regain its lost ground. We should also pay attention to the meeting of the US Fed on Friday, November 06. And even not so much to its decision on the interest rate, which will hughly likely remain unchanged, as to the Fed's comment on monetary policy, which, it is possible, will already take into account the results of the presidential election.
    Of course, as usual, data on the number of new jobs outside the US agricultural sector (NFP) will be released on the first Friday of the month. But, against the background of the above-mentioned events, it is unlikely they will have any serious impact on quotes.
    In the meantime, giving a forecast for the coming week, the majority of experts (65%) are looking south. The nearest support is the September 25 low 1.1610, the next target is zone 1.1500. This development is supported by graphical analysis on D1, 100% of trend indicators and 75% of oscillators on H4 and D1. But the remaining 25% of oscillators are already giving strong signals about the pair being oversold and the upcoming correction. The most likely rebound zone is 1.1600, the targets are 1.1700, 1.1750, 1.1830 and 1.1880;
  • GBP/USD. A number of experts do not exclude that the Bank of England may announce the next measures aimed at supporting the country's economy at the nearest meeting on Thursday, November 05. The list of possible steps includes an increase in bond purchases to £850 billion, and a decrease in the interest rate, which is 0.1% today. The last step is unlikely, though.
    The British currency is likely to remain under pressure until the meeting of the Bank of England. But we should not forget about the unresolved issue on the terms of Brexit, which will also push the GBP/USD pair down. That is why, giving the forecast for November, the majority of analysts (60%) sided with bears, heralding the pair a further decline first to support 1.2860 and then 100 points lower. The final goal is the September 23 low at 1.2675. Exactly the same picture is drawn by graphical analysis on D1. 70% of technical indicators on both timeframes, H4 and D1, are also colored red.
    A diametrically opposite position is now taken by 40% of experts. And here it should be noted that when switching to forecasting until the end of the year, the number of bulls' supporters increases to 70%. Apparently, the market still hopes that at the most critical moment the Brexit deal with the EU will be agreed and signed. The nearest resistance is zone 1.3000. It is followed by levels 1.3080, 1.3175 and 1.3265;

  • USD/JPY. Now this pair is sandwiched between two very strong levels - 104.00 and 105.00, and its further movement depends on the risk sentiment of investors. And those, in turn, depend on what will happen in the United States in the coming week.
    65% of experts, supported by 85% of indicators and graphical analysis on D1, believe that the pair will make another attempt to break through 104.00 support. But only 30 per cent are confident that it will be able to reach the 103.00 zone.
    The same graphical analysis for the first half of November draws the lateral movement in the corridor 104.00-105.00. In case of breaking through its upper boundary, the pair has a chance to gain a foothold in the next echelon, 105.00-105.80, and possibly reach the height of 106.10. However, the chances of doing so are currently estimated at only 15%;

NordFX EU


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