Forex FOREX PRO WEEKLY, October 05 - 09, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,038
Fundamentals

This week market were waiting for two major events - announcement of new stimulus pack for $2-3 Trln. from US government and NFP release. Also the first Trump - Biden debate round was on the table but it was less interesting for the markets. Additionally we've got bad surprise factor - positive CV19 test from D. Trump. This event definitely brings a lot of turbulence on the market. Even light form of infection lasts for about 2 weeks. It means that accurately till the election date D. Trump will be out of political sphere. This event could set new vector of market behavior and increase demand for safe haven assets.

News surfing

The dollar ticked up in Europe on Wednesday, recovering some losses after a two-day fall, as traders assessed a debate between President Donald Trump and his challenger, Joe Biden.

“I don’t think that the USD recovery is related to the TV debate, which has, if anything, increased US political risks and should weigh on the USD”, said Thu Lan Nguyen, a foreign exchange strategist at Commerzbank. “Instead, we are seeing a natural pullback after the sharp depreciation in the last two days, which I think is natural”, she said.



U.S. stocks futures and European stocks traded lower hours after the debate, marked by Trump’s repeated interruptions in a chaotic encounter in which the candidates battled over the president’s leadership on the coronavirus pandemic, the economy and taxes.

“I thought Biden did pretty well and so it’s no surprise to now see U.S. share market futures down as investors have gone back to worrying about a contested election, a delay in the outcome and whether Trump will go peacefully if he loses”, said Shane Oliver, head of investment strategy at AMP Capital.

German retail sales rose more than expected in August, raising hopes that household spending will power a recovery in the third quarter from the coronavirus shock. Switzerland’s KOF leading indicator hit a 10-year high in September, rising for the fourth time in a row as the economy extended its recovery from the coronavirus.

On Thursday the robust of U.S. data and hopes for U.S. fiscal stimulus left investors confident enough to seek out riskier currencies.

“There’s been certainly a dent in liquidity,” said Jeremy Stretch, head of G10 FX strategy at CIBS, which usually amplifies market moves. “But what we have seen so far is a generalised risk-on bias on optimism of a stimulus package in the U.S. “There’s a bit of a race for Congress to get something in the books before they leave for the recess for the election. If you’ve got airlines talking about laying off more than 30,000 workers, that doesn’t play as a positive narrative going into the election if you’re the incumbent,” Stretch said.

Republican President Donald Trump’s administration has proposed a coronavirus stimulus package to House Democrats worth more than $1.5 trillion, and hopes are rising that both parties will reach a compromise.

At the same time, jobs figures that showed U.S. private employers stepped up hiring more than forecast last month and that Midwest manufacturing grew faster than expected also fed into the optimism. However, U.S. employers announced another 118,804 job cuts in September, reports showed on Thursday.

The euro zone manufacturing recovery gathered pace last month, according to the final reading of the manufacturing PMI, which came in at 53.7. But official data showed unemployment across the region rose to 8.1% in August, as expected.

Euro/dollar could fall to $1.16 if the U.S. stimulus doesn’t go through, said Tim Graf, FX strategist at State Street.

U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin remained far from agreement on COVID-19 relief in several key areas on Thursday, after a phone discussion failed to bridge what Pelosi described as differences over dollars and values. Congressional Democrats have proposed a $2.2 trillion package to respond to a pandemic, while Republicans have suggested a $1.6 trillion response.

“Both sides have a lot of signaling, like peacocks walking around. If we don’t get anything before the election, we’ll get something after,” said Marc Chandler, chief market strategist, at Bannockburn Forex in New York. “But as we get into the new period, people still want to buy equities and to take on some risk,” he added.

That said, analysts remained skeptical about the dollar’s weakness and looked to fade the moves in risk assets overall.

“There is heightened possibility, especially in Europe, for more localized lockdowns,” said Simon Harvey, FX market analyst, at Monex Europe in London. “And that kind of risk-off filtering into the dollar is very much alive and kicking.”

Thursday’s U.S. data had minimal impact on currencies. If anything, they affirmed the tentative nature of the U.S. economic recovery. Data showed U.S. initial jobless claims fell last week but remained at recession levels, while personal income dropped in August. U.S. construction spending increased more than expected in August as historically low interest rates boosted homebuilding, but manufacturing activity unexpectedly slowed in September.

The dollar climbed on Friday as doubts crept in about the prospects of a new U.S. stimulus package and President Donald Trump entered quarantine after a close aide caught COVID-19, prompting investors to trim bets on riskier currencies.

“Wait and hope or wait and worry - the market is hovering between these two,” said Bank of Singapore FX analyst Moh Siong Sim, as the stimulus deal and a Trump virus test hang in the balance. Trump said on Twitter that he and first lady Melania would go into quarantine as they await their own test results after adviser Hope Hicks tested positive for COVID-19.

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have also so far failed to bridge what Pelosi described as differences over dollars and values.

Analysts view their talks as a last-gasp effort to secure relief ahead of the Nov. 3 election for tens of millions of Americans and business including U.S. airlines, which have begun furloughing over 32,000 workers.

Markets surely remain susceptible to the lack of a deal this side of the election,” said National Australia Bank’s head of foreign exchange strategy, Ray Attrill.

Investors are also watching with concern as coronavirus infection rates climb in Europe and the United States. In the United States, a record increase in new cases in Wisconsin on Thursday fanned fears of hospitals there being overwhelmed. Elsewhere, Madrid will become the first European capital to go back into lockdown in coming days to fight a steep surge in cases. Commodities, notably copper and crude oil, slid on persistent worries about global growth.

“Let’s not get ahead of ourselves in terms of market sentiment, and we think it is too early to re-embrace the risk-on / weak dollar dynamic just yet,” said OCBC’s Wu.

Sterling rose on Friday, after German Chancellor Angela Merkel said she had no breakthrough to announce from EU talks with Britain but remained optimistic that a deal on their post-Brexit trade relationship was still possible before year-end. Both British Prime Minister Boris Johnson and the European Union have set a mid-October goal for reaching a trade agreement, but the EU’s chief Brexit negotiator Michel Barnier suggested talks would continue up until the end of the month.

A more important meeting is set for Saturday, when British Prime Minister Boris Johnson will meet with European Commission President Ursula von der Leyen to discuss the next steps.

“This meeting is what sterling longs needed,” said Jordan Rochester, forex strategist at Nomura. Still, the pound is unlikely to strengthen by much until it becomes clear in which direction the talks are headed, he said. “With each headline you get sucked in to put trades on and within minutes a denial comes in and it turns either way.”

The pound had a tumultuous day on Thursday, rising and falling in response to Brexit-related news, as Britain and the EU neared the end of the last scheduled round of trade talks before the bloc’s leaders assess progress on Oct. 15-16.

Rochester has been advising clients not to trade sterling unless they have to.


Britain is struggling with a coronavirus-induced economic recession, another headache in addition to Brexit. The events industry warned Johnson on Friday that more than 90,000 people in the exhibitions business would be made redundant in the coming weeks unless he offered more support to replace a government job-furlough scheme.

More British companies reported a fall in sales over the past three months than an upswing, despite the lifting of lockdown restrictions for most parts of the economy, the British Chambers of Commerce (BCC) said on Thursday.

This week, guys net short position on GBP has increased significantly. Speculators and hedgers have opened large positions against GBP growth:

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U.S. job growth slowed more than expected in September as the recovery from the COVID-19 slump shifts into lower gear amid diminishing government money and a relentless pandemic, leaving many at the risk of being permanently unemployed.

In the last monthly employment report before the Nov. 3 presidential election, the Labor Department on Friday said nonfarm payrolls increased by 661,000 jobs last month after advancing 1.489 million in August. Economists polled by Reuters had forecast 850,000 jobs were created in September.

Overall reaction was muted on NFP numbers as investors treat it quite different. Besides, reaction was muted by news on D. Trump Cv19 test result. All in all, investors agreed that only news on stimulus pack could provide some positivity to the markets now.

Pre-election curveball

Where investors go from here could rest on how Trump copes with a disease that has killed more than a million people around the world, more than 207,000 of them in the United States. “This is a new uncertainty in a world which is mixed up already, which is not the best,” said Chris Bailey, a European strategist at Raymond James.

Markets may have been somewhat soothed by news that Trump’s opponent, former Vice president Joe Biden, tested negative for the virus after the two men met for their first debate on Tuesday night.

“If you have the two nominees both infected with COVID, that would really throw another huge uncertainty in the election and what happens next,” said Keith Lerner, chief market strategist at Truist/SunTrust Advisory. “We’ve never had something like that happen before.”

If Trump’s symptoms continue to be mild and he recovers quickly, the Republican president could use the experience to project his image as a fighter in the campaign against Biden. But investors might be more alarmed if the 74-year-old gets very sick and has to be hospitalized, as British Prime Minister Boris Johnson was in the spring, or the virus spreads to other members of Trump’s administration.

The news fueled the sense that investors are headed for a period of heightened volatility, with most agreed that markets will remain on edge for the foreseeable future amid uncertainty over the path of the pandemic as well as the election.

The moves were nowhere as large as during the depths of market mayhem in March but, with only a month left before the election, Trump’s news comes at a critical time.

David Arnaud, a fixed-income fund manager at Canada Life Asset Management, said that he had positioned for uncertainty in the coming weeks by increasing exposure to safe-haven assets such as the U.S. dollar, Japanese yen and U.S. Treasuries.

While MUFG strategists said Trump’s diagnosis could strengthen his argument of opening up the U.S. economy if he recovers quickly, some like Saxo Bank say Biden’s chances of a win had jumped, a negative for risky assets.

The news spread to betting markets. Betfair suspended betting on the outcome of the U.S. election on Friday, its website showed. Betfair had Biden’s probability of winning at 60% on Wednesday after the first debate on Tuesday night. Investors, who have driven a long rise in global equity markets, were already nervous given the uncertain prospects for more U.S. fiscal stimulus and a brief sell-off in high-flying U.S. technology shares last month.

“Whether it’s Trump or Biden, the biggest problem is uncertainty. As long as we’re uncertain about who will win the election, it is difficult for markets to truly settle,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.

CV19 situation

The world reached a grim milestone earlier this week, as confirmed COVID-19 fatalities passed the one million mark. However, there is some relatively positive news in that daily new deaths have remained broadly flat, despite daily new confirmed cases being near all-time highs. In other words, the case fatality rate has dropped substantially. Perhaps the main reason for this is that testing has increased significantly, and so the number of confirmed cases is now a better reflection of the spread of coronavirus within countries than it was in the spring. However, that is not the full story. Treatments are better now, including the use of dexamethasone, which can be seen in much reduced UK hospital fatality rates.
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In general, as Fathom consulting reports - The increase in caseloads has put governments in the unenviable position of trying to limit the damage to public health, while avoiding stringent measures to limit economic and social life. For the moment, European leaders appear to be stuck in the middle. Governments have opted for lighter measures such as enforcing the wearing of masks in more places, or putting a curfew on the hospitality industry. The evidence to back up such moves appears to be limited, although it is likely that they will have modest effects on both the spread of the virus and economic and social lives. Meanwhile there is increasing tension between national and regional leaders. Calls from central government for more stringent local measures have been resisted in Madrid and Marseille, while the opposite is true in London. If the pandemic situation continues to worsen, all leaders will be forced to come down more clearly on the side of mitigation or suppression. Suppression was the choice for almost all in the spring. It is unlikely that it will be again. European countries are increasingly becoming Swedish in their response

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CFTC Data

Speculators reduced their short dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday. The value of the net short dollar position fell to $30.47 billion in the week ended Sept. 29, compared with a net short of $33.60 billion the previous week. U.S. net shorts hit a more than nine-year high of $33.68 billion in late August.

Situation on EUR has not changed significantly as investors were closing as longs as shorts approximately at equal amount. It could mean that market is turning to indecision and "wait and see" mode as a lot of uncertainty stands around major driving factors - elections and stimulus. With such a background, rising of EUR in short-term stands under question.

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So, guys, let's see what we have on the table. The major uncertainty factor is D. Trump recovery as it makes direct impact on political and economical situation in US. The forecasts here could diametrical. In a case of fast recovery it could have no significant impact while in worst scenario US could appear on the edge of massive civil unrest. U.S. president testing positive, four weeks before elections, will cause far more ructions than the recent illnesses of the Brazilian or British leaders.

His quarantine period, as campaigning enters its final stretch, could help Democratic challenger Joe Biden cement his sizeable poll lead. But the possibility of Trump being hospitalised, any cabinet members falling ill, or calls to postpone elections will mean a major setback for stock markets.

A rush to hedge such risks is lifting gold prices as well as equity and currency volatility. In reality, all bets are off -- even Betfair has suspended punts on the election outcome.

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Second important issue on next week -

European finance ministers meet on Monday to discuss implementation of a 750 billion-euro coronavirus recovery fund, widely hailed as game-changing when it was announced earlier this year. But squabbles over disbursements threaten to sour the mood.

Germany is proposing a rule of law conditionality scheme for countries accessing funds from the bloc; some lawmakers favour an even stronger link. In July, the EU declined to settle details to avoid vetoes from Hungary and Poland. So the meeting could well see an outcry from those two countries.

The first bond sale to finance the SURE jobless scheme is weeks away, a step towards making the European Union one of Europe’s most significant borrowers. But delays to the fund spell bad news to economic recovery.

Finally, as the world economy recovers, a gulf is opening between manufacturing and services, the latter hit by renewed COVID curbs and the ending of emergency unemployment schemes. Following Europe’s sharp services PMI contraction, U.S. September data are due on Monday.

Remember, services such as retail, hospitality or transport account for two-thirds of U.S. jobs. But so far, unlike Europe or Japan, U.S. non-manufacturing activity remains in expansion territory, an index from the Institute of Supply Management showed.

That may change if additional assistance for the unemployed and small business doesn’t materialise -- personal income has already shown a drop. The House of Representatives finally approved a $2.2 trillion relief package, but the Republican-controlled Senate is expected to nix the plan.

Technicals
Monthly


This week monthly picture looks not as dramatically as last week, when we could get reversal month. Still, market barely escaped the reversal feature as September close was slightly above the lows of August. Anyway, we've got bearish engulfing pattern. We suggest that market has not priced-in yet totally the news on D. Trump infection. Even in the case of good recovery pace, market remains under pressure and perspective or EUR rising in nearest two weeks look doubtful.

As we've said last week - we do not deny overall positive picture here. Indeed, we have good acceleration to COP and overall context still remains bullish in long-term, keeping chances on action to 1.25-1.26 area. But appearing of engulfing tells that return on bullish road will happen probably later than it was suggested initially, as bearish pattern suggests compound downside retracement. This is the reason why we've said that retracement could double.

eur_m_05_10_20.png


Weekly

Here we're still watching for major support area, which is K-level around 1.1485-1.15. Last week we've discussed possible DRPO "Sell" pattern here, but in a new fundamental environment this is hardly possible. We suggest that direct drop down to support area is more probable, which should give us B&B "Buy" pattern around it. Long entry should be relatively safe here as weekly oversold provides additional support. MACD trend stands bearish.
eur_w_05_10_20.png


Daily

Few days ago we could suggest stronger upside retracement here, in shape of some AB-CD pattern. But now, as uncertainty level has increased, demand for safe haven should start rising as well. Besides, on Monday all eyes will be on EU stimulus discussion. The failure to reach agreement on this subject will have negative impact on the market.
Now price stands at natural resistance area, completing harmonic upside swing. Potentially, we're watching for XOP target as it perfectly corresponds to our weekly view. Here is our major task is to watch for early bearish signs that could point of reversal down. Or, conversely, on upward continuation. And intraday pattern that we've discussed on Friday should help us with this task.
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Intraday

To support bearish scenario market has to stay below 4H k-resistance area of 1.1765-1.1775.
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In means that the H&S pattern that we've discussed on Friday should start to work. Otherwise, breaking above 1.1770 area will mean that we still could get compound upside retracement in a shape of AB=CD pattern that could lead EUR at least to 1.1850-1.19 area. Currently the shape of H&S pattern looks tricky with too slow action on the right arm and its blur shape. But let's wait for Monday's open as some news could be released through weekend.

eur_1h_05_10_20.png


That's being said, although long-term picture still looks positive for the EUR, recent events could bring volatility and chaos on the market in nearest weeks or even months, depending on the progress of the situation. As it is relatively clear that we do not get either US stimulus or breakout in Brexit negotiations, the last major factor is US elections with all accompanied questions. While situation probably will remain tricky within few weeks, demand for safe haven assets will rise. It means that hardly we will see meaningful EUR rally soon.
 

Sive Morten

Special Consultant to the FPA
Messages
14,038
Morning everybody,

So, market fills the scenario that we've discussed in weekly report. As 1H H&S pattern has failed and price has broken through 1.1750 major resistance, we could consider more extended upside action. Still, taking in consideration that price action is gradual, we still treat this action as retracement by far. Daily trend has turned bullish, price is not at overbought:
eur_d_06_10_20.png


On 4H chart we have the major pattern to consider. This is our mentioned upside AB=CD pattern. Its target creates Agreement resistance with major 5/8 level. All together they form "222" Sell pattern. This is the next level to watch for bears.
eur_4h_06_10_20.png


If you trade on intraday charts, and search chance to go long - here is possible setup. On 1H chart market has hit COP target of the same AB-CD pattern. Thus, some minor pullback is highly likely. Most probable area of pullback is 1.1740-1.1760 - there are two levels around and this is broken K-resistance on 4H chart. Deeper retracement looks a bit irrational in current situation, especially after tactical acceleration that we see during breakout of 1.1750.
eur_1h_06_10_20.png


That's being said - we think it is not time for shorts right now, next level that is suitable for this purpose stands around 1.1865. For long entry it makes sense to consider 1.1740-1.1760 range on 1H chart.
 

Sive Morten

Special Consultant to the FPA
Messages
14,038
Morning everybody,

While EUR is showing bounce from the level that we've specified yesterday, let's take a look at GBP as it could give us few trading setups. First is, on daily chart we see appearing of reversal candle. It means that downside action should be slightly deeper. And it is easy to recognize finally the H&S pattern that we've discussed last week:
gbp_d_07_10_20.png


As we've said, price could reach 1.30 and then turn down. Now this process stands under way. Following to the pattern's harmony, the right arm's bottom should be somewhere around 1.28. This agrees with idea of daily reversal bar.
gbp_4h_07_10_20.png


On 1 H chart price now stands at 3/8 support, showing minor pullback. Despite that we have here minor ab-cd pattern and its xop stands between the levels, it seems that we should get AB-CD pattern of a bit greater scale that should lead price somewhere to 1.28 area. Current pullback could be a BC leg.
gbp_1h_07_10_20.png


Thus, bears have three potential setups. Very short-term - sell on top of BC leg (probably around some Fib level) with target around 1.28. Second - either H&S failure, if price starts dropping below 1. 27-1.2750 area or, alternatively when it will be completed somewhere higher.

For the bulls task is simple - watch for 1.28 area whether it will be suitable for long entry.
 

Sive Morten

Special Consultant to the FPA
Messages
14,038
Greetings everybody,

Today again - on GBP, as EUR stumbles after good start on Monday... GBP in general, is following to our trading plan that we've specified yesterday. The center plays stands for reversal bar on daily chart that suggests deeper downside action in nearest time:
gbp_d_08_10_20.png


Despite this moment, in short-term perspective, we're mostly watching for bullish pattern, which is 4H reverse H&S, but starting point stands a bit lower, around 1.28. The harmony of the pattern and daily reversal bar makes us think that we should get some downside AB=CD pattern to 1.28, where intend to consider taking long position:
gbp_4h_08_10_20.png


On 1H chart price has completed minor XOP that we've specified yesterday and shows the pullback, flirting with 5/8 Fib level. This is important moment, because our scenario suggests that something around price should start dropping again. In general, this is not vital moment, because we do not intend to trade GBP short, but we would like to, as bullish context looks attractive.
If you still intend to trade it down to 1.28 target - drop time frame to 5-15 min and watch for bearish reversal patterns. Others, just be patient a bit, and let see how it will turn.
gbp_1h_08_10_20.png



On EUR, by the way, the bearish grabber could be formed on 4H chart that indirectly supports idea of downside action here as well...
 

Sive Morten

Special Consultant to the FPA
Messages
14,038
Morning everybody,

Let's today finally take a look at EUR, although it stands at the same level as in the beginning of the week. In fact, we've got only single setup on Monday - for taking long position. It stands in positive area so protect it with b/e stop. At this moment no other interesting setups exist.

On daily chart price is still trying to break through 1.1775-1.18 resistance, but unsuccessful. Overall price action is gradual and choppy which is more typical for retracement type of action. At some moment retracement should be over and downside action continue. Because on the weekly chart the whole upside action stands in the range on nasty black candle. Although EUR could climb higher, but also some signs exist that retracement might be over right here:
eur_d_09_10_20.png


Once market has broken through 1.1750 K-resistance and erased potential H&S pattern on 1H chart we set this scenario with upside action to 1.1850 and it would be great if market will get there. In this case we will get nice chance for short entry (at least short-term) with "222" sell and Agreement resistance on the back. Also, minor butterfly could finalize this action.
At the same time, now we have bearish grabber and bearish divergence right around 1.18 resistance. Market is trying to pass through it, but it is not the fact that it will happen:
eur_4h_09_10_20.png


On 1H chart price also can't follow in the tempo of rising channel, stuck in the middle of it. Currently is nothing terrible has happened yet, but keep an eye on K-support, it is vital for short-term context. If EUR will break it down, it tells that upside retracement is over.
eur_1h_09_10_20.png


Other things mostly stand the same - bulls could hold longs with b/e stop, bears should wait either of reaching 1.1850 resistance or 1.1750 downside breakout.
 
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