Forex FOREX PRO WEEKLY, October 26 - 30, 2020

Sive Morten

Special Consultant to the FPA
Messages
14,041
Fundamentals

Despite that we're closer and closer to elections, this week hot topic is stimulus pack. All major news agencies keep this topic as a major headline in relation to financial markets. While in the beginning of the week markets have got fresh injection of optimism, but after few days enthusiasm starts exhausting and totally blown down on Friday. At the same time there are a lot of other topics on the table that should come on the first stage within next 1-2 weeks.


Stimulus soap opera

Just to finish the stimulus topic - U.S. House Speaker Nancy Pelosi said on Friday it still was possible to get another round of COVID-19 aid before the Nov. 3 general election, but that it was up to President Donald Trump to act, including bringing along reluctant Senate Republicans. Trump and Treasury Secretary Steven Mnuchin countered that Pelosi must compromise to get an aid package, saying significant differences remained between the Republican administration and Democrats.

“Now we’re talking and we’ll see what happens but at this moment I would say that I actually think Nancy would rather wait ‘til after the election,” Trump told reporters in an Oval Office appearance together with Mnuchin.

If she wants to compromise, there will be a deal,” Mnuchin said.


Pelosi, the top Democrat in Congress, has been negotiating with Mnuchin to try to reach an agreement that could be worth around $2 trillion before the presidential and congressional election. Congressional committees and staff will work on a possible deal through the weekend, and Pelosi and Mnuchin “will speak again once additional progress is made,” Pelosi’s spokesman, Drew Hammill, wrote on Twitter Friday evening.

White House Chief of Staff Mark Meadows late on Thursday said that negotiations with lawmakers on a coronavirus relief package, now totalling $1.9 trillion, have entered a new phase with congressional committee chairs meeting and the two sides trading technical language.

“The stimulus talks are continuing so the market is happy about that even though we probably won’t get anything done before the election,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.

At the White House, S. Mnuchin said there had been lots of progress but “significant differences remained,” while Trump reiterated that he did not support more federal financial aid for U.S. states and cities run by Democrats.

And here is the core of contradictions, guys:

“She wants to bail out poorly run Democrat states - they’re poorly run both in terms of crime and in terms of economics. And we just don’t want that. We want COVID related,” Trump said.

Still the market believes a stimulus deal is going to get done: The only question would be size and timing, analysts said.


“This has been a stimulus-driven market for several weeks -- today is more evidence of that,” said Lindsey Bell, chief investment strategist at Ally Invest, in Charlotte, North Carolina. “The market believes we are getting a stimulus. But it wants to know when it’s going to pass because it’s going to take time for the money to flow out,” she added.

Even if a deal is not reached, investors see a jump in spending as likely if Democrat Joe Biden wins the Nov. 3 election, with a larger bill more also more likely if Democrats win control of the U.S Senate.

“The market’s playing out inflation expectations here, based on expectations that there’s more stimulus and, if Biden gets in, that they will do even more spending than we’ve done under the current administration,” said Lou Brien, a market strategist at DRW Trading in Chicago.

New fiscal spending should improve the U.S. economic outlook and raises the prospect of higher inflation, which would send yields higher. The Federal Reserve has also said that it will allow inflation run hotter than previously before tightening monetary policy.

If the election result is delayed it could dampen risk appetite and increase demand for U.S. bonds (and dollar), said Zachary Griffiths, an interest rate strategist at Wells Fargo in Charlotte. "Over the next couple of weeks we think the risks are to the downside, particularly the long term yields given the big back up that we’ve seen for the past couple of weeks," he said.

As a result, The dollar weakened slightly against a basket of major currencies on Friday amid uncertainty over a new round of stimulus ahead of the upcoming U.S. elections, with the greenback set to record a weekly decline of around 1%. The market, pricing in a Biden victory, still expects a stimulus package by the end of the year, said Joe Manimbo, senior market analyst at Western Union Business Solutions.

“So risk appetite has held the upper hand this week on hopes for a bold stimulus and that has kept the dollar on its back foot,” he said.

Trump and Democratic challenger Joe Biden squared off on Friday in a less raucous debate than their previous meeting, but tensions were high, with a focus on the handling of the COVID-19 pandemic and plenty of personal attacks thrown into the mix.

The dollar is likely to be stuck in a holding pattern in the near term, given the risk that the election could be contested, and as the market waits for clarity on the fiscal aid package, said Boris Schlossberg, managing director of FX strategy at BK Asset Management. “The bet here seems to be that growth returns with a vengeance in 2021, so you get these risk-on flows and that’s why the dollar remains relatively weak, and that’s why the euro, despite all the problems in Europe, the millions of COVID cases in Spain and in France, refuses to really collapse,” said Schlossberg.

EU Situation

In Europe, business surveys in France and Germany showed the impact of the second wave of COVID-19 infections in the euro zone’s two biggest economies, threatening to derail the bloc’s nascent recovery. Euro zone economic activity slipped back into decline this month as a second wave of the coronavirus sweeps across the continent, heightening expectations for a double-dip recession, surveys showed on Friday. Nearly 90% of economists polled by Reuters this week said there was a high risk the coronavirus resurgence would halt the nascent euro zone economic recovery

“The euro zone PMI confirms that the second wave of the coronavirus is weighing more and more on the economy. A double-dip in the fourth quarter is becoming more likely at this rate,” said Bert Colijn at ING.

IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, fell to 49.4 from September’s final reading of 50.4.That was below the 50-mark separating growth from contraction and only fractionally better than the 49.3 predicted in a Reuters poll. That headline PMI was dragged down by the service industry’s PMI, which sank more than expected to 46.2 from 48.0.

“The further decline in the euro zone Composite PMI in October adds to the evidence that the second wave of infections, and the new wave of containment measures, is taking a heavy toll on the economy,” said Jack Allen-Reynolds at Capital Economics.

Friday’s surveys showed the bloc’s economy is running at two speeds, with manufacturing benefiting from strong global demand but services - which make up the bulk of the economy - struggling to remain active as lockdowns force consumers to stay home and businesses to close.

A 750 billion euro stimulus plan agreed by the European Union in July to support its suffering economies will be delayed, a senior diplomat said on Thursday, which is also likely to have a negative impact on sentiment.

Europe faces a lengthy battle against the coronavirus at least until mid-2021, France warned on Friday, as anxious governments introduced ever more restrictions to curb the disease once again accelerating through the continent. Europe’s daily infections have more than doubled in the last 10 days, reaching a total of 7.8 million cases and about 247,000 deaths, as a second wave right before winter has crushed economic revival hopes.

“When I listen to scientists I see that projections are for at best until next summer,” French President Emmanuel Macron said during a visit to a hospital near Paris.

France, which passed 1 million cases on Friday with a new record daily total of more than 42,000, has been one of the hardest-hit nations and has imposed curfews.
COVID-19 patients already occupy nearly half of France’s 5,000 intensive care beds and one of the government’s advisers warned the virus was spreading more quickly than in spring. Further curbs are underway by governments desperate to avoid a repeat of blanket lockdowns that brought some control in March and April but strangled economies.

In Spain, which passed the 1 million case milestone earlier this week, two regions, Castilla and Leon and Valencia, urged the central government to impose night-time curfews. Official data show Spain already has the highest number of cases in Europe but the real picture may be even worse according to Prime Minister Pedro Sanchez, who said a nationwide antibody study suggested the total may be over 3 million.

How long governments will be able to resist lockdowns is uncertain. The governor of Campania, the southern Italian region around Naples which has already imposed a curfew and shut schools, called for a total lockdown, saying “half measures” were not working.

“It is necessary to close everything, except for those businesses that produce and transport essential goods,” Vincenzo De Luca said.

Italy’s top public health body said the situation was approaching critical levels in many regions and said complete tracing of contact chains had become impossible.
With its own hospitals under increasing strain, the Netherlands began transferring patients to Germany again, after dozens were treated in its larger neighbour during the earlier phase of the crisis.
1603531922460.png

But public support seen at the start of the crisis has steadily eroded amid a welter of often contradictory public information on the latest restrictions and growing fears about the economic costs. Underlining the threat, a business survey showed service sector companies cutting back heavily as more and more consumers stayed home, raising the likelihood of a double dip recession this year in Europe’s single currency zone.

Brexit round

Britain and the European Union have made good progress in talks on a last-minute trade deal that would stave off a tumultuous finale to the five-year-old Brexit crisis, but fish is the biggest sticking point. After some progress on competition guarantees including state aid rules, the hardest issue remains fish: Johnson has insisted on taking back control over its waters while the EU wants access to the fishing waters.

Ireland’s foreign minister said he believed Britain and the EU could reach a trade deal now the talks were back on track, but added the issues of fair competition and fisheries hampering an accord were “still very much there”. “I think a deal can be done... What we have now, after all sorts of politics being played, is a process that is back on track,” Simon Coveney said, adding, however, that both sides remained “miles apart” on fishing.

Asked if there would be a deal, Britain’s junior finance minister Stephen Barclay said he hoped there would be but fishing was a key sticking point.

“(The) deal needs to reflect that fact that we’re leaving the EU, we will regain control of our fisheries,” he told Sky.At a briefing with diplomats in Brussels on Wednesday, Barnier said he was only worried about fish, one person who participated in the closed-door meeting said. “Fish is now the thing to tackle. The other elements seem doable, more or less,” the diplomat said.

While fishing alone contributed just 0.03% of British economic output in 2019, it is an emotive subject as many Brexit supporters see it as a symbol of the regained sovereignty that leaving the EU should bring. Combined with fish and shellfish processing, then the sector makes up 0.1% of UK GDP. For French fishermen, British waters are crucial and being locked out would cause trouble for French President Emmanuel Macron.

As a result, in recent research Fathom consulting also has change the tone of statement. While they still keep "V"-shape recovery as central scenario, they nevertheless acknowledge risk rising of flatter recovery:

So far, the economic recovery has been about as V-shaped as could have been expected in many places (see the chart below, for those countries that report monthly GDP). But the recent spike in cases in Europe — and subsequent increase in localised lockdowns (with national lockdowns not ruled out) — increases the possibility of the final stages of a V-shaped recovery not materializing, or indeed the prospect of another letter forming. But there are three reasons we are sticking with a V (or at least a V drawn by someone with a shaky hand) as our central case for now. First, new restrictions are likely to be less onerous than they were in Q1 and Q2 this year. Second, many people have adapted their routines to live with lockdown measures (i.e. find ways to work from home and to consume despite restrictions). Third — and this one is key — government support packages remain generous.
Of course, a further rise in new case numbers and restrictions will lead to more business closures and an increase in unemployment, but fiscal support packages will not only soften the blow, they will create pent-up demand for spending next year (second chart below, which shows the bump in post-transfer income in the US earlier this year). We will be keeping a close eye on developments, including case numbers, government restrictions and offsetting support measures, and will be updating our forecasts accordingly.


CFTC Data

Recent report shows nothing exceptional. Net position on EUR barely has changed as well as open interest. As a lot of important factors stand from both sides, investors do not hurry up with new positions taking.
1603532218368.png

Source: cftc.gov
Charting by Investing.com


Next Week to watch


In the week ahead, U.S. third-quarter gross domestic product data is due on Thursday. “The report is likely to show the steepest quarterly expansion ever as the economy reopened following lockdowns which severely restricted activity in Q2,” National Bank of Canada said in a note.

The European Central Bank meets Thursday and there’s one key question for markets -- will the ECB deliver more stimulus in December?
There’s no imminent pressure to act since emergency stimulus was ramped up not long ago. But the case for more action is getting stronger by the day as a second wave of COVID-19 inflicts new restrictions and economic pain.

Many economists expect the ECB to ramp up quantitative easing in December when its latest forecasts are due. Preliminary October euro zone inflation data next week may also guide investors. Any signals from the ECB that the outlook has deteriorated would reinforce the case for a December stimulus package - an early Christmas gift to markets perhaps.

1603531237260.png



So the combination of factors that we've mentioned above makes us to be doubtful on perspective of EUR rally in October-November. Speaking on stimulus - there are only Tuesday -Wednesday when deal is possible. These sessions will be crucial. If no deal will be achieved, the counterparties will give up as it will be too close to elections already. Besides, Congress is needed to be pushed every time by D. Trump, as most congressmen have negative view on this deal with Democrats. But D. Trump will be very busy on coming week... It makes us thing that 80% we will not get any deal, and even higher if we will not get the deal on Tuesday.

Second, CV19 situation enters into the upside spiral as October-December is historical periods of rising virus infections of different kind. It means that situation will not become better, at least till January. On a background of uncertainty in elections, as we suggest that results announcement will delay, the end of financial year and Holidays in November will make investors to pay more attention to safe haven assets that should support demand for US Dollar.

Hardly we will get any new stimulus promise from ECB as well. Because situation is just has started to become worse and has not reached the peak yet. ECB currently has no reasons to announce new supportive measures. Although in December they likely to appear.

Concerning Biden's leadership, we already said last time - it could be Trojan horse for Democrats. Leadership is based on polls of news agencies that mostly belong to Democrats. I would suggest that real leadership at least 3% less than it is shown now. Last time there was absolutely the same situation when H. Clinton was in front but has lost the elections. Everybody remember this and will be more careful this time. D. Trump victory in turn, will be supportive to the dollar and we could see little apocalypses on FX market if he wins. What will definitely happen - as Republicans as Democrats will initiate probes, scandals, legal claims etc. in case of defeat. Because mail voting is a Pandora box and friendly for speculations, frauds, and other things of this kind. We already heard of some issues that have taken place. This makes investors sit in USD longer and become a headwind for riskier assets and other currencies.

So, as you could see - at first glance we do not have real obvious barriers for upside action on EUR, but at the same time, we have too many minor factors that increase uncertainty and risks or could become potentially the barriers and this is the headwind for EUR and other riskier assets.


Technicals
Monthly


With the new pack of driving factors, we keep the same view on monthly chart and suggest that downside reaction on COP target is too small now and should be deeper. Appearing of engulfing pattern stands in favor of this scenario and let us to suggest some downside AB-CD pattern on lower time frames. Gradual deterioration of the sentiment could make finally this patterns works.

In longer-term perspective we do not deny overall positive picture here. Indeed, we have good acceleration to COP and overall context still remains bullish, keeping chances on action to 1.25-1.26 area.

eur_m_26_10_20.png


Weekly

This week market climbs above MPP and shows bullish reversal type of action, with close above 3x3 DMA. This makes to consider potential DRPO "Sell" as central scenario here. It means that EUR within 1-2 weeks could challenge 1.20 top on a background of some fundamental events. Most probable of them are stimulus agreement and/or weak Q3 GDP US report, as investors mostly expect good numbers. Right around the top we also have MPR1.

We're watching for downside reversal pattern, such as DRPO "Sell", mostly due longer-term factors. As we've said above, in longer-term perspective, EUR has too many headwind factors. If we're correct with our suggestion, first downside target stands around 1.15 area that includes K-support and weekly Oversold.
eur_w_26_10_20.png


Daily

Here upside AB=CD pattern is our central scenario for few weeks already. Now price is coming to the final stage. OP around 1905 area should be reached next week, even without and significant fundamental events. The major concern stands around next target, as we suggest top challenge by the EUR. By looking at XOP - it seems too far around 1.2040 area. The problem that it stands far above daily Overbought area that makes it hardly to be hit this week. Although we do not deny it totally, the first elections results could bring volatility on the markets and Biden's leadership could warm up upward action here on the first November week.

Anyway, for coming week purposes I would consider the intermediate target - 1.27 Butterfly extension that agrees with Overbought level around 1.1980. First is - it fits to weekly DRPO purposes very well. Second - it is real to reach by price this week on a background of GDP release of stimulus announcement.

eur_d_26_10_20.png


Intraday

Our Friday setup has worked nice as upward action has started right from K-support area. And now we have few interesting things. First of all, the grabber. It is the question whether it will work or not, but theoretically it suggests minor drop below local low. This price action suggests that we could get the butterfly pattern.

The first 1.27 extension of the butterfly agrees with daily OP around 1905, while next target, 1.618 agrees with small upside AB-CD pattern XOP target around 1.1930 and could be considered as intermediate point in a case of action to 1.1980 daily butterfly.

eur_4h_26_10_20.png


It means that we could hold long positions that we already have. Besides, on 1H chart, in a case of grabber's action we could consider additional levels. Since grabber suggests drop below recent low, we're interested only with 5/8 Fib levels around 1.1816-1.1820 area. Currently invalidation point for bullish setup stands below K-support and 1.18 area:

eur_1h_26_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,041
Morning everybody,

So, EUR shows predefined performance by far as the first step of our trading plan is accurately completed. Volatility on the market is rising. Despite that we've said in weekly report that hardly EUR will reach 1.2040 target on a background of Biden's victory - today OB level has moved significantly higher making possible this outcome to happen. So, now we're watching not only for 1.1980 but for 1.2040 potential target as well.

Meantime, our first target still is OP - 1.1905.
eur_d_27_10_20.png


On 4H chart our suggestion of reaching 1800 area because of existed grabber seems to be correct and pullback accurately has started from K-area. Now, if you're in, you could move stops to breakeven.
eur_4h_27_10_20.png


On 1H chart, in fact we have symmetrical triangle, that is also potentially bullish. Thus, if you've missed the entry yesterday, you could consider entry on minor pullback to one of the Fib levels. Stops anyway should be below the 4H K-area.
eur_1h_27_10_20.png
 

ForexTus

Sergeant
Messages
128
This has been the most disruptive year of trading ive ever seen and the funny thing is the second part of the year has been mainly consolidation indicating volatility ahead
 

Sive Morten

Special Consultant to the FPA
Messages
14,041
Morning everybody,

Before elections markets shows different action even in relation to the same US Dollar. Thus, EUR is dropping, Gold, BTC are rising. Stock market is dropping. In general as we've said in weekly Gold report - rising of the dollar and dropping of stock market statistically suggests incumbent loss. Currently activity in this direction stands small, but it could be just first signs.

On EUR currency overall bullish context still holds, although there are just two major support areas left to hold the price. On daily chart we also should keep an eye on potential bullish grabber:
eur_d_28_10_20.png


The point is market stands at strong intraday support level - K-support and Agreement. Appearing of the grabber by the end of the session could give more confidence for long entry. The one thing that looks worrying - downside acceleration. Next support is Agreement around 1. 1715 area:

eur_4h1_28_10_20.png


Since market already has broken first K-area, we need to be more careful around next ones. There are few different ways how you could act around it. First is, as price already stands at K-area, drop the time frame and watch for bullish reversal patterns. Once you will get it - you could enter with stop against the lows. With 20-30 pips pullback - move stops to breakeven. Alternatively, we could wait and see what will happen with the grabber on daily chart first.

If market fails to turn up - we wait for next support. Currently is crucial to take trades only around strong support level. They provide some protection at least, and 20-30 pips bounce is highly probable - this is enough to tight stop to b/e
 

Sive Morten

Special Consultant to the FPA
Messages
14,041
Morning everybody,

So, EUR was not able to resist global tendency as investors are running into the quality. When you see that all markets are dropping - FX, Gold, Crude oil, Stocks, you understand that investors just run in cash and US Bonds. Indeed, this week 10-year US rate has increased for 15%. Since we're still far from election results, this process is not over yet.

It makes us think that it would be better to not hurry up with new long positions, although intraday trades are possible to do.
On daily chart trend has turned bearish and price stands near oversold level. While America is sleeping, markets are showing pullback, but the major question is for how long. AB-CD pattern is not broken yet totally. But few things on 4H chart suggest that this is probably just the question of time:
eur_d_29_10_20.png


Take a look that we've not got any chance for long entry around major support level as it was broken light doesn't exist. Now market has reached next, final 5/8 support and Agreement area. We see the pullback, but in current circumstance we need more bullish signs and stronger context for long entry:
eur_4h_29_10_20.png


Overall sell-off stands strong. With upward bounce we could suggest that disrespected K-area might be re-tested today. Especially because at the same level we have K-resistance and Agreement this time. To make longer-term bullish plans right now seems unreasonable.
eur_1h_29_10_20.png
 

Sive Morten

Special Consultant to the FPA
Messages
14,041
Morning everybody,

So, market still stands under pressure of demand to USD. As we've suggested EUR has dropped lower and in weekend we will take a more extended look on the currency,

Meantime, we also have GBP with its own long-term scenario. Recall that we're monitoring huge reverse H&S pattern on weekly chart with right arm's bottom around 1.20-1.22 area. Theoretically this an area where market should tending. Of course, the swings of this scale can't happen without external background and it might be as Brexit negative result, as some difficulties around US elections - frauds, unrest, involving of supreme court in decision making just to name some. This could extend the time when investors will sit in cash and in USD in particular...

It means that here we could consider larger downside AB-CD pattern with OP target around 1.24. Recent upside rally has been erased and downside action shows some acceleration:
gbp_d_30_10_20.png


On 4H chart market could form H&S pattern with upside bounce to either 1.30 or 1.3060 resistance, as we see the shape of it, as market now stands at support. But keep in mind that market is strained, nervous and fear with VIX index above 40%, and this could become a reason for sharp irrational swings. For example, we could get direct downside breakout as well. In this circumstance, we think that it would be better to avoid long positions by far:
gbp_4h_30_10_20.png
 
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