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British Pound (GBP) Outlook – Sterling Traders Should Prepare For a Volatile Week Ahead

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GBP/USD Fundamental Forecast: Neutral

  • EU-UK trade talks coming down to the wire.
  • Sterling exposed to volatile moves.

GBP Forecast

GBP Forecast

Recommended by Nick Cawley

Download our Brand New Q4 Sterling Forecast

Sterling traders will need to buckle up next week as GBP-volatility is expected to return with a bang. Indeed volatility may start even before the Europe session opens on Monday, depending on the outcome of talks between EU Commission President Ursula von der Leyen and UK Prime Minister Boris Johnson on Saturday. A recognition that talks can proceed with increased intensity will see Sterling rally hard, while any talk that negotiations are gridlocked will see the British Pound sold off in short order. Other EU leaders may also opine on negotiations so traders should be wary of potential ‘tape bombs’ all weekend.

We noted in the Q4 GBP forecast that EU-UK trade negotiations were just one of three Sterling drivers for the next three months. The ongoing spread of COVID-19 continues to hit the UK economy with several local lockdowns recently imposed, although the figures for hospitalization, the use of ventilators, and fatalities are still markedly lower than the unfortunate peaks hit between early-April and early-May. The spread of the pandemic and the government’s reaction will be another real-time driver of Sterling.

Next week’s UK economic data and events calendar are light with only the monthly GDP figure at the end of the week of any real note. For all market-moving economic data releases and events see the DailyFX Calendar.

GBP/USD has crept higher all week, mainly on better EU/UK trade sentiment, and eyes the three-week high around 1.3010. Any positive trade mood music should see this level taken out, and with it, the 50-dma, leaving little in the way of a further push higher.

GBP/USD Daily Price Chart (March – October 2, 2020)

GBPUSD Price Chart



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -8% 12% 2%
Weekly 17% -8% 2%

Retail trader data shows 45.49% of traders are net-short with the ratio of traders short to long at 1.20 to 1.The number of traders net-long is 16.35% lower than yesterday and 19.99% lower from last week, while the number of traders net-short is 0.53% lower than yesterday and 3.60% higher from last week.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bullish contrarian trading bias.

GBP Forecast

GBP Forecast

Recommended by Nick Cawley

Download our Brand New Q4 Sterling Forecast

Traders of all levels and abilities will find something to help them make more informed decisions in the new and improved DailyFX Trading Education Centre

What is your view on Sterling – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.





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Forex

Markets Week Ahead: Dow Jones, US Dollar, Stimulus, GBP, Brexit, EUR, ECB, JPY, BoJ

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Global market sentiment remains fragile heading into a busy week. The Dow Jones and US Dollar eye ongoing fiscal stimulus talks as the election nears. GBP/USD remains glued on Brexit negotiations. …



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XAUUSD Coils Ahead of Next Big Break

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Gold Price Forecast Talking Points:

  • Gold prices remain in a falling wedge pattern that’s been building for more than two months.
  • Ahead of this recent digestion, Gold prices were breaking out with aggression, setting a fresh all-time-high in early-August. Are bulls waiting to drive that next break?
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Last week saw Gold prices tease a bullish breakout. But, buyers stepped back before a re-test of the prior October high and, so far, Gold prices have continued in the digestion backdrop that’s become commonplace over the past two months.

As looked at last week, Gold prices remain in a falling wedge pattern after the bullish breakout drove through the August open. This isn’t the first time that Gold prices have formed a falling wedge during this recent bullish cycle, as similar scenarios presented itself in Feb-May of last year and then again from September-December. Such formations will often be approached with the aim of bullish breakouts, begging the question as to whether or when buyers might be ready to resume the bigger picture trend in the yellow metal.

Gold Forecast

Gold Forecast

Recommended by James Stanley

Download our fresh Q4 Gold Forecast

To learn more about falling wedges, check out our DailyFX Education section.

Gold Daily Price Chart

Gold Daily Price Chart

Chart prepared by James Stanley; Gold on Tradingview

Gold – Deeper Support Potential

On a shorter-term basis, there could be scope for a deeper pullback while that longer-term wedge remains in-play. Price action in Gold appears to be slipping below the bottom-side of the 1900-1920 zone, and underneath price action is another area of possible support running from 1859-1871. This zone is what helped to catch the low in early-August, and came back into play in late-September. Prices in Gold could dip down to this zone while still remaining above the September swing-low; setting the stage for another run at resistances of 1900, 1920 and eventually 1933 (the October swing-high).

Top Trading Opportunities in 2020

Top Trading Opportunities in 2020

Recommended by James Stanley

Get Your Free Top Trading Opportunities Forecast

Gold Four-Hour Price Chart

Gold Four Hour Price Chart

Chart prepared by James Stanley; Gold on Tradingview

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX





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How Will the Election Affect the Stock Market? Dow Jones Forecast

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Dow Jones Price Outlook:

  • Data from the last ten Presidential elections reveals the Dow Jones Industrial Average typically climbs around an election
  • Still, it is difficult to attribute any equity strength to an election singlehandedly as an infinite number of themes are at play in the market at any given time
  • Dow Jones: A True Cross Section of American Industry?

How Will the Election Affect the Stock Market? Dow Jones Forecast

Global stock markets have been on a wild ride in 2020 thus far, juggling the coronavirus and the various monetary and fiscal decisions central banks and governments have made in response. If a global pandemic were not enough, the Dow Jones, Nasdaq 100 and S&P 500 will have to negotiate a looming Presidential election – an event that frequently dominates media and popular culture in the lead up. While it may feel like the election and its social implications can take over everyday life, what impact has it had on the stock market in the past?

Dow Jones Performance in the 12-Months Before and After a Presidential Election

dow jones price chart in election years

Data Source: Bloomberg. Compiled by Peter Hanks

With the assistance of data from the last ten US Presidential elections, history reveals the stock market – more specifically the US benchmark Dow Jones index – typically rises on average before, during and after an election. That being said, there are a few caveats for which we must account. First and foremost, stocks generally rise over time in general, with the 30-year annualized return of the S&P 500 at roughly 8%. Similarly, the 30-year annualized return of the Dow Jones is slightly more than 5%.

Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities

With that in mind, seeing the Dow Jones rise modestly on average across ten presidential elections is not entirely surprising. To that end, drawing such conclusions from only a limited sample of data is presumptuous. Consequently, the saying that ‘past performance is not indicative of futures results’ is very apt for circumstances such as this where statistics cannot assure better equity performance than a non-election year.

Top 8 Forex Trading Strategies and their Pros and Cons

As displayed in the graph above, some years are dominated by themes other than the Presidential election. 1996, 2008 and 2020 are just three instances whereby external influences like the ballooning of the Dot-Com Bubble, the Great Financial Crisis and coronavirus respectively have (or are currently) exerted as much or more influence than the changing of the guard in the Oval Office – although the coming election may surprise yet.

Suffice it to say, 2020 has proven to be anything but ordinary and external factors like trade wars, monetary policy and the pace of the pandemic recovery may all have varying degrees of influence over the stock market. Further still, the trajectory of these themes could be altered significantly after the election – possibly changing the shape and scope of an issue like US-China relations or technology regulation. Undoubtedly then, stocks will have their hands full in the coming months and it is difficult to say that Presidential elections are a positive development for equities.

VIX futures price chart

One theme we can attribute to an election with more confidence is an increase in volatility. Elections and their potential impact on government and fiscal policy can create uncertainty – a phenomenon most investors detest. With uncertainty often comes volatility and this volatility can be observed in the October VIX futures contract as it reflects the lead up to the election. In the subsequent months’ contracts, the assumption of volatility in VIX pricing steadily declines as the election impact fades into the rearview.

Trading Forex News: The Strategy

Trading Forex News: The Strategy

Recommended by Peter Hanks

Trading Forex News: The Strategy

Thus, it can be surmised that an election’s impact on stock prices would inevitably fall with a general trend of strength, but expecting an increase in volatility may be the more likely outcome. As the election draws closer and potential policies are given more clarity, specific sectors may rise or fall depending on the forecasted outcomes. Healthcare, energy, technology and companies with sensitivities to US-China relations may all be subject to fundamental changes after the election.

Stocks like Amazon, AbbVie and Zoom are just a few examples of those with potentially heightened sensitivity to changes in the US administration, while corporations like Caterpillar, Boeing, Lulu and Walmart may be more closely aligned with the pace of economic recovery. Evidently, various themes to be negotiated around the election are already at play and divergent performances are likely.

S&P 500 price chart by month and vix price chart

Data source: Bloomberg. Compiled by John Kicklighter

With increased volatility to boot, these moves could see their magnitude increased regardless of direction, especially as trends in seasonality exacerbate election uncertainty. With the election drawing ever-closer, 2020 surely possesses the catalysts to differ from the typical election-year and trading opportunities are abound as a result. As the election nears, check back at DailyFX for election coverage from a macroeconomic perspective.

Open a demo FX trading account with IG and trade currencies that respond to systemic trends.

–Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX





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