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Dollar Weakens as Risk Appetite Grows; Losses Could Mount Post-Election By Investing.com

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© Reuters.

By Peter Nurse

Investing.com – The dollar edged lower in early European trade Thursday as renewed U.S. stimulus hopes boosted risk appetite, prompting gains in equity markets and risker currencies.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 93.562, while was largely flat at 105.97.

Elsewhere, climbed 0.2% to 1.1778, rose 0.2% to 1.2948, while the risk-sensitive climbed 0.3% to 0.7160.

This move followed President Donald Trump rowing back from previous comments, and tweeting Wednesday he was ready to sign off on piecemeal measures, including support for individuals, small businesses and airlines.

That said, a great deal of volatility has been injected into the foreign exchange market of late as uncertainty has increased – there has been a second wave of Covid-19 cases (France and Spain posted record numbers of new infections on Wednesday), the economic recovery has become more patchy and the important U.S. elections and Brexit deadlines are approaching. 

“We think that uncertainty will prevail for now, and risk appetite could be under pressure over the coming month, as is often the case ahead of U.S. presidential elections,” said analysts at Nordea, in a research note. “Beyond the elections, we could see a rebound in risk appetite, irrespective of the winner – assuming that we have a clear winner, that is.”

With this in mind, Nordea sees a clear risk of EUR/USD trading above $1.25 in 2021, and this dollar weakness is likely to be broad-based against most peers. The ECB’s Luis de Guindos, Isabel Schnabel and Yves Mersch are all due to speak in the course of the day., with de Guindos the likeliest to express concern about the euro’s strength.

In addition. the European Central Bank is scheduled to release the from its last rate-setting meeting later in the session. Investors will be studying to see if the central bank is preparing the ground for additional bond buying later in the year, particularly as the region’s economic recovery looks more shaky given the second wave of the Covid-19 outbreak.

Additionally, the are due early in the U.S. session, and are likely to show the recovery in the world’s largest economy is slowing, especially after Friday’s disappointing release.

Federal Reserve officials, including Chairman Jerome Powell, have made great play over the last few weeks of the need for additional stimulus from the U.S. lawmakers to try and cement the country’s economic recovery. 

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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US Dollar Mired by Fiscal Stimulus Deadline

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US DOLLAR OUTLOOK: USD PRICE ACTION HINGES ON STIMULUS DEAL DRIVEN VOLATILITY

Fiscal stimulus negotiations continue to largely drive the direction of the US Dollar. The DXY Index declined around half a percent during Monday’s trading session with FX traders still seeming optimistic that US politicians can agree on another coronavirus aid package before the upcoming election.

Over the weekend, House Speaker Nancy Pelosi placed a 48-hour deadline for the Trump Administration to reconcile their $1.8-trillion package proposal with the $2.2-trillion stimulus bill laid out by Democrats. Senate Leader Mitch McConnell is expected to call for a vote on a targeted stimulus deal that carries a much lower price tag at around $500-billion.

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US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (17 JUL TO 19 OCT 2020)

DXY Index Price Chart US Dollar Technical Forecast

Chart by @RichDvorakFX created using TradingView

The prospect of more fiscal firepower to counter the coronavirus pandemic’s toll on the US economy is a primary driver of recent USD selling pressure. That said, uncertainty surrounding the likelihood that House Democrats and Senate Republicans can set aside their political differences to agree on another stimulus deal has contributed materially to US Dollar volatility. Discrepancies largely remain over the amount of fiscal funding to provide to state and local governments. Failure to reach a deal before the two-day deadline imposed by Speaker Pelosi opens up the door to potential for a big breakdown in stimulus negotiations, which would likely stand to send the US Dollar exploding higher and stocks swooning lower into the November 2020 election.

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Meanwhile, the broader DXY Index still gravitates around a critical level of technical confluence underpinned by its 50-day simple moving average. USD price action also looks coiled between two conflicting trendlines: a short-term bearish trend identified by the lower highs recorded on 25 September and 15 October juxtaposed with a medium-term bullish trend developing from higher lows printed on 31 August and 12 October. A break below the ascending trendline could tee-up a quick move toward technical support highlighted by the 92.75-price level whereas a break above the descending trendline might motivate US Dollar bulls to target the 94.00-handle and September swing highs.

USD PRICE OUTLOOK: US DOLLAR IMPLIED VOLATILITY TRADING RANGES (1-WEEK)

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges

Key FX counterparts to the US Dollar – such as the EUR and GBP – have also contributed to recent Greenback turbulence. EUR/USD and GBP/USD comprise 57.6% and 11.9% of the DXY Index respectively and thus tend to weigh notably on the broader US Dollar. As new COVID-19 cases climb and restrictions on business activity are reimplemented across the Eurozone and UK, mounting coronavirus concerns might exacerbate potential US Dollar strength given its status as a top safe-haven currency.

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Not to mention, the Pound-Dollar remains exposed to ongoing Brexit drama as well. GBP/USD is estimated to be the most active major currency pair this week according to one-week implied volatility readings clocked as of Friday’s close. Options-implied trading ranges are calculated using 1-standard deviation (i.e. 68% statistical probability price action is contained within the implied trading range over the specified time frame).

— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight





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Pound Trends Higher as EU Pledges to Intensify Brexit Talks By Investing.com

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By Yasin Ebrahim

Investing.com – The pound eased from against the dollar from session highs Monday, but remained supported as the EU appeared to extend an olive branch, saying it remains committed to intensifying Brexit-deal talks with the U.K.

to rose 0.45% to $1.2971, below session highs of $1.3025, but well above lows of $1.2897.

EU Brexit negotiator Michel Barnier confirmed the EU remained “available to intensify [Brexit] negotiations in London,” marking a change in tone somewhat after EU leaders had dropped their pledge to intensify trade talks last week and called on the U.K. to make concessions for a deal.

U.K. Cabinet Office Minister Michael Gove had suggested the U.K. would not resume talks moments before acknowledging signs of progress, “Even while I’ve been at the dispatch box, it’s been reported that there has been a constructive move on the part of the EU and I welcome that,” Gove said.

The game of brinkmanship between both parties, however, is expected to continue in the wake of little progress on key issues that have held back talks including the so-called level playing field commitments, fisheries and issues of governance.

The positive start to the week for sterling comes as speculative traders appear to be betting both sides will eventually find common ground and clinch a post-Brexit trade deal.

Ahead of yet another crucial phase for Brexit and sterling this week, “we suspect market positioning on GBP did not shift too much on the short side after the confrontational comments and threat of no-deal witnessed last week,” ING said in a note. “[W]e believe this is a market that is far from pricing in a no-deal outcome and we would not be surprised to see only a minor uptick in GBP net-shorts in the next CFTC report.”

“We remain of the view that the downside risks for sterling in a no-deal scenario are still sizeable,” ING added.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Euro Dollar Forecast: EUR/USD Tests Trendline Resistance

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EUR/USD Outlook

Visit the DailyFX Educational Center to discover why news events are Key to Forex Fundamental Analysis

Renewed Hopes for US Stimulus Weighs on Dollar Strength

The need for additional Fiscal stimulus in the US is becoming a matter of urgency as the second wave of the Coronavirus pandemic, combined with an increase in the number of initial jobless claims, continues to weigh on investor sentiment. After hopes of additional support faded last week, optimism resurfaced after House Speaker Nancy Pelosi announced her intentions to reach an agreement with Treasury Secretary Steven Mnuchin within the next 48 hours, should an agreement be possible before the US presidential election on 3 November, which is likely to be an additional driver for price action.

Meanwhile, the staggering number of new Covid-19 related cases, has resulted in the reimplementation of lockdown restrictions throughout Europe, in an effort to curb the spread of the virus, creating a new threat to business activity and overall economic recovery. An additional variance of concern, is the Brexit deadline which is fast approaching, with diminishing hopes that a deal will be reached between Europe and the United Kingdom.

EUR/USD Honors Key Fibonacci Levels

After recovering from March 2020 lows, price action favored the bulls, until reaching a wall of resistance on 1 September at the psychological level of 1.2000, where bears exerted downward pressure, breaking below 1.1700, the 38.2% Fibonacci retracement (between Jan 2017 low and Feb 2018 high), which now remains as support, while the trendline has provided additional resistance for the major currency pair.

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EUR/USD Daily Chart

EURUSD Daily Price Chart

Chart prepared by Tammy Da Costa, IG

MACD Crosses Below Zero

From a short-term perspective, the four-hour chart now highlights prices trading above the 50-period Moving Average (MA), while the Moving Average Convergence/Divergence (MACD) has crossed below the zero line, possible indication that the uptrend may continue, at least for the short-term.

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EUR/USD 4 Hour Chart

EURUSD Four Hour Price Chart

Chart prepared by Tammy Da Costa, IG

EUR/USD Strategy Ahead

Currently, the psychological level of 1.8 continues to hold s resistance with a break above, leading to the 61.8% retracement of the short-term move becoming a level of interest.

On the contrary, break below 1.176 (the 38.2% Fibonacci of the short-term move), my see downward pressure exerted until the 23.6% retracement level comes into play at 1.17061.

— Written by Tammy Da Costa, Market Writer for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707





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