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EUR/USD Rebound Takes Shape Amid Failure to Test Monthly Low

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EUR/USD Rate Talking Points

EUR/USD bounce back from the weekly low (1.1720) even though a growing number of European Central Bank (ECB) officials pledge to further support the Euro Area, and the exchange rate may continue to retrace the decline from the yearly high (1.2011) as it clears the monthly opening range, while the Relative Strength Index (RSI) breaks out of the downward trend carried over from late July.

EUR/USD Rebound Takes Shape Amid Failure to Test Monthly Low

EUR/USD pares the decline from earlier this month as the Euro outperforms against most of its major counterparts, and the lack of momentum to test the monthly low (1.1696) undermines the recent series of lower highs and lows in the exchange rate as the ECB appears to be in no rush to alter the path for monetary policy.

A recent speech by ECB board member Francois Villeroy de Galhau suggests the central bank will rely on its current tools to support the Euro Area as the current stance is appropriate,” with the official going onto say that the Governing Council “will be ready to act further if needed.”

It seems as though the ECB will retain a dovish forward guidance as the central bank rules out a V-shape recovery, but President Christine Lagarde and Co. may stick to the sidelines at the next interest rate decision on October 29 as the account of the September meeting reveals that the “PEPP (Pandemic Emergency Purchase Programme) envelope would likely have to be used in full to provide the necessary accommodation to offset the downward impact of the pandemic on the path of inflation.”

In turn, the ECB may continue to tweak its current tools as “it was noted that further cuts in policy rates and changes to the conditions of the TLTROs (Targeted Longer-Term Refinancing Operations) were also part of the toolkit for providing additional monetary policy accommodation, if necessary,” and little indications for more non-standard measures may keep current market trends in place as a growing number of Governing Council officials tame speculation for a Euro intervention.

At the same time, the tilt in retail sentiment looks poised to persist even though the Federal Reserve’s balance sheet approaches the peak from June as traders have net-short EUR/USD since mid-May.

Image of IG Client Sentiment for EUR/USD rate

The IG Client Sentiment report shows 37.24% of traders are currently net-long EUR/USD, with the ratio of traders short to long standing at 1.69 to 1. The number of traders net-long is 11.19% lower than yesterday and 2.06% higher from last week, while the number of traders net-short is 10.99% higher than yesterday and 7.21% lower from last week.

The rise in net-long position comes as EUR/USD appears to be reversing course ahead of the monthly low (1.1696), while the decline in net-short interest has helped to alleviate the tilt in retail sentiment as 36.53% of traders were net-long the pair earlier this week.

With that said, the crowding behavior in EUR/USD looks poised to persist over the remainder of the month, and the pullback from the yearly high (1.2011) may prove to be an exhaustion in the bullish trend rather than a change in market behavior as the Relative Strength Index (RSI) breaks out of the downward trend carried over from late July.

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EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in mind, a ‘golden cross’ materialized in EUR/USD towards the end of June as the 50-Day SMA (1.1795) crossed above the 200-Day SMA (1.1277), with the longer-term moving average still tracking the positive slope from earlier this year.
  • At the same time, a bull flag formation panned out following the failed attempt to close below the 1.1190 (38.2% retracement) to 1.1220 (78.6% expansion) region in July, with the Relative Strength Index (RSI) helping to validate the continuation pattern as the oscillator bounced along trendline support to preserve the upward trend from March.
  • However, the EUR/USD rally stalled following the failed attempt to close above the 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) region, with the RSI highlighting a similar dynamic as it slipped below 70 to ultimately break trendline support.
  • A similar scenario materialized in September even though EUR/USD traded to a fresh yearly high (1.2011) at the start of the month, with the exchange rate taking out the August low (1.1696) after staging another failed attempt to close above the 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) region.
  • Nevertheless, the pullback from the yearly high (1.2011) may prove to be an exhaustion in the bullish price action rather than a change in trend amid the lack of momentum to break/close below the 1.1600 (61.8% expansion) to 1.1640 (23.6% expansion) region, with the RSI highlighting a similar dynamic as it reverses ahead of oversold territory and breaks of the downward trend carried over from the end of July.
  • The advance from the monthly low (1.1696) may gather pace as EUR/USD clears the opening range for October, but need a close above the Fibonacci overlap around 1.1810 (61.8% retracement) to 1.1850 (100% expansion) to bring the 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) region on the radar.
  • The 2020 high (1.2011) comes up next followed by the 1.2080 (78.6% retracement) to 1.2140 (50% retracement) area.

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong





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Forex

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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© Reuters.

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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