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GBP/USD, EUR/GBP Focused on Boris Johnson Decision

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GBP/USD, EUR/GBP Price Analysis & News

  • UK Johnson to Decide Whether to Walk or Let Deadline Pass
  • Another Volatile Day for GBP is Expected

UK Johnson to Decide Whether to Walk or Let Deadline Pass

Another volatile day looks to be on the cards for the Pound as market participants await PM Johnson’s response as to whether to continue trade negotiations after failing to make significant headway at the EU Summit. While UK Brexit Negotiator Frost stated that he was disappointed and surprised by the EU that the UK must make all concessions for an agreement, a deal is still possible provided there is goodwill on both sides. As such, UK PM Johnson is likely to let the self-imposed deadline pass, highlighting that a there is a deal to be done. Keep in mind, that earlier this week, reports had noted that David Frost had told Boris Johnson that a deal was not impossible, however, time was running out. This also looks to be reiterated by UK Foreign Minister Raab who has stated that a deal is close. That said, while the EU’s self-imposed deadline is for the end of the month, as has been highlighted this week, soft-deadlines are rarely met and thus negotiations can spill into November. The obvious risk to GBP, albeit a low probability risk, would be if UK PM Johnson sticks to his comments made last month that he would walk if no-deal was agreed at the EU Summit. In turn, confirmation that talks will continue can be enough to put a short-term bid in the Pound.

GBP/USD whippy to start the European session, near term support at 1.2890 (21DMA) keeps the Pound afloat for now. However, a break below opens the door to 1.2835-40. On the topside, resistance is situated at 1.3030-40 with further offers layered ahead at 1.3070. According to the options market, GBP is expected to see a 0.7% (+/-) move with the pair continuing to trade in a 1.2850-1.3070 range.

Today’s option expiry: 1.2945-50 (512mln)



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 44% -19% 6%
Weekly 19% -15% 0%

EUR/GBPrallies have continued to be sold with the cross capped from 0.9100-20. Although, with bids at the 0.90 handle, EUR/GBP trading has remained indecisive. While I remained biased to a pullback on rallies, currently levels of 0.9060 leave the cross vulnerable to more two-way risks. That said, a firm break below 0.90 however, puts 0.8935-40 in focus before 0.89.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 44% -19% 6%
Weekly 19% -15% 0%

10 Most Popular Candlestick Patterns





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Forex

Gold Battles with Resistance, Silver Respects Supportive Trend

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Gold (XAU/USD) and Silver (XAG/USD) Analysis, Prices and Charts

  • Gold is trying to overcome moving average resistance.
  • Silver breaks pennant formation to the upside.

Gold continues to print fresh short-term higher lows and the precious metal is currently trapped between the supportive 20-day simple moving average (sma) at $1,905/oz. and resistance off the 50-day sma around $1,921/oz. A break to the downside exposes $1,882/oz. while a break higher will see the 23.6% Fibonacci retracement at $1,928/oz. and the one-month high at $1,934.5/oz. come into play. The CCI indicator suggests that gold is overbought for the first time since early August.

Gold Daily Price Chart (March – October 22, 2020)

Gold Battles with Resistance, Silver Respects Supportive Trend



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 1% -9% -1%
Weekly -4% 10% -1%

IG retail trader datashow 79.05% of traders are net-long with the ratio of traders long to short at 3.77 to 1.The number of traders net-long is 0.11% lower than yesterday and 4.13% lower from last week, while the number of traders net-short is 9.59% lower than yesterday and 8.29% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall.Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.

Gold Forecast

Gold Forecast

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Download our Q4 Gold Forecast

The short-term supportive trendline continues to guide silver higher, with the 20-day sma acting now as secondary support. We noted the pennant formation nearing its apex at the end of last week and the subsequent break higher now suggests that silver may have more room to run. The 50-day sma at 25.41 is the first level of resistance followed by the multi-week high off the indecision doji at 25.60. Above here a cluster of prior highs between 27.00 and 27.70. To the downside, trend support at 24.50 ahead of 20-sma at 24.26 and 23.56.

Silver Daily Price Chart (March – October 22, 2020)

Gold Battles with Resistance, Silver Respects Supportive Trend



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -2% -3% -2%
Weekly -5% 6% -4%

IG retail trader data show 86.03% of traders are net-long with the ratio of traders long to short at 6.16 to 1. The number of traders net-long is 3.12% lower than yesterday and 7.86% lower from last week, while the number of traders net-short is 15.12% higher than yesterday and 17.39% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Silver prices may continue to fall.Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Silver price trend may soon reverse higher despite the fact traders remain net-long.

What is your view on Gold andSilver – are you 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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EUR/USD, EUR/JPY Key Levels, Risk of Setback

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EUR/USD, EUR/JPY Price Analysis & News

  • EUR/USD Driven to Rich Levels by Chinese Yuan
  • EUR/JPY Vulnerable to Setback Towards 123.00

This week has seen a remarkably firm Euro as markets continued to price in a democrat sweep, which has largely been characterised by short USD trades. However, aside from the US election, factors that had supported the Euro have begun to the fade with headwinds facing the currency beginning to rise. That said, this hasn’t entirely been reflected in the price with the Euro trading at 1-month highs.

Reasons for Concern in the Euro

Interest rate differentials have been moving in favour of the USD since August with the 10yr spread widening more aggressively since the back end of September. Alongside this, as inflation risks for the Eurozone remain heavily tilted to the downside, expectations are being built in the that the ECB could look for a fresh round of stimulus by the end of the year. As such, focus will be on next week’s ECB meeting, which may lay the groundwork for policy action in December.

EUR/USD (Black) vs German/US 10yr Spread (Red)

Euro Forecast: EUR/USD, EUR/JPY Key Levels, Risk of Setback

Source: Refinitiv

Second wave of COVID cases across Europe is evident with several countries forced to renew lockdown measures, thus growth differentials look to also move in favour of the US over the Eurozone. In turn, tomorrow’s PMI readings will be of interest as they will take into account lockdown measures that have taken place in October. That said, the Euro looks to be trading at slightly rich levels against its major counterparts and thus remains vulnerable to set backs.

EUR Forecast

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EUR/USD Driven to Rich Levels by Chinese Yuan

EUR/USD: A factor behind the notable support for the Euro has been the Chinese Yuan going from strength to strength, as such, a slowing in the appreciation of the Yuan can be enough to curtail upside in the Euro. On the topside, resistance resides at 1.1900-15, where a break above opens the door to 1.1940-50. Initial support sits at 1.1830 (Oct 9th peak) with a move below opening the doors to 1.1790-1.1800. Sizeable option expiries between 1.1800-1.1900 could see the spot price remain within this range.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 4% 7% 6%
Weekly -17% 22% 7%

EUR/JPY Vulnerable to Setback Towards 123.00

EUR/JPY: In light of the factors mentioned above, risks appear tilted to the downside in the cross with a move towards 123.00 on the cards. Once again the 50DMA (124.62) held firm after another failed attempt at piercing through, which in turn puts the focus on the 100DMA at 123.50. Below the 100DMA exposes psychological support at 123.00, marking the Oct 2nd and 15th bottom.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -2% -16% -12%
Weekly -38% -3% -18%

10 Most Popular Candlestick Patterns





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Biden’s prospects cast long shadow over Russian rouble By Reuters

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2/2
© Reuters. FILE PHOTO: Packs of 1000 Russian Roubles notes are pictured at Goznak printing factory in Moscow

2/2

By Tom Arnold and Rodrigo Campos

LONDON/NEW YORK (Reuters) – The prospect of a victory for Joe Biden in the U.S. election has weighed on the rouble for months and its fortunes now appear more closely tethered to the White House contest in two weeks’ time than Russia’s economic health.

The rouble enjoyed a moment in the sun after Donald Trump’s 2016 U.S. election victory, helped by the Republican president’s congenial relations with counterpart Vladimir Putin.

Low debt levels as well as prudent monetary and fiscal policies have protected the currency from some of the wild swings suffered by its emerging market peers from Turkey to South Africa for much of the recent period.

But as Democratic candidate Biden has pulled ahead of Trump in the polls since June, focus has turned to a new administration’s likely relations with other global powers, including greater friction between Washington and Moscow.

That risk, combined with angst about COVID-19’s spread in Russia and lower oil prices, has contributed to the rouble tumbling around 9% against the dollar in the past three months, making it one of emerging markets’ worst-performing currencies. It is now trading at around 77 against the dollar.

Graphic – , oil prices and U.S. political terms: https://fingfx.thomsonreuters.com/gfx/mkt/rlgpdxjlkpo/Capture.PNG

While the weakness has been a boon for exporters and the budget, it may hamper the ability of the central bank this month to continue easing monetary policy to support the COVID-ravaged economy.

The central bank declined to comment, citing its week of silence before its board meeting on Friday, where it is widely expected to keep the key rate on hold.

“If there wasn’t geopolitical risk in the currency, we’d probably be closer to 70, or even lower,” said Blaise Antin, head of emerging market sovereign research at TCW. “That’s reflective of the investor concern that’s out there and that concern isn’t going to go away on Nov. 4.

“Even if Biden wins, there’s going to be considerable uncertainty about what his policy mix will be.”

The currency’s discount to other commodity peers has widened in the past three months, noted ING’s Dmitry Dolgin.

The sanctions risk has hit portfolio flows into the local state debt (OFZ), which suffered outflows of $600 million in the third quarter after raking in $2.1bn in the second quarter.

Graphic – Foreign investment in Russian local bond market: https://graphics.reuters.com/US-ELECTIONS/RUSSIA/bdwvkjzqqpm/chart.png

Further outflows could follow in case of a Democratic victory, Dolgin said.

Foreigners hold around 29% of the local bonds and restrictions on their trading are viewed as a potential target in the event of renewed U.S. or international sanctions.

Stocks have lagged other emerging markets since polls began to shift towards Biden and also suffered outflows, adding to pressure on the currency, while foreign direct investment was net negative in the most recent first quarter data.

Graphic – Direct investment into Russia: https://graphics.reuters.com/US-ELECTIONS/RUSSIA/bdwpkjzyjvm/chart.png

Russia is not the only country that could find itself in more troubled waters in the event of a Biden win, with Turkey, Brazil and Saudi Arabia also expected to face more challenging times.

Some analysts and investors feel the rouble’s slide makes it look cheap based on fundamentals. They point to low debt levels by international standards and a recovering economy – the government has ruled out a second lockdown.

“The rouble screens as being amongst the cheapest currencies globally right now so that’s for us the best indication that the risk premium is too much,” said Saad Siddiqui at JPMorgan (NYSE:).

The rouble also enjoys relative insulation from low oil prices by the fiscal rule, which redirects oil revenues to the National Wealth Fund if crude prices top $42.4 per barrel, a system designed to shield reserves and the economy from price swings for Russia’s main export.

Although the current account suffered its weakest second and third quarters since 2013 due to low oil prices and output reductions, OPEC cuts are anticipated to lessen into next year and some analysts are positive on oil’s outlook.

SANCTIONS

Most investors are braced for the likelihood of renewed sanctions if Biden sweeps to power.

The Russian government’s ties to Belarus leader Alexander Lukashenko, who won a disputed presidential election in August and its alleged poisoning of opposition leader Alexey Navalny may draw Biden’s ire.

Biden’s campaign did not immediately respond to a request for comment.

He has long maintained a tough stance towards Putin’s government and was vice president when the U.S. enacted harsher sanctions on Russia’s financial, energy and defence sectors as punishment for the 2014 annexation of Crimea.

While that helped inflict hefty losses on the rouble, investors feel some of the risk of testier relations this time may already be priced in.

“Biden’s focus will be first on Russia, which means that there is a higher probability of having more stringent sanctions,” said Nikolay Markov, senior economist at Pictet Asset Management.

“But there shouldn’t be a significant decline in the rouble, unless the other main risk materialises, which is the pandemic getting out of control.”

And the rouble could yet receive a boost if Trump won on Nov. 3.

“If there’s a Trump win, it will be a buying opportunity,” said Markov. “He’ll be much less stringent on Russia.”





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