Euro and US Dollar Brace for Key Events

Pound Still Dependant on EU and UK Trade Deal Negotiations. 

by Bogdan Giulvezan

Sentiment towards the greenback remained rather neutral over the past week, as investors and traders took a cautious approach to the markets, mostly due to US fiscal stimulus talks and the approaching of the Presidential election.

On the other side of the pond, there’s increased hope that the European Union and the United Kingdom may still reach a trade deal, although the initial deadline (October 15) did not bring finality to the issue. Volatility in Pound pairs is likely to rise during the week, as EU and UK negotiators will try to iron out a deal before the new deadline: mid-November.

Friction over fisheries remains a main component of the negotiations and British Prime Minister Boris Johnson has warned businesses that they should get ready for a no-deal outcome. However, France, who previously had a strong stance against compromising on fisheries, reportedly announced that an agreement on the matter may be reached. Furthermore, UK Trade Secretary Liz Truss mentioned that the UK and the EU are “making good progress on the negotiations”, thus it’s fair to assume that such positive developments may push the Pound (and possibly the Euro) higher.

As for the Euro, the European Central Bank will announce the interest rate this Thursday and although no change is expected, the ECB Press Conference and President Lagarde’s speech will likely influence the longer-term outlook.

Key Events for the Week Ahead

Although a few medium-impact releases are scheduled throughout the week, Thursday, October 29 will be the most important day of the week, with two major events. The US quarterly Advance Gross Domestic Product (GDP) comes out at 1:30 pm GMT and is expected to post a figure of 32%, following the major contraction of -31.4 seen in the former period. Since the GDP is the main gauge of an economy’s health, a greater number will prove beneficial for the currency and usually, the impact is significant.

The same day, at 1:45 pm GMT, the ECB will announce the Main Refinancing Rate (not expected to change from the current 0.0%) alongside a Monetary Policy Statement and followed at 2:30 pm GMT by a speech delivered by ECB President Lagarde. The speech is usually the “main attraction” but also the time when the Euro sees the most activity, depending on the topics discussed by the ECB President and her tone.

Chart Analysis – EUR/USD

Last week the Euro posted solid gains against the greenback but it seems the latter is making a comeback, at least in the short term. The pair is currently trading near 1.1800, above the support at 1.1750, and above a bullish trend line drawn on a Daily chart.

We may very well see a range-bound market until Thursday when both currencies in the pair will be affected by major events, thus a strong breakout is less likely. The MACD is climbing but lacks momentum and the Stochastic doesn’t show an extreme condition (overbought or oversold), supporting the idea that we will probably have a slow couple of days. The levels to watch remain 1.1750 followed by 1.1615 to the downside and 1.2000 to the upside. As long as the pair remains above the trend line, the bias is timidly bullish.