USD strengthens on data and trade hopes

The USD strengthened against several counterparts yesterday, as hopes about the trading relationships of the US and China kept rising. It was characteristic that also safe havens such as the Yen and the Swiss Franc weakened, due to safe-haven outflows and a boosted confidence in the markets. Also, it should be noted that the USD also was supported by a string of favourable financial releases yesterday. Especially the release of the ISM non-manufacturing PMI for October which rebounded from September’s 3-year lows, strengthened the USD. We maintain the view that currently the US-Sino relationships remain the main driver behind USD’s rise and the positive data had a more auxiliary role. Should there be further positive headlines on the issue, we could see the USD strengthening further. On the flip side should there be a reversal of the progress made or some setbacks, say for example if China insists that more US tariffs are rolled back and uses harsh language, we could see the recent market euphoria, easily being reversed. EUR/USD dropped heavily yesterday breaking the 1.1105 (R1) support line now turned to resistance. The pair seems to be following a downward trendline since the 4th of the month, hence currently we maintain a bearish outlook for the pair. On the flip side though we maintain our doubts about the pair’s current course as the pair seemed to stabilise somewhat during the Asian session today. Also, the RSI indicator in the 4-hour chart is at the level of 30, implying a possibly overcrowded short position. Should the bears continue to dominate the pair’s price action, we could see it breaking the 1.1050 (S1) support line and aim for the 1.1100 (S2) support level, which had supported the pair between the 10th and the 15th of the month. Should the bulls take over, we could see the pair breaking the 1.1105(R1) resistance line and aim for the 1.1150 (R2) resistance barrier.

… while the pound remains range bound awaiting elections…

The pound maintained a tight rangebound movement against the USD yesterday remaining unimpressed by the positive US financial releases. It should be noted though that the sterling was unable also to profit from the lukewarm financial data released yesterday. The pair seems to remain Brexit driven and, in an uncertainty, provided by the UK pre-election period. Recent polls seem to show that the Conservatives are ahead with 38%, yet the pro-remain and soft Brexit parties seem to gather a 52% majority in total, providing little hope for Johnson’s EU-UK deal to pass through the UK Parliament ultimately. It should be noted though that the opposition remains split, and especially the Liberals seem unlikely to support Labor’s leader Corbyn for PM. For the time being the upcoming elections may provide little if any clarity for Brexit and should the uncertainty deepen, we could see it having a detrimental effect on the pound. Cable maintained a tight sideways movement around the 1.2885 (R1) resistance line yesterday. Currently we maintain a bias for a sideways movement for the pair, yet volatility could be just around the corner. Should the pair’s long positions be favored by the market, we could see cable breaking the 1.2885 (R1) resistance line and aim for the 1.3015 (R2) resistance barrier. Should the pair come under the selling interest of the market, we could see it aiming if not breaking the 1.2760 (S1) support line.

Other economic highlights today and early tomorrow

Today during the European session, we get Germany’s industrial orders growth rate for September, a number of final PMI’s for October affecting the common currency and the area’s retail sales growth rate for September. In the American session, we get Canadas’ Ivey PMI for October and from the US the EIA weekly crude oil inventories figure. During tomorrow’s Asian session, we get Australia’s trade data for September. As for speakers ECBs’ Vice President De Guindos, ECB’s Enria, Chicago Fed President Evans, NY Fed President Williams and Philadelphia Fed President Harker are scheduled to speak.

EUR/USD 4 Hour