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19 October 2020

Dollar retreats amid fresh stimulus hopes, some upside in China’s GDP

US Retail Sales beat estimates with a leap of 1.9% in September, showing the resilience of the economy and potentially reducing the need for additional support from the government. Pelosi set Tuesday as a deadline to conclude talks while Senate Republicans are focused on the Supreme Court nomination.

US elections: Challenger Joe Biden continues leading Trump in national and state polls, with forecasts pointing to around 90% chance of winning according to FiveThirtyEight and The Economist. The race for the Senate is significantly closer, with only a 74% probability for the Democrats according to these websites.

EUR/USD is trading around 1.17, at the bottom of the recent range. Christine Lagarde, President of the European Central Bank, said that the recovery risks going momentum amid new restrictions and that her institution has not exhausted its toolbox. She is set to speak again later.

Gold is on the rise, trading above the $1,900 level it has been battling in recent weeks.

Brexit: Prime Minister Boris Johnson said that the UK should prepare for a no-trade-deal Brexit in January after expressing disappointment from the EU decision not to intensify talks nor make sufficient concessions, according to London.

On the other hand, Bloomberg reports that the UK could water down the controversial Internal Markets Bill, potentially paving the way for a breakthrough. Moreover, Michel Barnier, the EU Chief Negotiator, canceled his planned visit to London but will hold a telephone call with his British counterparts.

The UK is also struggling with an increase in coronavirus cases which have caused tensions between the central government and cities in northern England. Moreover, Moody’s downgraded the country’s credit rating.

NZD/USD is on the rise following Prime Minister Jacinda Ardern’s impressive victory in New Zealand’s general elections. Her Labour Party won an absolute majority after successfully encountering the virus.

GBP/USD Price Analysis: Buyers eyeing 1.3000 amid bullish technical set up

GBP/USD is building on Friday’s sharp recovery from below 1.2900 so far this Monday, as the bulls remain hopeful of some positive developments from a fresh round of Brexit negotiations likely to be held between EU’s Chief Negotiator Michel Barnier and his British counterpart David Frost.

From a near-term technical perspective, the spot has confirmed a descending triangle breakout on the hourly chart, opening doors for a rally towards 1.3100.

On its way north, the price will confront powerful resistance at 1.2960, the confluence of the horizontal 200-hourly moving average (HMA) and downward-sloping 100-HMA.

The hourly Relative Strength Index (RSI) holds firmer within the bullish territory, currently at 60.23, suggesting more room to the upside.

A sustained move above the aforesaid barrier is needed to make another attempt towards the 1.3000 level. A break above which the October 14 high at 1.3064 will be put to test.

Alternatively, strong support at 1.2925 will restrict immediate pullbacks. That level is the confluence of the 21 and 50-HMAs.

Acceptance below the latter would bring the descending trendline resistance-turned-support at 1.2913 back in play.

USD/JPY: The path of least resistance is down

The USD/JPY fundamental picture has not changed from last week though the alternating risk-on and off from the Washington stimulus talks had worn out by Friday. The descending channel remains the main technical motif as restricted range gives technical indicators heavier trading influence, Joseph Trevisani, an Analyst at FXStreet, informs.

Key quotes

“Markets have not replaced the general safety trade outlook with an analysis based in comparative economics. With new COVID-19 diagnoses in Europe now outstripping those in the US, where they are rising also, the overall risk sensitivity is not likely to fade in the near future.”

“Technical considerations are the main force edging the USD/JPY lower. The descending channel that dates to late April and the market panic around the early COVID-19 scare has governed trading in the absence of countervailing factors and that should continue with support at 105.00 and 104.55 relatively weak and a large, sparsely traded area to the next support at 103.00, the path of least resistance is down.”

“In a strict economic comparison the US and the dollar would likely perform far better than Japan and the yen, but that somewhat nostalgic approach is weeks or months away.”

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