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29 October 2020

Dollar takes a breather ahead of critical US GDP, covid-clouded ECB decision

Markets are attempting recovery and the dollar is down, partially reversing Wednesday’s trends. The German and French lockdown announcements serve as a stark backdrop to the ECB’s decision. US GDP ahead of the elections, where Biden continues leading.

Economists expect the European Central Bank to leave its policy unchanged, but some suspect that the Frankfurt-based institution will respond to the new measures foresee an economic hit and act already now by enlarging its Pandemic Emergency Purchase Program (PEPP).

It could also opt for a hint of action in December when staff release new forecasts. Christine Lagarde, President of the European Central Bank, will meet the press and will also be asked about the bank’s strategic review and the option of cutting rates.

The first release of US Gross Domestic Product for the third quarter is set to show an annualized growth rate of over 30%, a sharp comeback after the downfall in the second quarter. Personal consumption and government spending are among the closely watched components.

The critical figure is due out five days ahead of the elections in which over 75 million Americans have already voted. Recent opinion polls continue showing President Donald Trump trailing behind rival Joe Biden. Nate Silver’s FiveThirtyEight is pointing to an 88% chance for the Democrat to enter the White House.

Brexit: GBP/USD is holding up better than other currency pairs as the EU and UK negotiators have reportedly made progress in talks. Negotiators are in the process of writing the treaty on state aid but remain at odds on the politically sensitive topic of fisheries. Talks now move to Brussels.

Prime Minister Boris Johnson continues contemplating a full lockdown, amid high coronavirus figures in the UK.

The Bank of Japan left its policy unchanged as expected but downgraded its economic outlook. USD/JPY has bounced from the lows, in line with the market recovery.

The Bank of Canada also stayed put in its October decision and warned that US growth is considerably slowing. On the other hand, the Ottawa-based institution tapered down its bond-buying scheme. USD/CAD is hovering around 1.33 while WTI Oil remains on the back foot just above $37.

GBP/USD maintains an upside bias above the 1.2928 uptrend – Commerzbank

“GBP/USD has eased back to, tested and held the near-term uptrend at 1.2928. While this holds, the market is capable of retesting the 1.3201 March high and the recent high at 1.3483. In this vicinity is the 1.3468 multi-year downtrend and if seen we would expect this to again hold and provoke failure.”

“Below the 1.2928 uptrend lies 1.2814 the June high. Failure here will target 1.2709 the 200 day ma then 1.2445 and 1.2250/00.”

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Weak Under 26162, Strong Over 26714

December E-mini Dow Jones Industrial Average futures are on pace to close sharply lower on Wednesday as investors reacted to concerns over the latest increase in COVID-19 infections and its potential impact on the global economy.

U.S. coronavirus cases have risen by a record daily average of 71,832 over the past week, data compiled by Johns Hopkins University showed. Meanwhile, coronavirus-related hospitalizations are up 5% or more in three dozen states, according to data from the COVID Tracking Project. Cases are also rising sharply across Europe.

Short-Term Outlook

The next major move in the December E-mini Dow Jones Industrial Average will be determined by trader reaction to the 50% level at 26714 and the Fibonacci level at 26162.

Bearish Outlook

A sustained move under 26162 will indicate the selling pressure is getting stronger. This could trigger a break into the next main bottom at 25777. If this fails then look for the selling to possibly extend into the next level at 25210. Another potential downside target is 24716. This is the last potential bottom before the June 15 main bottom at 24377.

Bullish Outlook

A sustained move over 26714 will signal the return of buyers. This could trigger a short-covering rally.

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