Weekly Currency Outlook 2nd to 6th November

Weekly Currency Outlook 2nd to 6th November

01 Nov 2020 11:48 AM

Weekly Currency Outlook 2nd to 6th November

USDINR: India’s Manufacturing and services PMI figures are expected to strengthen into expansionary territory this week. The domestic economy remains in a deep recession as rampant Covid-19 continues to crush economic activity and the country’s potential recovery. An uncertain US election will add downward pressure on the INR. In the U.S., at the start of the week, the manufacturing sector PMI numbers for October will influence. With both the Markit’s finalized and the market’s preferred ISM Manufacturing PMI due out, ISM figure is expected to have the greatest influence. The focus will then shift to ADP nonfarm employment change figures along with the all-important ISM Non-Manufacturing PMI, which are due on Wednesday. Factory orders, trade data, and finalized Markit PMI numbers will likely have a muted impact in the week. On Thursday, the weekly jobless claims figures will also draw plenty of interest ahead of labor market figures on Friday. With concerns over the labor market recovery lingering, Unemployment rate and NFP numbers are sensitive figures. Away from the stats, the U.S Presidential Election will be a key diver in the week. To add to a likely pickup in market volatility is the FOMC monetary policy decision and press conference on Thursday.

Technical: The chart indicates that the double bottom support of USDINR around 72.75 – 73.01 (red line) is firmly established. Two bottoms were formed at 72.75 (1 September) and 73.01 (9 October).  Neckline (purple line) of the double bottom is around 73.97 and that was broken on 29 October. Usually, break of the neckline of a double bottom is critical and targets higher levels – an indication of some dollar upside. Connecting the dollar highs of April and June, a downward moving trend line (yellow line) comes around 74.70 – 74.80. The 144-day Simple Moving Average (green line), comes at 74.85. Momentum indicators (MACD, Slow Stochastics and RSI) are gradually moving from the neutral territory towards the overbought region. USDINR could inch higher – at least towards 74.50 – 75.00.

EURUSD: The week starts with Manufacturing PMIs for October due on Monday, to be in focus. On Wednesday, Services PMIs are due out, which will likely draw greater interest. The surge in new COVID-19 cases across the EU is likely to further derail the service sector recovery. The market focus will then shift to German factory orders and industrial production figures due out on Thursday and Friday. While we can expect plenty of influence from the numbers, expect COVID-19 and U.S politics will be the key drivers. News from the weekend of plans to lockdown England for 4-weeks will test support for the Pound at the start of the week.

Technical: Euro has steeply declined in the last month of October, comfortably slipping through 1.17 level which has been significant both as a support and resistance in the past. The longer-term trend seems to be leaning towards bearish, possibly towards 1.15 handle and lower. The region there has been an important resistance in the past and is also where the current 50 and 200-week SMAs are racing towards. The daily 200-day SMA also seems to be headed to the same place. Formation of a confluence region lends this region all the more significance as support. Previous Euro climb seems to be excessive and a pullback towards the 1.15 makes sense.

GBPUSD: On the economic data front, finalized October private sector PMIs on Monday and Wednesday will draw interest. Expect any revisions to influence ahead of October’s construction PMI on Wednesday. The main event of the week, however, is the Bank of England monetary policy decision on Thursday. We’ve heard the talk of negative rates and the UK continues to get hit by the 2nd wave of the COVID-19 pandemic. Away from the economic calendar, PM Boris Johnson announced full lockdown in Britain till 2nd December, on Saturday. This could weigh heavily on the pound. In addition, there’s Brexit and the U.S Presidential Election. A Joe Biden victory is expected to be to be Pound negative.

Technical: Last week of October of saw the Pound being pulled back but also comfortably recovering towards 1.30 handle. It’s really difficult to tell where the pair might be headed as it currently trades in an area which has been significant in the past as both support and resistance in the past. We should continue to expect volatility going ahead just like many others. The pair will probably continue to trade between the 50-week and 200-week EMA.

USDJPY: It is a relatively quiet week on the economic calendar. Key stats include October’s finalized services PMI ahead of household spending figures for September. We would expect the numbers to have a relatively muted impact on the Yen, however. COVID-19, U.S politics and, market sentiment towards the global economy will be the key drivers.

Technical: The pair gradually moved lower during the month of October but has found support near ¥104 handle to bounce from. The magnitude of the bounce from here can be a bit more. There is plenty of resistance in this region to overcome, the seemingly immediate one is the 50-day EMA, highlighted in the red color. The region between 50-day EMA and 200-day SMA should offer quite a bit of resistance and might exert pressure on the pair. Any bounce back from there should be an immediate indicator of a sell-off. If the pair manages to break below ¥104 then the descending triangle on the chart would indicate a move towards the recent lows of ¥102.