Weekly Outlook 26th to 30th October

Weekly Outlook 26th to 30th October

25 Oct 2020 12:38 PM

Weekly Outlook 26th to 30th October

USDINR - The Reserve Bank, throughout the past week, has managed to prevent a large-scale appreciation in the rupee and is said to have absorbed most of the dollar inflows into India's equity markets. Foreign investors have bought more than $2 billion of Indian shares so far this month on hopes that the coronavirus infections in India may have peaked. No significant economic data for the coming week. This leaves the currency in the hands of COVID-19 stats and RBI. Also, Uncertainty over the timing of the fiscal stimulus in the U.S. is likely to keep the market on edge. It’s a busy week ahead in the U.S. on the economic data front. On Tuesday, durable goods orders, core durable goods, and consumer confidence figures are in focus. The focus will then shift to 3rd quarter GDP numbers and the weekly jobless claims figures on Thursday.

Technical - Sideways trading has made the momentum indicators turn neutral. The Bollinger Bands have converged, indicating reducing price volatility. Connecting the recent dollar lows of 72.75 (1Sept’20) and 73.01 (9Oct’20), there is a trend line (red line) support at 73.10 – 73.20. Moreover, the region around 73.00 – 73.10 have been tested multiple times in the recent past but has not broken yet. Importers should hedge for 1-2 months around 73.00 – 73.20 level through forwards. Exporters can target spot levels around 74 to restart some selective forward hedging.

EURUSD – The week starts with Germany’s Ifo Business Climate Index and sub-indexes figures providing direction on Monday. The focus will then shift to Germany’s unemployment numbers for October on Thursday. At the end of the week, GDP numbers for 3rd quarter, consumer confidence, and retail sales figures wrap things up. Throughout the week, inflation figures for Germany and the Eurozone are also due out. With market concerns over deflationary pressures, any further fall in prices will test support for the EUR. On the monetary policy front, the ECB is in action on Thursday. While the markets are not anticipating a move, the fresh spike in new COVID-19 cases may force the ECB to promise further support. Expect Lagarde to call on Brussels and EU member states for more action. Away from the economic calendar, COVID-19 numbers will also influence. More stringent lockdown measures will test the EUR.

Technical - The daily chart indicates a neutral technical stance, with the risk also skewed to the upside. Momentum indicators are bullish. The first level to watch to the downside is the 1.1770 area, which has provided strong support in the past and is now coinciding with 34-day SMA. The pair topped these days at 1.1880, with gains beyond favouring an extension towards the 1.1940/50 area (September highs).

GBPUSD - It’s a particularly quiet week ahead on the economic calendar. There are no material stats due out of the UK to provide the Pound with direction. The lack of stats will leave the Pound in the hands of COVID-19 and Brexit. With more containment measures in place, the Pound could come under pressure ahead of November’s monetary policy decision. Near-term, the only upside for the Pound would come from a Brexit deal.

Technical - Pound/dollar has broken above the 55-day SMA (pink line). The next hurdle for bulls is surpassing the uptrend resistance line, which has been accompanying GBP/USD since mid-September. Looking up, strong resistance is at the recent peak of 1.3175. Further above, 1.3270 is the confluence of the uptrend resistance line (yellow) and a high point in August. Support awaits at the round 1.30 level on the uptrend resistance line (red), which nearly converges with the 55-day SMA.

USDJPY - It is a relatively quiet week on the economic calendar. September retail sales and industrial production figures are due out in the week, along with October inflation figures. We don’t expect too much influence from the numbers, however, with U.S politics in focus in the week. Expect any continued rise in COVID-19 cases to also influence. On the monetary policy front, the Bank of Japan is in action on Thursday. Investors are interested in whether the BoJ will hold back a little longer or deliver further monetary policy support.

Technical - The long-running descending channel remains the overall formation with a general range of 104.50 to 106.00 over the last seven weeks. Wednesday's drop went straight to that 104.50 support which held in trading on Thursday and Friday. With further stimulus a reasonable assumption and limited support beneath 104.50, the immediate prospect is the downward sloping support. The Relative Strength Index moved sharply lower with the decline in USD/JPY on Wednesday and suggests further appreciation in Yen.