Analysis | October 6, 2020

KTM FX Weekly: Dips do not worry us-update

The 3Q of 2020 has wrapped up, and we’re now entering the home stretch. It’s been an exceptionally volatile quarter so far, but the next three months could well define the year.

Our subject currency EURUSD posted a percent rise last week, its first weekly gain since late August. However, the price is trading still below 50MA and other key resistance levels.

Among G10 currencies, antipodeans rise 1.40% each, and the pound rises a percent along with the EUR, against the dollar. The crude related currencies NOK and SEK rose by 3.00% and 1.60% each. However, the Japanese yen down by 0.25% against the dollar.

Besides, the Euro suffered against AUD and NZD. The top performer among the Euro cross last week was EURJPY rise 1.25%.

Bonds: In bonds, 10y Treasuries bounce strongly to 0.78% after yields closed at 0.70% last week. Besides, the 10Y German government bond yields closed at -0.54%.

Data review: The IHS Markit Eurozone Manufacturing PMI signaled an acceleration in the growth of the manufacturing economy during September. Germany led the upswing in regional manufacturing activity, with the respective PMI here hitting its highest level for 26 months, according to IHS Markit. However, the eurozone’s private sector slowed further towards stagnation in September.

  • Final Eurozone Manufacturing PMI at 53.7 in September (Flash: 53.7, August Final: 51.7).
  • Euro area annual inflation is expected to be -0.3% in September 2020, down from -0.2% in August according to a flash estimate from Eurostat.
  • Final Eurozone Services Business PMI registered at 48.0 (Flash: 47.6, August Final: 50.5).

Event wise, Christine Lagarde, President of the ECB, at the ECON Committee of the European Parliament (by videoconference) highlighted the risk of “incomplete recovery.” In her introductory statement, she said, “Euro area economic activity rebounded in the third quarter, the recovery remains incomplete, uncertain, and uneven. Consumer spending has resumed significantly, but consumers remain cautious, owing to anxiety about their job and income prospects.”.

Looking ahead, politics will be in focus during the coming weeks, with the USA Presidential election just over four weeks. Since the first Presidential debate, things have changed dramatically. President Trump was tested positive to COVID and discharged from the hospital on Monday night. The second debate is currently scheduled to take place on October 15.

Besides, it will be another busy week on the central bank front. Federal Reserve Chair Jerome Powell is giving a speech to the National Association for Business Economics, while the latest Fed meeting minutes are also out. European Central Bank President Christine Lagarde is speaking on Tuesday and Wednesday at separate events.

Data wise IP for Germany, French, and Italy due.

TECHNICAL OVERVIEW

The Euro gained for the second straight session on October 05. However, the price capped at 50MA and is trading below the key resistance level of 1.1920 its right shoulder.

Turning to daily indicators, RSI is recovering, and the oscillator has bene remaining bullish crossover. One may expect a further attempt at an upside breakout of 1.190-1.1920 could be possible in the coming sessions.

Flipside supports exist at 1.1590 and 1.1500. As we noted last, dips do not worry us.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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