FX Outlook for the 2nd half of October 2020

By Aiza Belle | 12 October 2020 | | Share:

Market remains on a cautious conservative wait mode. Updated on 11/11/2020: Added charts after elections week and some brief commentary.

Disclaimer: Everything that's written here are mainly the author's opinion subject to current situation and assumptions (ceteris paribus) and doesn't account for any future changes in them (especially unexpected ones). Do your own research and don't take this as financial advice.

DXY 

📌 Initially consolidate near 92.5 first before either recovering up to 95 or go sideways by November

Non-manufacturing PMI figure last week was slightly higher (57.8) than expected (56.3), while both adjusted unemployment claims for October 1st and last week's figure were both significantly higher than anticipated (849k vs 837k, and 840k vs 820k, respectively), which inhibits USD recovery and increasing the possibility of DXY to drop down to at least 92.5 first for the remaining half of October before recovering by either end of October or early November.

Despite smart money starting to get bullish on USD (and USD showing signs of bullishness today against EUR and CNY), I prefer to generally wait first either for DXY to touch-base 92.5 at least OR the COT indicator for non-commercial traders to cross 0 level and start moving up.

But if another round of US stimulus package is approved, expecting DXY to go down and breakout its current 92 low (and 0 fibonacci level), while gold shoots up higher.

DXY by October 31:

DXY after US elections in November 2020:

It did go sideways by November, dropping again near 92 during election week time.

EURUSD

📌 Potential spike up and stop hunt at 1.20 before dropping to 1.155

Industrial production figures in Euro area -- particularly Italy and France showed greater numbers than expected. 

However, potential for ECB to make a move soon after worries about rising inflation because of Euro appreciation (along with bearish USD in the short-term), might cause a reversal in EURUSD soon-- forming a bearish W in its weekly chart:

Though non-commercial traders remain bullish in general, COT indicator is showing "extreme" bullishness lately coupled with some smart money becoming less bullish. Though it doesn't necessarily indicate an impending reversal by the latter half of October (again, EURUSD might shoot up to or at least near 1.20 first), an early reversal is still possible so it's best to remain cautious. 

EURUSD by October 31:

EURUSD after US elections in November 2020:

The spike and stophunt near 1.20 didn't happen and EURUSD decided to drop right away instead up to 1.16. However during election week, it climbed towards 1.19.

GBPUSD

📌 Either remain range-bound between 1.28-1.305 or sudden drop towards 1.265 by next month

Though there's a possibility that GPBUSD will remain range-bound for the latter half of October, general market sentiment regarding the effectiveness of BCG vaccine against the spread of virus in UK, and its new three-tier lockdown efforts will remain at play.

Taking into account that large bearish candle back in the 1st week of September, as well as general bearishness of non-commercial traders, but more stop hunts in the pound, I'll remain cautious and either wait for a possible "spike" first or fake out towards 1.35, OR consistency and confirmation of bearishness in lower timeframes before riding the possible movement down.

GBPUSD by October 31:

GBPUSD after US elections in November 2020:

It only dropped within the range (1.285) before climbing its way indeed to 1.35 starting election week up to now instead of dropping to 1.265 -- whether that's still bound to happen after the expected spike (sometime by end of this month) or not, remains to be seen.

AUDUSD

📌 Range-bound between 0.705 - 0.74

Despite a potential USD weakness and bullish bias on gold, I think recovery will only up to 0.74 at most for this month especially with RBA's recent dovish tone. Whether it does move up to 0.74 or drop to 0.705 right away instead depends on the actual unemployment rate and employment change to be released this week, as well as CPI and RBA statement in the following weeks.

Though COT indicator shows bullish bias, will wait for the actual labor figures this week and only go for a cautious buy for now.

AUDUSD by October 31: 

AUDUSD after US elections in November 2020:

Continued dropping up to 0.699 before seemingly climbing its way now to 0.74.

USDJPY

📌 Either might get volatile towards 107 (0 fibonacci level) or inch its way down to 104 (and eventually 100).

Unless something happens that will cause a surge on USD value and show a bullish engulfing candle in the weekly chart (and consistent upward trend in lower timeframes), USDJPY will continue to drop down to 104 (-38.2 fibonacci level) before possibly creating a spike to its 2016 low (-61.8 fibonacci level) especially as the yen is most likely to continue appreciating along with gold as uncertainties regarding the pandemic continues

Despite the general bullish bias of non-commercial traders, need to be cautious of any shift in sentiment especially with rumors that JPY is slowly losing its safe haven status.

USDJPY by October 31: 

USDJPY after US elections in November 2020:

It continued dropping further even way past 104, reached 103 during elections week but started rebounded the week after.

USDCHF

📌 Possible recovery to 0.92 this month (2018 low) before dropping down to 0.88

Similar to USDJPY (with CHF also being treated as safe haven asset), expecting this pair to recover in the short-term before dropping down to 0.88 (-61.8 fibonacci level) especially with stronger Swiss economy as indicated in its considerably better than expected KOF Economic Barometer figure (113.8 vs 106.1)

Unlike JPY though with possibility of sudden reversal if BOJ does something to prevent Yen from appreciating a lot, CHF is more likely to continue its current bullish trend at least in the short to mid-term.

USDCHF by October 31:

USDCHF after US elections in November 2020:

It did recover up to 0.92 before dropping to 0.897 only during elections week and then rebounded the week after.

USDCAD

📌 Rally towards 1.33 before dropping down to 1.30

Despite Canada's lower than expected trade balance figure last week (-2.4B vs -2.1B), CAD remained stronger against USD with better than expected Employment Change and Unemployment Rate figures (378.2k vs 150k, and 9% vs 9.8%, respectively).

Though non-commercial traders remain bearish on CAD overall, the current trend and movement in COT suggests a "wait and see" approach. 

USDCAD by October 31:

USDCAD after US elections in November 2020:

Recovered up to 1.339 and dropped at 1.297.

USDMXN

📌 Slide down to 20 but possible recovery near 21.5 first

Despite the weekly chart showing a possible bullish triangle breakout for USDMXN, the bullish trend of MXN on COT among non-commercial traders suggest otherwise -- which is also aligned with uncertainty regarding the next US stimulus package.

USDMXN by October 31: 

USDMXN after US elections in November 2020:

It did recover and even touched the downward trendline at 21.95 before dropping again down to 20.16.

USDZAR

📌 Rally to 17

Unlike USDMXN, USDZAR is most likely to rally soon towards at least 17 especially it has now reached its support at 16.2 (0 fibonacci level) -- at least from a technical standpoint, especially current sentiment among non-commercial traders now for ZAR is mixed.  

South Africa residents proved to be more resilient against the virus compared to say, Europe, but its economic stability in mid to long-term remains questionable especially investors are more weary about ZAR considering how Moody downgraded it to junk status earlier this year.

USDZAR by October 31:

USDZAR after US elections in November 2020:

Didn't expect ZAR to be THAT strong indeed against USD, USDZAR dropped further down to 15.56 during elections week -- whether it will continue to drop towards its 2019 high and prior year 61.8 fibonacci level at 15.275 remains to be seen. 

Featured image by Kai P. of Unsplash.