Volatility is expected to be moderate in the Forex market next week just like we had last week. However, we might see some breakout moves on Sterling and Dollar Index. The following looks at the week ahead in the forex market including the dollar index technical forecast.
October 18, 2020 / AtoZ Markets – Brexit concerns, Covid 19 second wave and US final presidential debate are some of the important market drivers traders will look forward to. These, together with macroeconomics like the Chinese GDP, Aussie monetary policy meetings, PMIs etc will make up some of the market highlights. Last week, there were not so much drama around the US politics. However Covid-19 sparked tension across Europe and tighter restrictions triggered risk-off. This benefited the greenback and the DXY thus jumped by 0.7% last week against basket of currencies. Meanwhile, riskier FX especially the Aussie and Kiwi fell sharply. This was despite a better than expected September employment data in Australia. In the commodities market, Gold closed the week bearish after the price was rejected around the 1900-1905 zone while the oil market ended the week slightly bullish after a strong bull-bear face-off.
This week market risk drivers
Meanwhile, Brexit condition took another turn. The outcome was mixed to say the least. The UK accused the EU of handling negotiations lightly. However, the two parties expressed optimism and odds are therefore down on a no-deal brexit. This gifted the Sterling an early boost. However, the market was disappointed by the extension and quickly lost the early gain. Brexit still remains a big worry for traders and investors. The market might react to brexit-related headlines, speeches and rumors next week. Therefore, GBP traders should watch out.
Elsewhere, in the US, the final presidential debate will come up as the November 3 election draws closer. Trump still trails Biden at the poll by an average 9%. Brexit and US debate together with Covid-19 development will complete a trio of market risk-drivers next week. Traders should also watch out for speeches from central bank chiefs which could be pointers to their next calls regarding the monetary policies.
Central banks and macroeconomics
Talking of the central bank chiefs’ speeches at different events, the ECB President will start on Sunday. During the course of the week, BOE, FED and RBA will follow. Meanwhile, the RBA will be deciding on its monetary policy on Tuesday. Aside the banks, we have many macroeconomic data with the Chinese GDP data coming on Monday. The market is expecting expansion in the last quarter. If it comes better than expected, Aussie and Kiwi might get corrective boosts across the board. Aussie markit PMI could contribute to the AUD outcomes this week.
Key economic data in America include Canada inflation and retail sales, the unemployment claims and Markit PMI survey reports in the US. Across the Atlantic, UK economic calendar includes key inflation and retail sales data plus the consumer confidence report for September. Meanwhile in Europe, the EU power bloc will release its flash Markit PMIs. Contraction is highly expected in the zone as several countries in the zone had to enforce restrictions as a result of Covid resurgence. Euro struggled last week and will most likely continue downside if the data comes much worse than expected and Covid conditions get worse.
DXY technical analysis – will the dollar slump this week?
From the weekly chart below the DXY could still dig lower. According to the following DXY Elliott wave analysis, a long-term bearish impulse wave pattern started at 103.02 in March 2020. However, this might not have completed yet. In fact, the 4th wave ended at the 94.6-94.8 critical price zone. The September fast dip that followed the end of the 4th wave confirmed more hope for the bears with eyes around 90 or even below. The current rally to 93.9 could be the 2nd sub-wave of the 5th wave of bearish impulse from 103.2.
If wave 2 has ended, then traders should expect an extended dollar decline across the board. On a lighter scale, the major barrier will be between 93.9 and 93.25. If the price breach above the former, wave 2 should get extended to 94-94.25 before an eventual wave 3 decline. On the other hand, a dip below 93.25 would have confirmed wave 3. We should then expect a decline below 92 as the dollar falters across the board in the week ahead in the forex market.