• DXY this week started to correct the early November advance.
  • The next key supports are seen at the 97.80 and 97.50 levels.

DXY weekly chart

DXY (US Dollar Index) retreated slightly this week as the Index is trading above its main weekly simple moving averages in a bull channel.

DXY daily chart

DXY (US Dollar Index) is trading in a bull trend above the 200-day simple moving average (DMA). This Friday the buck dropped to its lowest in five-days near the 100 DMA located at 98.02.

DXY 4-hour chart

DXY is correcting down below its 50 and 200 SMAs, suggesting a bearish bias in the medium term. The market is trying to break below the 98.00 handle. Next week if there is bearish follow-through, the market might continue to decline towards the 97.80 support level. If that support fails to hold prices, then 97.50 can be on the cards.

Additional key levels

  • EUR/USD ends the week near its highs as the market is correcting the recent November decline.
  • The correction can continue to the 1.1055/78 resistance zone.

EUR/USD weekly chart

EUR/USD had a small corrective bounce above the 1.1000 handle this week. The market is trading below its main weekly simple moving averages in a weak bear trend.

EUR/USD daily chart

The Euro, on the daily chart, is trading in a bear trend below downward sloping 100 and 200-day simple moving averages (DMAs). This Friday the market corrected to the upside and broke above the 50 DMA today at 1.1041. The spot also reached the 1.1060 level which is the 38.2 Fibonacci retracement from the current November decline.

EUR/USD four-hour chart

The Fiber is correcting up as it moved beyond the 50 SMA. There is a weak resistance at 1.1055, which might be overcome, according to the Technical Confluences Indicator. Afterwards, comes the 1.1078 strong resistance near the 200 SMA. If that also fails to contain prices, then the market might continue its correction towards the 1.1112 level. Further up lie the 1.1181 resistance.

Additional key levels

Analysts at MUFG Bank, see the likelihood of the pound suffering a setback in the run up to the election has now been reduced although certainly not eliminated. They consider It will still be difficult for the GBP/USD pair to break above 1.3000 until there is more clarity.

Key Quotes:

“Our short GBP position is to take advantage of a potential pick up in political uncertainty in the run up to the election. The Tories already have a large lead over the Labour party in the opinion and it is unlikely to widen much further. Market participants will be reluctant to lift cable above the 1.3000-level until there is more clarity after the election. It leaves the balance of risks more skewed to the downside for the GBP in the run up to the election given there is higher likelihood that the polls could begin to narrow and creating more political uncertainty.”

“The incoming economic data flow from the UK has taken a negative turn recently which if it continues will further encourage building BoE rate cut expectations. The GBP could also be challenged by more risk-averse trading conditions which started to creep in last week.”

“Public opinion polls would need to shift decisively to trigger a more volatile GBP. It has not happened yet broadly, although we note Britain Elects Poll Tracker shows the gap closing. Downside risks for GBP would increase if the gap starts to narrow across a wider number of polls, which would increase political uncertainty. It would open up GBP more to weakness coming through from the UK economy. Key support for cable is located at 1.2800, and then at 1.2700, the 200-day moving average.”

The path of least resistance is higher in the view of Rabobank analysts, as the herd of systematic funds begin accumulating a “long” oil position and risk parity funds increase position sizing in 2020.

Key Quotes:

“Looking forward we see the path of least resistance for oil markets as higher given that we expect the herd of systematic funds to begin accumulating significant oil length in the months ahead. The forward “carry” signal remains strongly “bullish” and momentum and trend signals are in the process of moving from “short” to “long.” Seasonal algorithms will then flip from “short” to “long” early in 2020 providing a another wave of speculative buying.”

“We also expect position sizing from the “Managed Money” crowd to grow larger in 2020 as the oil market shifts into a higher price and lower volatility regime. Our base case remains for Brent to trade in the low 70s in 2020.”

Analysts at MUFG Bank explained that improving Eurozone data flow and diminishing downside risk has been offering little support to the euro so far. They expected broad-based weakens in the euro to continue in the near-term.

Key Quotes:

“The EUR continues to trade heavy in the near-term. Last month’s relief rally on the back of progress towards a partial US-China trade deal and the pushing back No Deal Brexit risk has proven short-lived. EUR/USD failed to break above its 200- day moving at 1.1180 and has since fallen back below the 1.1000-level. The next target on the downside will be the early October low at 1.0879. Recent price action for the EUR has been poor as it has failed to derive much support from both an improvement in the economic data flow from the euro-zone and an easing of downside risks to the growth outlook.

“The key question going forward is will this data improvement help stabilise the euro, or even help it turn higher? We certainly believe the change in data flow, while not yet compelling and certainly from a low base will be enough to curtail euro selling.”

“The EUR’s failure to strengthen on the back of the improving euro-zone economic data flow and easing of downside risks to the growth outlook is a bad sign for nearterm performance. It leads us to believe that downward momentum will remain in place in the near-term. A decisive break below the 1.1000-level for EUR/USD would open up the door to a potential retest of the early October low at 1.0879.”

“The ECB’s pledge for looser policy for longer remains a heavy weight on the EUR.”

  • USD/CAD is ending the week virtually unchanged near 1.3230 level.
  • The level to beat for bulls is the 1.3280 resistance.

USD/CAD daily chart

The Loonie on the daily chart is trading below the 1.3250 level and the 200-day simple moving averages (DMA). This Friday, USD/CAD declined on USD weakness.

USD/CAD four-hour chart

USD/CAD is trading above its main SMAs, suggesting bullish momentum in the medium term. However, buyers must break above the 1.3280 resistance to reach the 1.3320 level on the way up, according to the Technical Confluences Indicator.

USD/CAD 30-minute chart

USD/CAD is trading below its main SMAs, suggesting a bearish momentum in the near term. Support is seen at 1.3230 level followed by the 1.3213 level, according to the Technical Confluences Indicator.

Additional key levels

Analysts at ING, see the USD/JPY pair trading with a neutral bias the next week and expect it to move in the 108.10/109.50 range. Their one-month target is 108.00.

Key Quotes:

“After some recent sharp dislocation, the Japanese Government Bond market looks a little more under control – helped by a rally in US Treasuries. The BoJ probably doesn’t mind the JGB sell-off too much, given its preference to steepen the yield curve and help the local banking system. Barring a surprise break-down in US-China trade negotiations, we see the coming week as a reasonably benign one – meaning that USD/JPY should be range-bound to slightly higher. True the US data has been softening a little, but the industrial slow-down is well-priced and, so far, the US consumer (like consumers elsewhere in the world) is holding up quite well.”

“Locally Japan sees October trade data and also the national CPI figure for October. The latter is rarely a market mover and the core rate, expected at 0.4% YoY, is still miles away from the BoJ’s target. Equally, the market doesn’t really believe the BoJ’s threats to take rates more negative – in fact, the BoJ has led the way in the tiering of deposits to protect the banking system from negative rates. In all, we expect a range-bound USD/JPY and the JPY to maintain funding currency status.”

  • Cable rose on Friday for the second day in a row and hit weekly highs versus US dollar.
  • UK elections expectations continue to support the pound in the short-term as greenback loses strength amid lower yields.

The GBP/USD pair continued to rise on Friday and reached at 1.2918, the highest level since November 4. Near the end of the week, it was hovering above 1.2900, consolidating weekly gains.

All about the elections

“The slew of data in the UK this week failed to drive any move in sterling as markets continue to focus solely on the upcoming general election. In the past few days, the Brexit Party pledged not to contest Conservative Party seats while presenting a candidate in all Labour-held seats. When adding a rising lead of Boris Johnson’s Conservatives in latest opinion polls, investors have been able to cement their expectations around a (market-friendly) Tory majority win”, explained ING analysts. They see the pound supported in the near future with the downside limited.

The greenback is about to end the session on a weak note on the back of a sharp downside correction in US yields. The 10-year was near 2% a few days ago and dropped toward 1.80%. US data and many speeches from Federal Reserve officials failed to offer support to the US dollar. The DXY turned to the downside from one-month highs falling back below 98.00.

The economic calendar looks light for next week. “Data-wise, PMIs may point to further manufacturing weakness but should once again have a limited market impact; on the political side, the first television debate between Mr. Johnson and the Labour leader, Jeremy Corbyn, will be the highlight of the week”, explained ING analyst. US/China trade deal headlines will likely continue to be a key driver of market sentiment.

Technical outlook

From a technical perspective, GBP/USD has lost upside momentum on the daily chart – a bearish sign, notes Yohay Elam, analyst at FXStreet. “It is also capped by downtrend resistance and experiences lower highs. On the other hand, sterling continues trading above the 50, 100, and 200-day Simple Moving Averages. Overall, bears are gaining ground but are far from taking over.”

Industrial production declined by 0.3% during October. While the strike at General Motors and utilities accounted for most of the pullback, mining continues to retrench and the underlying trend in manufacturing output remains subdued, explained analysts at Wells Fargo.

Key Quotes:

“Industrial production fell 0.8% was the steepest one-month drop in more than 10 years. All major segments of the industrial sector got in on the action, with utilities, mining and manufacturing production declining last month. After an unusually hot September, the return to more normal temperatures led to utilities output, which accounts for about 10% of industrial production, falling 2.6% in October.”

“We saw the effect of the GM strike in September, but it more clearly reared its head in the October manufacturing figures. Total factory output, which comprises about three quarters of industrial production, fell 0.6%, as the GM stoppage lasted almost the entirety of October.”

“In a separate report earlier this morning, the Empire State Manufacturing Survey showed factory activity in New York State has been little changed. The New York Fed’s gauge of manufacturing activity, the first of the November purchasing managers’ indices, shed 1.1 point to land at 2.9. That kept the index in its fairly tight range since July of 2-5, hinting that while factory activity remains tepid, conditions are not worsening materially.”