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Weekly FX Outlook October 26th



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GB Pound

Sterling had a relatively volatile week.

Movements

GBPUSD was once again volatile, starting the week at 1.2975 and trading initially higher to reach 1.3170 on Wednesday (6-week high) before reversing the movement in the second half of the week to close with a small gain of 0.4% at 1.3027.

GBPEUR had a choppy week, opening at 1.1070 and at first moving lower and testing 1.0930 on Tuesday. It then sharply recovered on Wednesday to trade just below 1.11 level before closing little changed at 1.1029 (-0.37%).

Movement rationale

After a cautious start, the Pound recorded on Wednesday its strongest daily gain against major peers since March amid renewed optimism in EU-UK trade deal. Both parties agreed to intensify negotiations, with the decision to move to daily talks, while EU’s chief negotiator Barnier said that a deal is “within reach”. However, with no more positive news from Brexit the movement proved short-lived and the currency then partly retraced some of these gains during the second part of the week, finding some support on robust UK retail sales data released on Friday. Also, UK inflation moved higher in September (+0.5%) but the rate remains at historically low levels.

Week ahead

With limited major data releases this week, Sterling will remain driven by risk sentiment and Brexit headlines.

Calendar

Thursday 10:30am | Consumer Credit (Sep)

US Dollar

The US Dollar had a soft week.

Movements

EURUSD traded with a positive bias, opened at 1.1719 and gradually moved higher to close the week up 0.77% at 1.1809.

GBPUSD was once again volatile, starting the week at 1.2975 and trading initially higher to reach 1.3170 on Wednesday (6-week high) before reversing the movement in the second half of the week to close with a small gain of 0.4% at 1.3027.

Movement rationale

The Dollar gave back the previous week’s gains and edged lower during the first half of the week as market investors were cautiously optimistic that an agreement in Washington on a fiscal stimulus package could be secured ahead of the up-coming U.S. Election. Positive market sentiment also pushed the USD lower amid news that a coronavirus vaccine might be ready by year-end. The Dollar then slightly recovered part of its losses during the last part of the week as hopes of a US stimulus deal reduced.

Week ahead

USD is expected to have a relatively volatile week ahead, with the following main events having the potential to influence the markets:

Calendar

Tuesday 1:30pm | Durable Goods Orders (Sep), Consumer Confidence (Oct)

Thursday 1:30pm | Gross Domestic Product (Q3), Initial Jobless Claims (Oct 23)


Euro

The Euro had a good week.

Movements

EURUSD traded with a positive bias, opened at 1.1719 and gradually moved higher to close the week up 0.77% at 1.1809.

GBPEUR had a choppy week, opening at 1.1070 and at first moving lower and testing 1.0930 on Tuesday. It then sharply recovered on Wednesday to trade just below 1.11 level before closing little changed at 1.1029 (-0.37%).

Movement rationale

Positive risk sentiment during the first part of the week pushed the EUR higher, despite concerns over the precarious economic recovery, with the Euro-zone economic activity slipping back into decline this month and rising number of Covid infections being recorded across Europe. The currency subsequently lost steam in the second half of the week as market sentiment deteriorated, boosting demand for safe-haven assets and halting a four-day rally in the Euro.

Week ahead

The week includes a heavy Eurozone economic calendar, with ECB meeting and GBP data as main events:

Calendar

Monday 10am | IFO – Business Climate (Oct)

Thursday 11am | Consumer Confidence (Oct), Business Climate (Oct), 1:45pm | ECB Interest Rate Decision

Friday 11am | Consumer Price Index (Oct), Gross Domestic Product (Q3), Unemployment Rate (Sep)


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