The US dollar traded higher against most of the major currencies on Friday thanks to better than expected economic data. Consumer spending rose 1.9% last month, more than two times the market’s estimate. Excluding autos, demand rose 1.5% compared to a 0.4% forecast.  Despite high unemployment and less jobless benefits spending rose for the fifth month in a row. With clothing and accessories leading the gain, part of this increase can be attributed to delayed school re-openings. However the data also justifies the decisions by Governors to keep their economies open even as more than 20 states set records for new coronavirus infections. 

The big question now is what the holiday shopping season will look like. The overall level of demand will certainly be lower this year compared to last but if states keep businesses open, providing Americans with a sense of normalcy, demand could remain strong as consumers tap into their savings. In our opinion, the improvement in consumer sentiment was more of a surprise given the growing election, fiscal stimulus and coronavirus uncertainty. On this point, the overall strength of the stock market is playing a major role in supporting sentiment. With less than 3 weeks to go before the US election, the main focus continues to be on stimulus talks and any unexpected policy announcement or policy threats from President Trump.  Keep an eye on the headlines because that will be the leading driver of dollar flows. We expect limited gains for USDJPY and a general reduction in exposure or risk ahead of the election that could drive the dollar higher against other currencies. 

Meanwhile the October 15th Brexit deadline set by Prime Minister Johnson passed with no agreement. According to an EU spokesman talks ended with Johnson telling his nation to prepare for a no deal Brexit. In light of this, the strength of sterling is remarkable. GBP traders are clearly hoping that won’t happen and negotiations will continue for the next few weeks. The EU’s von der Leyen confirmed that their team will return to London next week to intensify negotiations. Yet Johnson is reluctant to deal and taking a hard stance by saying there’s no point continuing talks unless there’s a fundamental change in the EU’s position. With the risk of a no-deal Brexit growing, coronavirus cases exploding and London hit with new restrictions, GBP/USD should be trading much closer to 1.28 than 1.30. 

Euro is also destined for further losses against the dollar with coronavirus cases surging across the Eurozone. In Italy, new coronavirus cases hit a new record high for the third day in a row prompting the government to shut schools in the southern Campania region. It may not be long before cases top 10K a day. In France, more than 30K new virus cases were reported on Thursday. If cases do not stabilize quickly, a full lockdown may return. For now, the outlook for the Eurozone is grim and it should only be a matter of time before EUR/USD falls to 1.16. October PMIs are scheduled for release at the end of next week – softer numbers will strengthen the case for ECB easing before the end of the year.

The Australian dollar extended its slide while the New Zealand and Canadian dollars traded higher. AUD has been on its backfoot throughout the week as RBA dovishness was reinforced by weaker labor data. In contrast, manufacturing activity grew at a faster pace in the month of September as the PMI index rose to 54 from 51. Although, Canada reported weaker manufacturing sales the recent labor market improvement paves the way for stronger Canadian retail sales next week.  

Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

AUD/USD battles 0.7100 as USD picks up bid on souring sentiment

AUD/USD eases from a weekly high of 0.7137 and flirts with 0.7100. The US dollar gains its feet across the board amid risk-aversion after American intelligence officials said that Russia and Iran have attempted to interfere in next month’s presidential election.


USD/JPY rebounds towards 105.00 as election jitters seep in

USD/JPY retraces the biggest losses in two months from 104.34. S&P 500 Futures, Nikkei 225 drop around 0.50%, stocks in Pacific are also down amid fresh jitters concerning the US election. The haven demand for the US dollar is back in vogue. 


Gold fails to scale 50-day SMA even as US inflation expectations rise

Gold faces rejection above the 50-day SMA hurdle for the second day. The yellow metal struggles to gather upside traction despite the uptick in the US inflation expectations, having faced rejection above the 50-day SMA at $1,923 early Thursday. 

Gold News

WTI: Buyers lurk around 100-day EMA

WTI bounces off $39.83, the lowest in one week, to battle 50% Fibonacci retracement. EIA inventories recovered from -3.818M prior, -1.021M forecast. The energy benchmark dropped the lowest since October 15 the previous day.

Oil News

2020 Elections: Trump is is showing signs of a comeback, will the dollar follow?

"It ain't over till the fat lady sings" – goes the adage which is relevant for the 2020 Presidential Elections as well. Two weeks ahead of election day, there are signs that incumbent Donald Trump is clawing back some support, raising the chances that the race could drag on for longer.

Read more

Forex Majors