EUR/USD Weekly Forecast: Growth, it’s all about economic growth

• Speculative interest has been unable to find a reason to go one way or the other.
• The US, Germany and the EU will report their respective Q3 Gross Domestic Product figures.
• EUR/USD holds on to its bullish stance but uncertainty surrounding covid limits the upside.

 The EUR/USD pair finishes the week with gains around 1.1830, at the upper end of its latest range but still unable to define a trend. For the past four months, the pair struggled for direction amid uncertainty about economic growth within the pandemic context, and the upcoming US presidential election. Tensions around this last mounted as Democrats and Republicans are using a coronavirus aid package as an election tool.

Back and forth between US Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi flooded the news feeds ever since the week started. Up to today, both parts have reported “progress,” but continued to extend discussions. Meanwhile, hard-line Senate Republicans seem unwilling to pass a large bill, and while an agreement could be achieved, it would yet need to pass Congress. There are little chances of an aid bill being approved before November 3.

The dollar and equities were out of synchro these days, a sign of prevalent uncertainty. The greenback’s behavior instead was more linked to government bonds. Its safe-haven condition somehow softened, although usual havens had an unimpressive performance.

What’s the market waiting for?

Just this week, the WHO reported a new record number of one-day cases of roughly 450K and that was before Thursday when the total approached 480K. This means more restrictions worldwide, and hence, slower economic progress. Major economies fight with recessionary signs and high levels of unemployment. Inflation, which used to be the main concern, is utterly depressed, yet under the radar, even for central bankers. Policymakers these days are more inclined to expand their monetary stimulus than to tighten them.

With coronavirus outbreaks spreading like wildfires and government taking tough measures just shy of lockdowns, speculative interest is extremely cautious, and will likely remain so. Vaccines and treatments are still under study and advancing, but there’s no magic solution yet. Even further, there won’t be one in the foreseeable future. And that means more economic contraction or in the best-case scenario, slow growth.

In the middle, the US election. Polls indicate that US President Donald Trump’s rival, Joe Biden, leads. Also, at least 50 million Americans have cast their votes in the current election, more than a third of the total votes from 2016. The one thing that’s clear is that whoever wins, a stimulus package is coming, although its extent will define whether the greenback will remain pressured or change the course.

It’s all about economic growth

The week has been quite light in terms of data. Central banks´ leaders have hit the wires but hardly referred to monetary policy. Instead, they reiterated that risks are on the downside and pledged to keep supporting the economy. A positive note came from the US Initial Jobless Claims report, which fell to 787K in the week ended October 16, the lowest reading since March’s chaos.

Also, Markit published the preliminary estimates of October PMIs. The figures were mixed, as services output fell into contraction levels in the Union. The German Services PMI came in at 48.9 while the EU indexes plunged to 46.2. Manufacturing activity, on the other hand, surprised to the upside, expanding to 58 in Germany from 56.4. The EU Manufacturing PMI printed at 54.4 from 53.7 previously, although the Composite PMI edged down to 48.4 from 50.4.

In the US numbers resulted in the other way around, although signaling steady growth, as the Markit Manufacturing PMI improving to 53.3 from 53.2 but missing expectations of 53.4, and the services index beating expectations by jumping to 56 from 54.6.

The macroeconomic calendar will provide further clues on economic growth in the next week, starting on Monday with the German IFO Survey on Business Climate for October. On Tuesday, the US will publish September Durable Goods Orders, seen falling to -0.1% from 0.5% in August.

Thursday will be quite a busy day as the ECB is having a monetary policy meeting. European policymakers, however, are not expected to change the current policy. At the same time, the US will publish the first estimate of its Q3 Gross Domestic Product. The GDP is expected to increase by around 30%, a record economic growth, although coming from a record bottom of -31.4% in the second quarter of the year.

On Friday, it will be the turn of Germany and the EU will report their respective Q3 GDP. German’s figure is expected at -8.9 quarterly basis, while the EU one is foreseen at -14.1%.

EUR/USD technical outlook

The EUR/USD pair retains its long-term bullish bias, according to the weekly chart. This last one shows that the pair has continued to range above a bullish 20 SMA which advances way above the larger ones. Technical indicators remain without directional strength although well into positive levels.

The daily chart indicates a neutral technical stance, with the risk also skewed to the upside, as the pair has recovered above its 20 DMA on Monday, holding above it for the rest of the week. Technical indicators hover just above their mid-lines, without directional signs.

The first level to watch to the downside is the 1.1760 area, followed by 1.1680. Below this last, the pair has room to retest the September monthly low at 1.1611. The pair topped these days at 1.1880, with gains beyond favoring an extension towards the 1.1940/50 area en route to 1.2000.

 EUR/USD sentiment poll

The FXStreet Forecast Poll indicates that the bullish case is far from over in EUR/USD, as the upside is favored in the three time-frame under study. Bulls stand for the 75% of the polled experts in the weekly perspective,  decrease to 40% in the monthly view, and resurge again to 55% in the quarterly analysis. As for the possible targets, the pair is set to remain in the 1.18 handle in the next few weeks, on average, but gain bullish traction as time goes by.

In the overview chart, there are little signs of directional strength. The weekly moving average offers a modest bullish slope, but the larger ones are neutral. However, and in the quarterly perspective mist targets accumulate in the 1.20/1.23 area, indicating that speculative interest is ready to attempt a bullish breakout.

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