Forecast for USD price for 22 October 2020

2020-10-22

Dollar checks its watch. Analysis as of 22.10.2020Dmitri Demidenko

The markets have been obsessed with fiscal stimulus recently, but the demand for European bonds may push [EURUSD][1] to the north if the ECB expands the bond-buying programme on 29 October. Let’s discuss that and make a trading plan.

Weekly fundamental forecast for dollar

In the financial markets, time is as important a factor as a price direction. Many traders would lose their money having chosen a wrong moment for making a trade, even though an asset’s price direction was predicted correctly. It is believed that fiscal stimulus will weaken the US dollar as stocks will grow, global risk appetite will increase, and demand for safe-haven assets will fall. The question is: will the economic support be provided before or after the elections? In the latter case, Donald Trump’s unwillingness to recognize voting results will support uncertainty and the greenback.

According to economic adviser Larry Kudlow, the stimulus talks are going really well, and both the economy and the market will profit if a deal is made within the next two weeks. At the same time, the Republicans don’t accept the prospective amount of $1.9 trillion. Speaker of the US House of Representatives Nancy Pelosi believes, a deal will be signed in spite of the Republicans’ resistance, but admits it may happen only after the elections.

An extra support before the election would give Trump and the USD extra points. That’s why the dollar’s weakness and the [S&P 500][2]’s fall mean the markets are doubting that the Congress will approve of the Democrats’ package before Joe Biden takes the president’s chair.

US candidates rating

Source: Nordea Markets.

Unlike fiscal stimulus, the US elections have already been scheduled. At the same time, the Blue Wave may raise the [S&P 500][2] in the short term, and weaken the greenback, with a subsequent correction. On the other hand, the markets are overconfident about the Democrats’ victory, which shows itself in lower volatility at Forex. In 2016, Hillary Clinton was on the top of ratings, but it was Trump who opened a bottle of champaign. If he is re-elected unexpectedly, investors should consider selling the [AUDUSD][3] and buying the [USDCNH][4] amid a risk of US-China trade war resumption.

Forex volatility dynamics

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** Source: Bloomberg.**

Weekly trading plan for [EURUSD][1]

The QE programme extension period is a question of time too. If that happens at the ECB’s meeting on 29 October, we can develop a trading strategy of buying the [EURUSD][1] as the quotes will fall amid weak statistics on Germany’s and the eurozone’s business activity, and fixing profits after the Executive Board’s meeting. Such a strategy is based on high demand for periphery countries’ bonds. The price for them will grow if QE gets extended. The problem is, the ECB may not take that step at the end of October.

I think that such factors as Joe Biden’s victory and a capital flow from the US debt market to Europe may raise [EURUSD][1] quotes despite the second pandemic wave and the eurozone’s economic weakness. Wait for data on Europe’s PMI to make a decision about medium-term trades. Until then, focus on intraday trading with narrow targets.

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Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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