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Forecast for euro price for 27 October 2020

2020-10-27

2020-10-27

Euro: slow start and fast drive. Analysis as of 27.10.2020Dmitri Demidenko

The US stock indexes usually grow on the eve of elections, so their decline at the end of October’s last week can be interpreted as market noise. How will that affect the [EURUSD][1]? Let’s find it out and make a trading plan.

Weekly fundamental forecast for euro

There are a few reasons for the [EURUSD][1]’s drop to the bottom of figure 18: the US stock indexes’ fall amid loss of faith in fiscal stimuli and record-high growth of new cases in the USA; disappointing macrostatistics in Germany, and fears that the ECB may expand QE as early as in October. Investors were expecting the second wave of COVID-19, but they didn’t know it would come so fast. The record high growth of new cases in the USA, France, and Russia, the introduction of new restrictions, and emergency announcements in some European countries made the [S&P 500][2] fall by 1.9%. The German [DAX][3] went further and dropped 3.7 %, drawing the euro down too.

The increase in new coronavirus cases in Germany provoked the Ifo’s Business Climate Index’s fall, the first in six months. It’s a bad signal about an eventual slump after a 6-month recovery. Growing risks of a double recession and reflation may urge the ECB to expand QE by €500 billion already on 29 October, in contrast to the Bloomberg experts’ bet on December. That will be an unpleasant surprise for [EURUSD][1] bulls.

German business climate index

Source: Bloomberg.

ECB bond-buying dynamics

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Source: Bloomberg.

The States look preferable to the eurozone, which lost illusions about fast recovery. Three months ago, Bloomberg surveyed economists forecast that the US GDP would grow 18% in Q3. The estimate rose to 31.8% by the publication date against a backdrop of a large fiscal stimulus as a faster-than-expected removal of restrictions. If the fiscal stimulus isn’t extended, the US double recession chance will be as big as in Europe.

The market doesn’t believe in any extra support before the elections and has already started to doubt that the issue will be resolved after 3 November as a blue wave is becoming less likely. That results in the [S&P 500][2]’s fall, which contradicts history. Since 1928, the stock index has closed in the green zone in the week before the presidential election. If we take a Tuesday to Friday period, the indicator will increase by up to 91%. Thus, the week’s bad start isn’t as bad a signal for the stock market and the euro.

Not only will Joe Biden’s victory inspire [S&P 500][2] bulls, but it will also reduce the risk of a trade war resumption, the reason for which may be China’s slow execution of its obligations under January’s agreement. According to Bloomberg, China has bought $65.5 billion in US goods, while the agreement is $170 billion.

China’s fulfillment of trade obligations

Source: Bloomberg.

The Democrats’ victory will weaken the US protectionism and allow the global trade to breathe deeply. That’s good news for the export-oriented eurozone and its currency.

Weekly trading plan for [EURUSD][1]

[S&P 500][2]’s fall on 26 October should be interpreted as market noise. The story is likely to repeat itself, and the stock index will close in the green zone in the last week before the election.

The strategy for the [EURUSD][1] remains the same. Buy at a breakout of resistance at 1.1865.

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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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