The rebound in the dollar (USD) is explained by technical factors and is only temporary, and the pound sterling (GBP) should only climb when a basic agreement with the European Union is in sight, according to Lombard Odier .
The decline of the dollar is not over yet. Lombard Odier is targeting 1.21 for the EUR/USD (euro/dollar) pair by the end of 2020 and expects “some modest gains in 2021”. For the Swiss bank, the rebound in September (+2%) mainly reflects “a technical movement from oversold levels, following the formation of short positions (selling, that is to say bets on the downside, Ed. ) significant, and the risk aversion reaction (the greenback is considered a safe haven currency, editor’s note) due to the increase in Covid-19 cases in Europe”. Still, the fears of a new generalized confinement appear exaggerated, in the eyes of the strategists of Lombard Odier.

Thus, after this “healthy correction phase”, the decline of the dollar should resume. Indeed, “the Fed (central bank of the United States, editor’s note) has moved to an average inflation target, real US yields (rates minus inflation, editor’s note) are negative and the greenback is still largely overvalued ”, argues Lombard Odier, for whom the rate of depreciation of the dollar should nevertheless slow down. The euro should meanwhile “continue to benefit from negative US real yields, although any possible verbal intervention by the ECB to contain upward pressures could limit the potential for appreciation”, judges the Swiss bank.

As for the pound, it “seems to have finally started to price in the risk of a no-deal Brexit. (...) It is only when a basic agreement with the EU is about to be concluded that the GBP will be able to resume the path of the rise”, according to Lombard Odier.

What does technical analysis say?
While the EUR/GBP (Euro / Pound Sterling) is part of a medium-term ascending channel, in the shorter term, it is following a downward trend, delimited by a descending slant, which is currently passing towards 0.91 -0.9110. A confirmed crossing of this last level would propel the single currency towards 0.9185 pounds sterling. Beyond that, the 0.9290-0.93 resistance is a hurdle.

Conversely, in the event of a confirmed breach of the 0.90-0.9025 support, the short-term bearish trend would continue towards the 0.89-0.8925 support, or even 0.8864-0.8875 in case of rupture.

Due to the All Saints' truce, the next Stock Market advice of the day will be broadcast on Monday, November 2.