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Technical Analysis for 12/09/2016

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Technical Analysis for 12/09/2016

Technical Analysis for 12/09/2016
September 12
09:00 2016

EUR / USD – Euro US Dollar

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The growth of quotations in this currency pair should be used to open Sell positions. Why can we see the pair growth at the beginning of the trading day? The main factor will be the inflow of the capital in the funding currency, to which the single European currency has been related for the last two years. Reducing the “risk appetite” of investors will help to strengthen the euro, following the example of the US trading session on Friday, 9 September. Then the world’s leading stock markets showed a strong drop in prices, herewith the euro was in demand. Then the trend will change its character, and we will see the strengthening of the US currency. The main driver for the strengthening of the dollar can be called the Libor rate increase. The three-month rate Libor is an indicator of the interbank lending and almost every day there is a new high of the year in the market. The current level of interest rates is at around 0.852%. Let me remind you that on 16 December 2015, when the Fed raised the discount rate, this rate was at a level of 0.532%. Thus, the spread between the medial FOMC rate and the Libor rate was at the level of 0.157% in December 2015, which implies a current medial level of FOMC interest rates 0.695%. If the Fed raises the interest rate by 0.25% at one of its next meetings, the medial level will be at around 0.625%. Thus, we can conclude that FOMC will surely raise interest rates this year. And we cannot exclude a scenario that it will be done before the US presidential election.

Against this background during the day Sell positions on the growth of quotations should be opened within 1.1250 / 1.1280 and it is preferable to take profit at the level of 1.1205.

GBP / USD – British Pound Dollar

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At present a mixed background is being formed. On the one hand, the credit market dynamics indicates the growth of positive attitudes in relation to the British assets: the yield on 10-year UK government bonds is increasing in relation to their counterparts from the US and Germany. It should be noted that the yield differential of the US and UK bonds has reached the highest level since 4 August. On the other hand, large-scale sales in the market of black gold on Friday (Brent quotations fell by 4.26%) can have a lot of pressure on the pound sterling. The fall in oil prices contributes to the strengthening of the dollar, as the cost of energy carriers is quoted in the US currency. In my opinion, two scenarios on the British currency can be expected now. The first one is the growth of quotations in the region of 1.3479 (the high of July 15), and then the drop to a new minimum of this year (below 1.2796). The second scenario assumes that we won’t see the growth in the above areas and the price reduction in the area of 1.2796 has already begun. Therefore, I expect the fall of the British currency value and chances to upgrade the minimum of the current year in the next three months are quite high. Why should we expect the decline in the pound? The thing is in a multidirectional monetary policy of the two central banks: in August the Bank of England lowered interest rates and announced another cut till the end of the year due to Brexit. Herewith the US Federal Reserve is preparing to raise rates. Probably this will happen at the December meeting.

Against this background the flat in the range of 1,3210-1,3310 should be expected during the day.

USD / JPY – US Dollar Japanese Yen

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The pair has finished the last two trading days with the growth of quotations. Herewith, stock markets have been subjected to large-scale sales, especially in the United States. This trend usually ends with the strong decrease in quotations of the pair USD / JPY. Will such an outcome be repeated this time? In my opinion, the chances are very high. Firstly, the US stock market has demonstrated a maximum fall since Britain has announced about its withdrawal from the EU. Then the world’s stock markets were gripped by panic. Now there is no panic, but we see massive sales. Secondly, the sales occur across the spectrum of risky assets: stocks, oil, metals, high yield cross rates. Thus, we can conclude that investors are turning off carry trade and will give loans denominated in the Japanese currency. During such periods the yen as the funding currency №1, is in steady demand.

Against this background during the day Sell positions on the growth of quotations should be opened within 102.75 / 103.15 and it is preferable to take profit at the level of 101.90.

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