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Technical Analysis for 19/09/2016

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Technical Analysis for 19/09/2016

Technical Analysis for 19/09/2016
September 19
09:00 2016

EUR / USD – Euro US Dollar

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During the day the euro should be sold for two reasons. Firstly, the Friday’s release on the US inflation showed moderately positive data, which were enough to change the balance of forces in the credit markets. The differential yield on 10-year government bonds of Germany and the United States began to decline again, which reduces the attractiveness of investments in European assets. In general, the published data cannot change the expectations around the US Federal Reserve meeting, which is scheduled for 21 September. The current data are not enough to raise interest rates next Wednesday, but the positive trend on the core CPI index is sufficient to raise interest rates at the meeting on 14 December. The core inflation has been above the level of 2% for the last 10 months. The US economy has not seen such data for the last four years. Secondly, re-growing problems of the European banking sector will also lead to an increase in pessimism about the euro. The US regulators are imposing a fine to the Deutsche Bank in the amount of 14 billion dollars in the case of mortgage securities in the period of 2006-2008 years. In this regard, if the leading financial institution in Europe pays the fine, then the capital adequacy ratio will be lower than the norm. On Friday the bank’s shares fell by 8.4% with the DAX30 index drop by 1.49%. On Friday other banks of the Old World suffered: the shares of  UniCredit rolled back by 5,79%, Bankia – by 3.46%.

Against this background, during the day Sell positions on the growth of quotations should be opened within 1.1185 / 1.1208 and it is preferable to take profit at the level of 1.1125.

GBP / USD – British Pound Dollar

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Last Friday the British pound fell by 1.81%, showing the maximum day drop since July 5 this year. As it appears the British currency has decided to withdraw from the 2-month flat and update the low of the current year (1.2796). Personally, I initially expected the rise in share prices to the upper limit of the flat (1.3476), followed by the rapid drop in prices to new yearly lows. Typically, at first investors push the market to one side and then sharply turn it to another one. But in the end, we have not seen the upper limit of the flat. Overall, the decline of the pound has been expecting for a long time, as we have divergent expectations of the monetary policy of the Bank of England and US Federal Reserve : the first promise to lower the rate until the end of 2016, the second promise to raise the rate, although the exact dates are not announced. It is impossible to ignore the drop in prices for black gold. Quotes for Brent have slipped by 3.6% for the last week. We should take into account the growth of the production in North America as well as the completion of the driving season in the US and the subsequent fall in demand for petroleum products. So, it is possible to expect new sales of the basic reference contracts that will increase the pressure on the pound sterling.

Against this background, during the day Sell positions on the growth of quotations should be opened within 1.3050 / 1.3100 and it is preferable to take profit at the level of 1.2970.

USD / JPY – US Dollar Japanese Yen

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You should open Buy positions for two reasons. Firstly, the yield differential on the 10-year US and Japanese bonds is expanding after Friday’s CPI data, which increases the attractiveness of investing in the US assets. On Wednesday the Bank of Japan will announce the outcome of its meeting, and many investors are expecting the new stimulus on the background of low inflation expectations in Japan. This factor can cheer the bulls to test 104 Figure in the short term. Secondly, despite the drop in the world’s leading stock markets on Friday, in the whole, the US stock market closed the last week in the “green zone”. It is especially necessary to note the fall of the (VIX) Fear Index by 5.7% according to the results of Friday and according to the results of the week -by 12.1%, respectively. Thus, we can conclude that investors’ fears are leveled and we can expect the moderate demand for risky assets, which ultimately will put pressure on the Japanese yen as a funding currency.

Against this background, during the day Buy positions on the reduction of quotations should be opened within 102.15 / 101.85 and it is preferable to take profit at the level of 102.70.

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