Technical Analysis for 22/09/2016
EUR / USD – Euro US Dollar
In the morning you can expect the growth of quotations on the background of the reducing the US Federal Reserve forecast about the discount rate for the period of 2017-2018. The regulator has also lowered its estimates on the inflation and GDP, which in general is not surprising. It is because the high dollar rate hinders both the inflation and exports. And the corporate profits have been declining in annual terms for four quarters in a row. However, there was no forecast revision for 2016: the FOMC is going to increase the rate once at the end of the year. Moreover, three representatives of the FED George, Mester and Rosengren argued for a rate hike regarding the federal funds at the meeting on Wednesday. This situation has happened for the first time this year, as before only Kansas City Fed President Esther Georges argued for a rate increase while the rest of the committee members did not support it. Now two colleagues have also pointed to the need to tighten the monetary policy. Is this good or bad for the dollar? In my opinion, it is good as in recent years the investors have strongly doubted that the Fed will raise rates in the current year. It is also necessary to note the fact that the FOMC inaction has caused a new wave of purchases of risky assets, which in its turn has become a negative factor for the euro as the currency is used to fund carry trade operations.
Against this background, during the day Sell positions on the growth of quotations should be opened within 1.1210 / 1.1235 and it is preferable to take profit at the level of 1.1160.
GBP / USD – British Pound Dollar
At present a mixed background has been forming. On the one hand, the growth of “risk appetite” after the US Federal Reserve meeting may reassure bulls to open long positions. The pair has been currently oversold and the upward correction can be helpful to the major players that are shorting the pound on expectations of reducing the key rate by the Bank of England in the fourth quarter. On the other hand, yesterday’s data on the black gold market contribute to the growth of pessimism: this week Russia and Saudi Arabia have increased the volume of oil to historic highs, and the US continues to gradually increase the production, which was at low levels at the beginning of the year. In this regard, a new wave of oil sales cannot be excluded, which ultimately will cause the fall of the British currency.
Against this background, during the day we can expect the flat within the range of 1.2970 -1.3070.
USD / JPY – US Dollar Japanese Yen
The Bank of Japan has disappointed markets with its reluctance to introduce new incentives, but once again it pointed at possible additional measures if necessary. Will such a need be there in the near future? In my opinion, yes, it will. This is because the downward trend in the oil market, which can be expected in the fourth quarter, will further tighten the deflationary spiral in Japan. The situation starts to become clear in the oil market: on the eve Russia reported about the historical maximum of oil production at the level of 11.75 million barrels. Now the volume of the production in Saudi Arabia is also located at historical highs, at the level of 10.67 million barrels. It all happens 5 days before the Forum in Algeria, where the oilmen are expected the take measures aimed at rising prices. Let us remember April this year, when the summit was held in Qatar. The level of oil production in Russia amounted to 10.92 million barrels, the Saudis produced 10.22 million barrels and Brent quotes were at the level of $ 43 / barrel then. Thus, the volume of the production of two major world producers has been increased by 0.83 and 0.45 million barrels respectively. Is it possible to expect any actions form the oilmen when the total production volume of the two states has increased by 1.28 million barrels and quotes have been10% higher than in April? In my opinion, no, it isn’t. Considering that the US production also begins to increase (the growth is being observed for the last two weeks), and the driving season will have ended in a few days, we will see the bad reports from the United States in October, which will also put pressure on black gold. Against this background, the inflation expectations in Japan will again demonstrate the decline and monetary authorities will have no choice but to introduce new measures. And as the number of supporters in the US Fed regarding the speedy rate hike is increasing, the current levels are attractive enough to open long positions.
Against this background, during the day Buy positions on the reduction of quotations should be opened within 100.20 / 99.80 and it is preferable to take profit at the level of 101.25.