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Technical Analysis for 05/10/2016

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Technical Analysis for 05/10/2016

Technical Analysis for 05/10/2016
October 05
09:00 2016

EUR / USD – Euro US Dollar


During the day, we should expect the development of the bearish trend for two reasons. Firstly, the yield on 10-year German  government bonds is reducing at the credit markets in relation to their counterparts in the US and the UK, which reduces the attractiveness of investments in European assets and, thus, will put pressure on the euro. In my opinion, today we can see the positive releases of the US employment from ADP as well as the business activity in the service sector from ISM against the background of strong data on applications for unemployment benefits and high consumer confidence from the CB. Secondly, the world is still experiencing the “risk appetite”, in this regard the pressure on safe assets can be expected. The day before gold and the Japanese yen showed a strong fall; the euro is one of the funding currencies and now it’s the turn of this currency.

Against this background, during the day Sell positions on the growth of quotations should be opened within 1.1210 / 1.1240 and it is preferable to take profit at the level of 1.1145.

GBP / USD – British Pound Dollar


At present a mixed background is being formed. On the one hand, one can expect the development of the rising correction movement for two reasons. Firstly, the debt market is experiencing the moderate growth of the yield on 10-year UK government bonds relative to their counterparts from the US and Germany that can support the demand for the pound sterling. Secondly, late on Tuesday the American Petroleum Institute reported about a significant decline in crude oil inventories by 7.6 million barrels. Today we’ll get the data from the US Department of Energy. As this indicator is closely correlated with the API dynamics, so we will see a positive report, which supports the demand for oil. The growth of black gold quotations, in its turn, will positively affect the value of the British pound. On the other hand, this week we have got a strong release from Markit PMI on the UK manufacturing and construction sectors for September, but the investors have completely ignored the data that indicates the presence of a large number of sellers in the market.

Against this background, during the day we can expect the flat within range of 1,2680-1,2790.

USD / JPY – US Dollar Japanese Yen


The upward trend in the currency pair is increasing and according to the basic rule of trading, after the correction it is necessary to trade in the direction of the main trend. However, there is a question whether we will see a correction since the quotes are rising almost without interruption. In my opinion, yes, we will. But this correction may be small. On the eve the US stock market closed the trading in the “red zone” and VIX fear index rose by 2.5%. This pattern suggests a possible correction in Asian markets on Wednesday, causing a decrease in quotations of the pair USD / JPY because there is a local demand for the yen as a funding currency. I think that it will be a correction rather than a trend reversal. This is indicated by a strong signal from the debt market: on Tuesday the yield differential on 10-year US and Japanese government bonds rose to its highest level for the last ten weeks, which implies a growth of quotations in the region of Figure104. As noted earlier, today we can expect the release of positive macroeconomic data from the United States that will support the dollar.

Against this background, during the day Buy positions on the reduction of quotations should be opened within 102.40 / 102.00 and it is preferable to take profit at the level of 103.25.

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