Technical Analysis for 07/10/2016
EUR / USD – Euro US Dollar
A key day of the week has come. The release of the US labor market for September will be published during the US trading session. It will determine the course of trading. What data can we expect today? In my view, we will see a positive employment report, which will increase the demand for the US currency. The employment in the service sector from the ISM has risen to its highest level since November 2015. The rate of applications for unemployment benefits has been at the minimum level since 1970! The number of initial applications has been below 300 000 for 83 consecutive weeks. These figures indicate the level of Non-Farm above 200 thousand. On Thursday the USDX index of the currency basket broke through the level of 96.5, and now the way to the mark of 97.62 has been opened, which implies a decrease of the EUR / USD pair to 1.1050. It is impossible to ignore the dynamics of the credit markets: the yield on 10-year German government bonds is being reduced 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.
Against this background, during the day Sell positions on the growth of quotations should be opened within1.1170 / 1.1210 and it is preferable to take profit at the level of 1.1050.
GBP / USD – British Pound Dollar
In the morning the pair is able to demonstrate the growth of quotations for three reasons. Firstly, on Thursday the yield on 10-year UK government bonds was rising on the bond market relative to their counterparts from the United States and Germany, which is positive for the pound. Secondly, the black gold continues to benefit from strong demand from investors, which can also encourage the bears to take profit on short positions as there is a historical direct correlation between the pair and oil. Thirdly, during the European trading session we can expect the release of positive data on the UK industrial production for August against the background of the British currency devaluation and the growth of export orders. Manufacturing PMI index for August has showed the immediate growth by 5.1% to its highest level for nine months. As noted earlier, in the second half of the day we should expect the positive macroeconomic statistics from the United States, which will trigger a new turn of sales of the British currency.
USD / JPY – US Dollar Japanese Yen
The pair has been showing quite a strong growth over the last seven weeks of trading. So, taking into account the positive news background, I recommend trading only in the direction of an upward trend. Now it is extremely dangerous to trade on the trend reversal as the yield differential on 10-year government bonds of the US and Japan has been at a peak over the last 4 months. And if you look at the chart, it is possible to see that the pair was being traded within Figure 110 at the beginning of the summer. Today I expect the strong employment data in the United States; and against this background the yield spread of the bonds can further expand. Thus, the potential for the growth of quotations has not been exhausted yet. The strong demand is also being observed in the segment of high-yield cross-rates, indicating the growth of carry trade operations and, in turn, it will increase the pressure on the yen as a funding currency.
Against this background, during the day Buy positions on the reduction of quotations should be opened within 103.60 / 103.20 and it is preferable to take profit at the level of 104.50.