Technical Analysis for 10/10/2016
EUR / USD – Euro US Dollar
The labor market report, which was published on Friday, gave a surprise: despite a significant growth of the ISM index of the service sector employment Non-Farm has not reached the predicted values and stopped at the level of 156 thousand. The rate of the increase of the average earnings has accelerated to 2.6% y / y. As the employment in the non-farm sector has disappointed the investors, the dollar has weakened against its major competitors. What can the dollar expect in the light of the negative data? Won’t the Fed raise interest rates? Many traders are concerned about these issues in the currency market. In this regard, I encourage you to pay attention to the presentations of FOMC representatives immediately after the employment report. Kansas City Fed President Esther George said that the report on the US labor market encouraged and pointed at maintaining the continued positive momentum. She was echoed by Vice Chairman of the Fed Stanley Fisher who said that the job growth “was fully consistent with” the further reduction in unemployment. Where is the trick? There is no trick: when the unemployment rate goes down by 5% or less, a lot of new jobs cannot be created in the US economy, because it (the economy) is close to the full employment. This state allows the monetary authorities (the Fed) to raise interest rates as the high employment will strengthen the inflation expectations. Taking into account the reduction in the yield differential on the10-year government bonds of the US and Germany, today we can expect the moderate growth of the pair. However, a sideway trend is in the priority against the background of the lack of the important macroeconomic statistics.
Against this background, during the day we can expect the flat within the range of 1,1150-1,1240.
GBP / USD – British Pound Dollar
On Friday, 7 October the pound scared all traders with its sharp movement during the Asian trading session. The traders of major Asian banks were surveyed by Bloomberg, which put forward a number of versions of what happened: 1) the trader’s error of one of Singapore’s banks, who instead of “Buy” pressed “Sell” with the large order and as the market was low-liquid it caused a strong decline of the pound 2) the high activity of trading robots that use hedge funds is registered in Singapore and Hong Kong 3) investors’ fears that the eurozone will not provide the UK with defined benefits due to Brexit, which has a negative impact on the GDP of the United Kingdom. In my opinion, we will not know in the near future what has really happened, and probably we will never know. The Bank of England asked the Committee of the Bank for International Settlements to observe the changes in the pound rate and report about any strange transactions around the Sterling. On the first trading day of the week we should expect the growth of quotations on the background of a strong trend in the credit markets. The yield on 10-year UK government bonds rose on Friday in relation to their counterparts from the US and Germany by 0.137% and 0.093%, respectively, which increases the attractiveness of investments in British assets and, thus, have a positive impact on the value of the pound.
Against this background, during the day Sell positions on the growth of quotations should be opened within 1.2410 / 1.2350 and it is preferable to take profit at the level of 1.2510.
USD / JPY – US Dollar Japanese Yen
During the Asian trading session you can expect a moderate decrease in quotations on the background of the correction in the stock markets. The US stock market closed the trade on Friday in the “red zone” and the index of fear VIX rose by 4.9%. In my opinion, this decrease should be used to open Buy positions. Until Friday, 7 October the pair was growing non-stop for 8 trading days and the correction was drawing to a head every day, but it happened only on Friday. As noted earlier, the members of the Committee on the open market operations of the Fed have responded positively to the employment report for September, despite the fact that the Non-Farm has not reached the predicted values. Futures on the FED rate for 14 December indicate the 60% chance to increase, at the same time the release on the employment rate was 55.1%. Thus, investors hope that the US monetary regulator will raise interest rates, which in turn will help to get a stronger dollar.
Against this background, during the day Buy positions on the reduction of quotations should be opened within 102.75 / 102.40 and it is preferable to take profit at the level of 103.45.