Technical Analysis for 12/10/2016
EUR / USD – Euro US Dollar
On the eve the pair updated a two-month low and today we can expect an upward correction for two reasons. Firstly, the reduction of “risk appetite” can support the demand for the euro as a funding currency. The euro has become a safe asset over the last two years along with the Japanese yen. And the sales on the stock markets may have a positive impact on its value. Secondly, Fed” minutes” will be published during the US trading session, where you can expect a short-term negative reaction on the US currency, as the majority of FOMC members feel conservatively with regard to the imminent changes in interest rates. As the result of the last meeting the committee has divided into two camps: 7 members are in favor of the rate hike at the end of the year and 3 of them are in favor of the rate hike in September. In general, we won’t get any new information in this protocol, as on September 21 the FED gave forecasts for three years and Janet Yellen held the conference. However, the short- term pair can be adjusted up in order to let major market participants build short positions again. The strong index dynamics of the dollar basket USDX implies a decline of quotations of the pair EUR / USD to 1.0950 by the end of the month.
Against this background, during the day Buy positions on the reduction of quotations should be opened within 1.1045 / 1.1010 and it is preferable to take profit at the level of 1.1090.
GBP / USD – British Pound Dollar
The pair is still the weakest link at the foreign exchange market and a psychological level of 1.20 can become its nearest support. The negative background is being formed today. Firstly, the yield on the 10-year UK government bonds is being reduced at the credit markets in relation to their counterparts from the United States and Germany, which reduces the attractiveness of investments in British assets. Secondly, the commodity market started the large-scale sales due to the strong index strengthening of the dollar basket. There is a strong, historical inverse correlation between the USDX and commodities. And there is nothing surprising in the fact that on the eve the growth of quotations of the American currency provoked the fall in oil and metal prices. As the oil has been growing for the last two weeks and the pound has been falling, the pressure for the pound sterling will increase along the weakening of the black gold.
Against this background, during the day Sell positions on the growth of quotations should be opened within 1.2160 / 1.2220 and it is preferable to take profit at the level of 1.2085.
USD / JPY – US Dollar Japanese Yen
Today a downward trend is being formed against the background of the funds escape from risky assets. On Tuesday the fear index VIX grew by 22%, which indicateed a lack of risk appetite among investors. Leading stock markets in Europe and North America finished the day in the “red zone”. The index of the US wide market S & P500 lost more than 1.5%. In this connection, we can expect the demand for the Japanese yen as a funding currency №1 in the carry trade operations. Also, the dynamics of the debt market indicates the development of the bearish trend: the yield differential on 10-year treasury bonds of the USA and Japan is shrinking, which reduces the attractiveness of investment in the US assets. However, I do not think we will see strong sales, as the decrease in quotations may make long-term investors build long positions, counting on the future raising interest rates by the Fed.
Against this background, during the day Sell positions on the growth of quotations should be opened in the area of 103.50 / 103.75 and it is preferable to take profit at the level of 103.10.