Technical Analysis for 17/10/2016
EUR / USD – Euro US Dollar
At present, a mixed background is being formed. On the one hand, Friday’s macroeconomic data from the US indicates the increase in inflation expectations, allowing the Fed to tighten the monetary policy. On October 14 Janet Yellen said that the monetary authorities could raise interest rates sooner than was expected by the market (14 December), as the soft policy that had been pursuing for too long, could have side effects. I think that the head of the FOMC is insincere regarding. November changes in accounting policies, as this event can cause turbulence in the stock market, and it is not profitable for both US presidential candidates. Republicans as well as Democrats need the electorate to come to the polling stations in a positive mood, because 2/3 of households have assets in securities, so the decline in the stock market will reduce their income. On the bond market the yield spread on the 10-year German and US government bonds is expanding, which can cause the corrective growth of euro quotations. However, taking into account the strong downtrend in the pair, this growth may be slight and short-term and, in this regard, there is no sense to open longs. It is too early to sell, and there are still no signals to buy.
Against this background, during the day we can expect the flat within the range of 1.0940 – 1.1020.
GBP / USD – British Pound Dollar
The index of the dollar basket USDX closed the last trading week at the seven-month high, while the pace of the weekly growth accelerated from 1.32% to 1.48%. Against this background, we can expect the strengthening of the American currency in the short term, as a basic market rule says that the trend is likely to continue rather than change its direction. However, today in the morning we can expect a corrective movement up on the background of the positive dynamics in the credit markets. The yield on the 10-year UK government bonds is increasing in relation to their counterparts from the United States and Germany, which increases the attractiveness of investments in British assets and, thus, has a positive impact on the cost of the British currency. In the afternoon, you can expect the decrease in quotations of the pair on the background of the moderately positive US data on the industrial production for September. In September the ISM index of the business activity in the manufacturing showed an increase by 2.1% compared to August, indicating an increase in the production.
Against this background, during the day we can expect the flat within the range of 1.2150 -1.2250.
USD / JPY – US Dollar Japanese Yen
During last three trading weeks this currency pair has been experiencing an upward trend and the reduction of quotations should be used to build longs with the target of 104.65. In the world “Risk appetite” remains the same: this is indicated by the growth of quotations of the world’s leading stock markets on Friday as well as the reducing the fear index VIX. Thus, we have two reasons to buy the pair. The first reason is the demand for risky assets, which is traditionally negative for the yen as a funding currency. If investors are actively increasing their positions in carry trade, the Japanese currency is under pressure. Secondly, the credit market is expanding the yield differential on the 10-year US and Japanese government bonds, which increases the attractiveness of investing in the US assets.
Against this background, during the day Buy position on the reduction of quotations should be opened within 104.00 / 103.65 and it is preferable to take profit at the level of 104.65.