Technical Analysis for 18/10/2016
EUR / USD – Euro US Dollar
The release of the US inflation for September will become the main event of the day, so you can expect an inactive trade until the US trading session. If you have any urgent matters, feel free but be sure to turn on your trading terminals at 15.30 MSK. Inflation, which in the current year promised to raise the discount rate, is important for us because the Fed takes it into account. On Friday the head of the FED J. Yellen claimed about the possibility of a rate hike in November. Investors look at this skeptically: the forecast for the November meeting shows the potential for increasing the key rate at 5.2%, against 8.3% a week earlier. At the same time 69% expect a rate hike on December 14 against 64% a week earlier. What data can we see today? Taking into account the growth of the consumer expenses against the background of the increase of average earnings and the producer price index , the CPI range can be 1.4% -1.5%. On the one hand, it is at the level of the forecasts median and the response should be negligible. On the other hand, the rate of 1.5% y / y will be the highest since November, 2014. Will the dollar strengthening become the respond to this? In my opinion, yes, it will: the yields on the US Treasury bonds will go up, encouraging investors to buy dollars for their subsequent conversion into the debt securities.
GBP / USD – British Pound Dollar
Today the pair will demonstrate high volatility, as we will get reports on the inflation both from the UK and the States. I am waiting for the release of positive data on both countries, as this is indicated by the leading indicators. In the second half of the summer consumer expenses in the UK significantly increased and the country experienced the devaluation of the national currency after the referendum. The unemployment rate has been steadily kept below 5% on the labor market, and the average income shows the growth rate of over 2%. All these factors are inflationary for the economy. The only negative factor is the decline in gasoline prices, which has been observed over the last four months. As noted earlier, the United States can also expect the CPI increase compared with the previous month. In the credit markets the yield on the 10-year UK government bonds is being reduced in relation to their counterparts from the United States and Germany, which reduces the attractiveness of investments in British assets.
USD / JPY – US Dollar Japanese Yen
Yesterday we saw a minor correction in the pair, which is a positive factor for us, because we can build longs at attractive levels. I continue to expect the growth of quotations in this currency pair, both in the short term (105.00 this week) and in the medium term (107.50 until the end of the year). The devaluation of the yen is very urgent and necessary for the Japanese economy in order to quickly overcome the deflationary disease, which has been observed for five months in a row. The devaluation of the national currency is carried out by the Japan’s neighbor, China. The Chinese yuan is already close to its lowest level over six years, and new lows are only a matter of time. There is no deflation in China, but this country, like Japan, is actively working on the escort, and the competitive production is required for the growth of the escort that can be achieved by reducing the rate of the national currency. Also, do not forget about the dynamics of the debt market, where the differential on the 10-year US and Japanese government bonds has been at the highest level for five months; and taking into account the today’s positive inflation data in the United States it can demonstrate an even greater change.