Technical Analysis for 20/10/2016
EUR / USD – Euro US Dollar
In the morning we can expect a moderate decline of quotations against the background of “appetite for risk”. On Wednesday the world’s leading stock markets closed the trade in the green zone, and fear index VIX has lost 6.7%. In this context, the euro, as the funding currency for the carry trade, will be under pressure until the press conference of the European Central Bank. Today Mario Draghi can increase the assessment on the inflation and GDP for 2016-2017, as the positive dynamics of lending to the economy as well as net exports are favorable to this. Bank lending in August rose by 1.8% y / y, which is the highest level for the past 4 years against the background of low interest rates. The trade surplus has amounted to 178.8 billion euro over the first eight months of this year, which is 9% more than the year before. Thus, the soft monetary policy of the ECB begins to bear fruit. Taking into account the moderately positive comments of Mario Draghi about the prospects for the development of the Old World’s economy, we can expect the profit-taking on shorts in the main currency pair, which will cause a correctional, upward movement.
GBP / USD – British Pound Dollar
In the morning the pair is able to demonstrate the growth of quotations to the area of yesterday’s high (1.2332) for two reasons. Firstly, I expect the output of the moderately positive data on retail sales in the UK for September. This is indicated by the positive dynamics of the labor market: in August the unemployment rate remained at around 4.9%, and the average salary amounted to 2.3% y / y. It is impossible to ignore the decline in interest rates on consumer loans by 0.25% to the level of 1.25%, which spurred the consumer activity. In September the number of registered cars reached the maximum for the last five months. Secondly, on the eve the US Department of Energy reported about a decrease in crude oil stocks by 5.24 million barrels, which caused the growth of quotations of black gold, which is traditionally positive for the pound. In the afternoon we should expect profit-taking on Longs as we can expect moderately positive comments from the head of the ECB that will cause the growth of quotations of the cross-rate EUR / GBP and have a negative impact on the cost of the British currency. It is impossible to ignore the dynamics of the debt market, where the yield on the 10-year UK government bonds is being reduced in relation to their counterparts from the US and Germany that all else being equal reflects badly on the pound quotations.
USD / JPY – US Dollar Japanese Yen
In my opinion, a bearish trend that was being observed over last three trading days, is a corrective movement, not a reversal, for which there are no reasons now. The correction has occurred on the background of the investors’ desire to take profits after the three-week growth of quotations. Now the pair has adjusted from the maximum of the last week by more than 1% and the current levels are attractive to open longs. The demand for risky assets remains, which can help the pair demonstrate the growth of quotations. Exactly this factor can reassure the bulls to buy today, because the increase in carry trade operations is traditionally negative for the yen as the funding currency. There is a sideways trend on the debt market: the yield differential on the 10-year US and Japanese bonds has remained virtually unchanged over last two trading days.