Technical Analysis for 28/10/2016
EUR / USD – EURO US DOLLAR
The dynamics of futures on the FED rate claims that the probability to raise the US Fed interest rates on 14 December is 72%, which is 7.5% more than the previous week. The current 72% is neither much nor enough; it is the highest level in the current year. How this event will affect the quotes of the main currency pair of the market? In our opinion, the trend of the dollar strengthening will continue, and today the pair will test the minimum level of the week (1.0850).
The yield on the US Treasury bonds is rapidly going up, and in this regard, we can conclude that the euro correction is over, and today we will see a new wave of sales. Based on the positive macroeconomic statistics from the US, which has been published this week, the euro has to be in the area of 1.0820. The trend has been slightly dragged with respect to time, but I do not change my pessimistic views on the pair and continue to believe that we will see a mark of 1.0820 before 1 November.
We are opening Sell positions within 1,0900 / 1,0930 and I am taking profit at 1,0850.
GBP / USD – BRITISH POUND DOLLAR
Investors ignore the positive background regarding the British economy, indicating the presence of a large number of sellers at the market. On Thursday the report on the UK GDP, which surprised the traders, was published: the economic growth has increased by 0.5% qoq that is 0.2% more than the consensus forecast. But the sterling could not grow up to the Figure 23 due to this report, in fact, the trading ended below figure 22. Today the British currency can test the minimum level of the week (1.2081) for two reasons. Firstly,we look forward to the release of the positive data on the US GDP for the third quarter. The growth of business activity in the services sector and the construction industry as well as an increase in consumer spending give the expectation of the release of the moderately positive data.
Secondly, the decline in black gold prices may strengthen the demand for the dollar. On the eve the news agency Reuters reported that Russia and Iraq would not reduce oil production by 4%, as proposed by OPEC. Russia will be satisfied with the current level of freeze, but not the reduction. “When there’s no a consent in partner’s will –Then there’ll be no a success in business, And, thus, only the torture it will be.” – these words from the well-known fable came to mind when you hear like the world’s leading oil producers are trying to agree among themselves.
We are opening Sell positions within 1,2175 / 1,2205 and I am taking profit at 1,2081.
USD / JPY – US DOLLAR JAPANESE YEN
The yield differential of the 10-year US and Japanese bonds is now at a six-month high, which increases the attractiveness of investing in the US assets. The main event of the day will be a report on the inflation in Japan for September. The inflation in the country has been in the negative area for the last six months and today this trend will continue. It should be noted that according to the results of September, gasoline prices have increased by 2.1% compared to August, but the Producer Price Index for the first month of autumn has shown a decline by 0.1% m / m, which indicates that this factor has not had an impact on the economy yet and there will be the effect not earlier that the next month.
In this regard, today we will see the seventh month of deflation, which in its turn will have a lot of pressure on the national currency. The next meeting of the Bank of Japan has been scheduled for November 1 and the monetary authorities will have to comment this negative trend. Either we will hear verbal intervention aimed at devaluation of the yen, or we will see the real action (increase of QE or decrease in the discount rate). Reducing the rate of the yen will have the positive impact on the Japanese stock market, as investors will increase the volumes of carry trade transactions. Demand for risky assets will strengthen the uptrend in the pair.
We are opening Buy position within 105,00 / 104,75 and taking profit at 105,40.