Technical Analysis for 31/10/2016
EUR / USD – Euro US Dollar
A report on the US economic growth rate published on Friday showed that the GDP growth in the third quarter this year has increased up to 2.9% compared with 1.4% for the previous period. Thus, the volume of GDP has reached its highest level in the past two years, which allows speaking about the stable state of the US economy. After the publication of this report the likelihood of a December rate hike has risen from 73% to 78% the previous day. However, oddly enough, the markets have shrugged off the positive statistics. Investors have not been interested in the report. Moreover, the dollar has fallen in response to the strong data. The pressure on the US currency strengthened after the University of Michigan said that Consumer Sentiment Index, which reflected the level of household confidence in the national economy had fallen in October to 87.2 points, having reached the lowest level since September 2015.
In addition, a report about the new investigation of the FBI against Hillary Clinton has become another factor of the pressure on the dollar. According to the investors, the victory of Clinton maintains the status quo in the US foreign and domestic policy, while the victory of Donald Trump may lead to changes in the US foreign policy, trade agreements or in the national economy, which is negative for the US currency. Regarding the euro, “Bulls” have fully used the unexpected weakness of the dollar, sending the euro exchange rate to test the key level of resistance at 1.10, where the euro/dollar has finished the session.
In our forecast for Monday we are expecting the corrective pullback of the pair from its previous growth and completion of the reduction in the price area of 1.0950 ÷ 1.0930. Next, we are looking for a reversal of the rate of the single European currency and its rise to the target levels: 1.0991; 1.1034 and 1.1070.
GBP / USD – British Pound Dollar
During the bidding process on Friday we got the message that the Supreme Court of Northern Ireland regarding Brexit had ruled in favor of the UK government (which means that it is not necessary to vote in the British Parliament in order to apply Article 50 of the Lisbon Treaty and begin the procedure of the real output of the country from the EU) and, thus, it increased pressure on the pricing dynamics of the pair and sent quotes to test the lower limit of a narrow sideways range where the pair pound/dollar is being traded over 3 weeks. However, we didn’t see the breakdown of the limit. The rate of the pair has reached the daily low of 1.2114, and then returned to the morning price area of 1.2188, where it ended the session.
In our today’s forecast we suggest that the sideways dynamics of the pair will be finished in the price area of 1.2085 ÷ 1.2330. Further, we expect the breakdown of the lower limit of the range (1.2085) and decrease of the British currency rate to the key support level of 1.20. In this area, we expect a reversal of the pair and its rise to the upper limit of the range of 1.2330 and higher.