Market Analysis: 12 October 2016
by Christala Parmaxi
The Falling Palace Called Pound
Theresa May said yesterday that the Members of Parliament should vote on the Prime Minister’s Brexit plan before she triggers article 50; she should not be the only one to run the Brexit procedure and decisions. This makes the Brexit even harder since the Parliament won’t accept any plan that removes the UK from the EU markets. That seems to be the main reason why the Cable surged during the early Asian session by around 180 pips, recovering some of yesterday’s losses.
Still, it seems that the British Pound is losing the game. The Pound reacts to every single word of the Prime Minister and it is depreciating further day by day. Yesterday, the Cable reached the level of 1.21 which is the lowest level since the Brexit Flash Crash during last Friday; it recovered up to 1.23 during the early Asian session but it is still trading around 1.225 at the time of writing. However, the biggest loss of the British Pound was against the Japanese Yen since the GBPJPY closed the day by a drop of -2.1%.
Today we are going to focus on the US session and US Dollar’s performance since there are scheduled speeches and releases. The Federal Reserve Bank of New York President William Dudley is going to conduct an open-press fireside chat with the Business Council of New York State at 15:00 server time. Later, at 16:40 server time, the Federal Reserve Bank of Kansas City President Esther George is going to give a speech on “The payments System” before the Federal Reserve Bank of Chicago Annual Payment Symposium. The spotlight of the day will be the publication of September’s FOMC meeting minutes. Fed members left interest rates unchanged after the last meeting but stated the stronger need for a rate hike. It would be very interesting to see the number of voters who were against the rate hike and those who were supportive of it. The market may experience significant volatility according to the minutes.
The main pair broke the symmetrical triangle pattern to the downside and has been running lower since then. The penetration level was at around 1.115 while the closing confirmation price was at 1.1135 two days before. MACD has crossed its signal in negative territories and it is slopping downwards while RSI is moving to the downside to reach its oversold level. Even Stochastic which is usually a slower indicator than the other two is slopping down to its oversold level. Moreover, the Average Directional Index indicates overextended negative direction and the price is far below the triple SMAs. The next valid support lays at 1.095 while the next one is near the level of 1.082. On the flip side, the resistances are near the levels of 1.107 and 1.1135.
Despite the upside rally of the Cable the last night, the overall picture remains bearish. On the hourly chart, the pair is trending below SMA50 testing this level repeatedly. Even that the pair had a good effort to the upside, ADX still indicates negative directional movement while RSI and MACD are on neutral levels.
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