Market Analysis: 13 October 2016

Market Analysis: 13 October 2016

by Christala Parmaxi:

Overview

FOMC Meeting Minutes

September’s FOMC meeting minutes were released to the public last night stating the expectations to raise the interest rates “relatively soon”. According to the minutes, officials decided to give some time to the labor market data to be improved while others viewed the hike rate decision as a “close call” and wanted to already raise rates in September. The minutes revealed a division between Fed officials on the expected level of the unemployment rate before the economy overheats. The Chair of the Board of Governors Janet Yellen was in the group of the officials that supported patience for a rate hike in September until the labor market improves. On the other hand, officials who supported the rate hike in September argued that waiting too long would cause financial bubbles in several assets that would overheat the labor market and consequently boost inflation.

In their economic projections published in September, fourteen out of seventeen Fed officials indicated that they expect to raise rates before the end of 2016. The attention given to the labor market data would increase the interest on the next two NFP reports remaining in 2016. Since most of those points were already known and no new information was given by the policy meeting minutes, the reaction of US Dollar was limited. In our view, investors foresee an increased likelihood for a rate hike in December and such move would be widely expected and maybe not appreciated in the same degree that a rate hold would depreciate the Dollar.

China Trade Balance

China’s monthly Trade Balance fell to 6-months’ low in September based on the release during the Asian morning today. The Chinese exports exceeded the imports by 41.99 billion losing expectations of 53 billion. The Chinese Yuan plunged against the US Dollar with USDCNH reaching the level of 6.73, a 9-month high for the pair. At the beginning of the year we were wondering whether USDCNH would be possible to reach the psychological level of 7 and today the likelihood of this prediction is increasing. Meanwhile, the Japanese Yen also affected by the news and it recovered some of the losses against the Dollar reaching the level of 103.5. However the pair is moving to the upside during the European morning.

Economic Calendar

Today is a relatively quiet day for the markets since there are no major economic releases. From the US, we are expecting the Export and Import Price Index of September at 15:30 while at 19:15 server time the Federal Reserve Bank of Philadelphia President Patrick Harker speaks on the economic outlook before the World Affairs Council of Philadelphia. Furthermore, tomorrow during the early Asian session the Chinese year-over-year Producer Price Index and Consumer Price Index will be released and after the disappointing Trade Balance release investors would look at them closely.

Technical View

USDJPY

The Gopher experienced a sharp decline during the Asian morning but it did not break the uptrend line. The price went as low as 103.5, then it found support at Ichimoku cloud and it is recovering at the time of writing. The overall picture is still bullish but the price may correct down to 103.65 and then continue the uptrend. Based on the Ichimoku Indicator, the current resistance levels that hold the price below the psychological level of 104 is Ichimoku’s Kijun-Sen and Tenkan-Sen. A break above those two indicators would trigger the move to new highs. The indicators are on neutral levels since they are slopping down on bullish territories.

USDJPY

USDJPY

USDCAD

The Loonie is moving on a pattern of sharp higher declines and slow higher highs. SMA100 has been crossed by SMA50 to the upside while the price is walking above SMA50 for the 2 last days. We consider the declines as corrections of the main uptrend and we are bullish to the corrections of the pair. The main support levels are near the psychological level of 1.32 and the next valid support lays at around the level of 1.316. On the other hand, the valid resistance levels are near the price of 1.3295 and then 1.3345.

USDCAD

USDCAD

 

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