Market Analysis: 17 October 2016
by Christala Parmaxi:
Chair Yellen Speech
The Federal Reserve Chair Janet Yellen spoke at the Boston Fed conference on Friday where she avoided referring to the timing of a rate hike and whether it would happen before the end of 2016. The Chairwoman explained her positions during September’s policy meeting by referring that a high pressure economy could fix some of the damage caused during the Economic Crisis of 2008. However, Yellen did not withdraw the option of a rate hike this year pointing out that keeping the rates low for an extended period of time would likely cause costs to outweigh the benefits. Overall, we did not get any new information from Janet Yellen and thus the US Dollar did not experience significant volatility on Friday during the speech. The Vice Chair’s speech scheduled for today is the next Fed speech holding investors’ attention, since they were unable to get any significant information from the Chairwoman.
There is a busy week ahead with major economic releases and major Central Banks policy meetings scheduled. The Federal Reserve Vice Chair Stanley Fisher will speak today at 19:15 server time before the economic club of New York. Ideally we would expect Fisher to comment on Fed’s next move and whether he foresees a rate hike or further easing before the end of the year. Moreover, the ECB President Mario Draghi will speak today at 20:35 server time at the reception of the opening of the European Cultural Days 2016 event organized by the European Central Bank.
During Tuesday’s early Asian session we expect New Zealand’s Q3 Consumer Price Index while a bit later the meeting minutes of the Reserve Bank of Australia will be released. On Tuesday there are also economic releases from UK with the monthly CPI release while the US Core CPI will be published at 15:30 server time.
On Wednesday we expect the publication of the Bank of Canada monetary policy report and the interest rate decision. The Bank is expected to hold the interest rates unchanged at 0.5%. Moreover, we expect the releases of Chinese Gross Domestic Product and Industry Production, British Average Earning Index and Claimant Count Change and US Building permits.
The European Central Bank will have its policy meeting on Thursday at 14:45 server time where it is expected to keep interest rates unchanged at 0% and Deposit Facility rates at -0.4%. The ECB press conference will take place later at 15:30. On the same day, the US Philadelphia Fed Manufacturing Index and Existing Home Sales figures will be announced while on Friday we are looking for Canadian Core PMI and Core Retail Sales for the months of September and August respectively.
The pair today is testing the strong psychological support of 104 with no luck of breaking it yet. On the hourly chart a symmetrical triangle has been created, once the price penetrates the triangle to any side then we would have a clearer direction of the next price move. At the moment the overall intraday picture is neutral with no indication of positive or negative direction by ADX and both RSI and MACD near their equilibrium levels. The major support levels are near 104 and 103.4 while the resistances are near the price levels of 104.4 and 104.6.
For the first time in 3 months, the pair broke the psychological resistance of 79 to the upside on a closing basis on the daily chart. The indicators are on bullish territories since both MACD and RSI are above their equilibrium levels and ADX indicates positive direction. The daily picture is positive but for long-term bullish positions I would rather wait for a close above 79 today as a confirmation of the new direction.
On the other hand, the hourly chart is on neutral levels with MACD and RSI near their equilibrium levels and ADX indicating negative directional movement. Despite the fact that the pair opened the day with a gap to the upside, the gap and the upside move above the level of 79 has been corrected today. If the price breaks the support 79 to the downside, then the target becomes the support of 78.4 while the upside risks are near the resistances of 79.3 and 79.6.
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