Market Analysis: 24 October 2016
by Christala Parmaxi
Euro Weekly Performance
As is was widely expected, the ECB left its monetary policy unchanged last week: interest rates at 0%, facility deposit rate at -0.4% and no further QE stimulus or tapering. Mario Draghi stated that the bank would run the QE program until March 2017 and beyond if it is deemed necessary; he also said that the Bank did not discuss at all any QE tapering plans. The speech was deemed to be dovish be investors and the Euro experience significant losses. Specifically, the Euro recorded the biggest drop against the New Zealand Dollar falling by -1.76% where it only gained ground against the Canadian Dollar that experienced significant losses during the week.
USD Weekly Performance
The greenback traded higher against the majority of the G7 counterparties, rising by 1.5% against the Canadian Dollar but falling by -0.85% against the New Zealand Dollar. The latest economic releases for the US were positive since the US Philadelphia Fed Manufacturing Index of October beat expectations by releasing at 9.7 against the projected figure of 5.3. Moreover, September’s US Existing Home Sales were published at 5.47 Million beating expectations of 5.35 Million.
There is a busy week ahead with some major economic releases and multiple speeches from key players. Today at 16:00 the Federal Reserve Bank of St. Louis President James Bullard gives a presentation on the US Economy and the monetary policy. There’ll be more from Fed members today: Chicago Fed President Charles Evans will discuss the current economic conditions and monetary policy at the Civic Affairs Society of the University club of Chicago Luncheon at 20:30 server time. Also today, Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins will appear before a parliamentary committee.
On Tuesday, we are looking for October’s CB Consumer Confidence Index during the US session which is expected to drop by almost 3 units at 101.0. The most interesting event of the day though is ECB President Mario Draghi’s speech on the topic “Stability, Equity and Monetary Policy”. The Australian Consumer Price Index for the 3rd quarter of 2016 will be published on Wednesday at 03:30 server time; expectations lay at 0.5% which is 10 points higher than the previous figure. From the US, we are looking for New Home Sales at 17:00 server time and they are expected to be 600K versus the 609K of August.
The highlight during Thursday’s European Session is the British GDP for Q3 2016, which is expected at 0.3% against the 0.7% figure of Q2. From the US, we expect September’s Pending Home Sales at 1.2% against the catastrophic -2.4% of August and Core Durable Goods Orders at 0.2% against the -0.2% of the previous month. Of course, we keep the best economic release for the last day of the week. On Friday, US Q3 2016 Gross Domestic Product is going to be published at 15:30 server time and is expected at 2.5% against Q2 figure of 1.4%.
After a week of losses, Aussie is now testing the resistance of 0.764 to the upside. If the pair manages to break this resistance, and thus the short-term downtrend, then we expect upside moves up to the next resistance of 0.7685. On the flip side, if the resistance remains strong and the pair is not able to break it, we predict further downward move to the support of 0.7585. The indicators are on neutral territories while ADX is indicating overextended positive direction.
It seems that the Pound’s bears are back. The British Pound is back to a short term downtrend, reaching the support of 1.2175 again. At the time of writing the Cable is trending between the cross of SMA50 and SMA200 and SMA100. Since the pair broke the cross of SMA50 and SMA200 to the upside, we would wait to see its next move before placing a new order for this week. Upon downward penetration of 1.222, we are bearish to the pair targeting the support of 1.2175. On the other hand, if the Cable moves above 1.225 and Bollinger’s upper band, then we will aim the bullish target of 1.2295.
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