Market Analysis: 27 September, 2016
By Christala Parmaxi:
The President and Vice President of the European Central Bank delivered their speeches in the European Parliament yesterday. According to Mario Draghi, with economic insecurity being a major concern, the current monetary policy will keep on providing effective support to inflation and economic recovery. However, if necessary, ECB will use all available instruments within mandate to trigger the inflation. Draghi also emphasized that the other policy actors need to do their part, too. For investors, the highlight of his speech was that the recovery is expected to continue at a “moderate and steady” pace but with slightly less momentum than seen in June. The President also commented on Brexit, saying that the UK should not be subject to special treatment on single market access during the Brexit negotiations, he clearly mentioned that all participants are subject to the same rules. Meanwhile, both EURUSD and GBPUSD are falling on the hourly timeframe; Euro is falling at a higher pace at the time of writing since EURGBP is moving downwards.
Before the European parliament session, ECB member Benoit Coeure commented on ECB’s policy, saying that the Bank will increase the inflation rate by more than 0.5% in 2016 and 2017. However, he seems to be worried for ECB risks to the equilibrium of low growth and low interest rates.
Jeffrey Lacker, the President of the Federal Reserve Bank of Richmond, was hawkish in his speech yesterday stating his belief in a December rate hike. Federal Reserve Bank of Dallas President Robert Kaplan was even more hawkish, mentioning that he would have supported a rate hike on September’s meeting. However, Federal Reserve Bank of Minneapolis Neel Kashkari commented that the move of Fed not to raise rates on September was right, supporting that the risks of low inflation are greater than those of high inflation. Both Kaplan and Kashkari are currently not voting members for 2016, but in 2017 they will participate in the voting process.
Bank of Canada Governor Stephen Poloz has stated today that it would take three to five years for the country’s economy to restructure itself. Poloz also mentioned that Canada’s lower exports in contrast to last years may be misleading due to more companies building facilities abroad and filling orders there. Moreover, the President stated that central banks may need bigger changes in interest rates to keep inflation on track. USDCAD surged on a 6-month high during his speech but it fell down within the next few hours.
US Presidential Debate
According to media and markets, Hillary Clinton seems to be the winner of the first debate against Donald Trump. Regardless of the statements made by the two nominees, financial markets moved in Hillary’s favor since the Mexican Peso rose against the US Dollar and safe haven assets such as USDJPY fell. The reaction of markets indicates that they approach possible Trump’s win with risk aversion strategies while Hillary’s election victory invokes a risk-on approach. However, the probability of Hillary’s win was not significantly increased and thus we are looking forward to the next debate on the 9th of October.
Today is a relatively quiet day; we are expecting US CB Consumer Confidence Index to be released at 17:00 server time. The figure is expected to be lower by 2.1 points compared to last month and below 100. Later at 18:15, Federal Reserve Vice Chair Stanley Fisher will speak on “Why study economics?”.
The pair reached our expected entry point yesterday. We expected a correction to the upside before the Gopher fall again lower; it increased up to 100.98 trying to unsuccessfully break the psychological level of 101. It is currently falling down trying to move below SMA20 at the time of writing. Our target remains the support of 100.15 while the risks are around the resistance levels of 101.25 and 101.55. ADX indicates negative directional movement while RSI and MACD are tumbling downwards below their equilibrium levels.
The Cable recorded a new high today as it went above 1.30, however, it was not able to close above this strong psychological resistance level that coincides with SMA100. It is currently moving downwards at the time of writing and is expected to test again the support of 1.292. If the support breaks then new lows are expected by the pair, while the next valid resistance is the level of 1.30.
The Loonie has reached a 6-month high but then it decreased, testing the SMA200 at the level of 1.316. There was a bullish cross between SMA50 and SMA200 which confirms the bullish alarm cross between SMA50 and SMA100 the day before. The sentiment is still bullish; however I would wait to see a confirming upside move by the price itself before buying again since the indicators starter to slop downwards.
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