The dollar sweeps away barriers

Trading 19 oct 2018 Commentaire »

It cost the Federal Reserve to show that it is not going to be led by Donald Trump and is ready at any time to accelerate the process of normalizing monetary policy, as investors turned to the US dollar. According to Randal Quarles, vice-president of the Fed for Supervision, the Central Bank should not pay attention to the temporary difficulties of inflation or other indicators, it must bend its line. The US economy is strong and the probability of a recession is extremely low. Is it possible against such a background that someone can resist the dollar?

The publication of the minutes of the September meeting of the FOMC was a turning point in the fate of the "American" in the week to October 19. The Federal Reserve believes that it can afford to raise the rate above its long-term projected level and make monetary policy moderately tight. For a while. In order not to overheat the economy and prevent the arbitrariness of inflation. The Central Bank is in open confrontation with Donald Trump, who does not tire of criticizing him. According to the President of the United States, his main problem is the Fed. Judging by the dynamics of EUR / USD, the markets are betting on the Federal Reserve and still do not intend to stand on its way. As for the owner of the White House, his intervention, as in the previous cases, had only a temporary effect. Those who learned to use them, bought a dollar in the dips.

Euro does not leave the policy alone. According to a Bloomberg expert survey, events in Italy are the main problem in the eurozone. Trade wars, a slowdown in the GDP of the currency bloc or the Chinese economy, and the difficulties of developing markets seem less dangerous to specialists than the conflict between Rome and Brussels.

Eurozone Risks

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Italy put on the table the EU draft budget with a 2.4% deficit of GDP. This is less than in France, Japan or the United States, but three times overrule the obligations of the previous government. The European Union has already expressed its dissatisfaction, noting that the submitted document does not comply with the rules. The markets immediately responded by increasing the yield of Italian bonds and expanding their differential with German counterparts to the maximum level since 2013. This indicates an increase in political risks and is a "bearish" factor for EUR / USD.

Dynamics of yield differential of bonds of Italy and Germany

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At the same time, experts polled by Bloomberg expect that the ECB will begin to actively adjust its monetary policy only in 2020. By this time, the federal funds rate may rise to 3.25-3.5%. Divergence in the monetary policy of the Fed and the European Central Bank, as well as the different rates of economic growth in the United States and the eurozone, contribute to the development of a downward trend in the main currency pair. It can accelerate if statistics on US GDP for the third quarter, scheduled for the end of the week by October 26, will show that the United States has maintained momentum.

Technically, a breakthrough of support at 1.143 - 1.144 will increase the risks of activating the AB = CD pattern with a target of 161.8%. It corresponds to a mark of 1.095.

EUR / USD, the daily chart

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EUR / USD: plan for the US session on October 19. The fall of the euro has slowed

Trading 19 oct 2018 Commentaire »

To open long positions on EUR / USD, you need:

The buyers managed to keep the support level of 1.1434, which I paid attention to in my morning review, which led to profit taking and an upward correction in euro. Return and consolidation above the resistance level of 1.1456 is a good signal to buy the euro, based on the update of the maximum of 1.1482, where today, I recommend fixing the profits. The breakdown of this area may lead to larger growth in the area of 1.1516.

To open short positions on EUR / USD, you need:

In the morning, the sellers worked out all their goals, which I spoke about in the morning, which led to profit taking. Consider selling euro today in the afternoon is best after the formation of a false breakdown in the area of 1.1482 or to rebound from a maximum of 1.1516. The main task will be to return to the support level of 1.1456, which will keep downward potential in EUR / USD next week.

Indicator signals:

Moving Averages

Trade is conducted under the 30- and 50-day average, which indicates the formation of a downward trend in the euro.

Bollinger bands

The breakdown of the middle border of the Bollinger Bands indicator in the area of 1.1507 will come to the return to the buyers market and update the above resistance levels.

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Description of indicators

  • MA (moving average) 50 days - yellow
  • MA (moving average) 30 days - green
  • MACD: fast EMA 12, slow EMA 26, SMA 9
  • Bollinger Bands 20
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China’s economic growth has slowed

Trading 19 oct 2018 Commentaire »

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An indicator fixing the level of economic growth in China disappointed analysts, although it remained within the official forecast.

According to the report of the State Statistics Committee of the People's Republic of China, in the second and third quarters of this year, the country's GDP growth rate was 6.5% in annual terms. In the first quarter, China's economic growth reached 6.8%, in the second, this figure was 6.7%, and in the third quarter of 2018, only 6.5%, according to the State Statistical Office of China.

According to preliminary estimates, China's GDP in the first three quarters of this year amounted to 65.09 trillion yuan, an increase of 6.7% year over year. The indicator remained in the framework of the preliminary forecast, but did not meet the expectations of experts. At the same time, analysts, warning of a slowdown in growth rates, expected a smaller decline, up to 6.6%.

At the end of last year, the growth rate of China's GDP showed an acceleration of up to 6.9% compared to 6.7% recorded in 2016, exceeding the official forecast of 6.5%.

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Rome will provoke an unprecedented fall of the euro

Trading 19 oct 2018 Commentaire »

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The focus of the market is Italian problems again. The fall of the euro could be much more serious than previously expected. Brussels took the first formal step, sent a letter with warnings to Rome. Further, there will probably be a rejection of the draft budget and a fine.

The loss of the euro from the opening of trading in Europe amounted to about 35 points. The euro / dollar pair is trading around 1.14.

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European Commission officials have significantly changed the tone of communication with the Italian government. They noted that the draft budget is "especially a serious violation" of EU rules due to "unprecedented" deviations from targets. The members of the European Commission set the deadlines for Rome to respond, no later than October 22.

Meanwhile, Prime Minister Giuseppe Conte said that he was not at all worried about the contents of the letter, and assured that Italy would be able to dispel all doubts that arose in Brussels. The government, he said, slightly deviated from the goal. The Italian politician also expects that the European Commission will send similar warnings to Spain, France, and Portugal.

Note that some European leaders attacked the populist government in Rome. The head of the European Union warned that the budget will not be approved. Judging by what is happening, the most indebted region of the eurozone after Greece is waiting for shocks. The Five Stars-League coalitions prepared for a head-on collision with Brussels while discussing the cost plan. Such a prospect frightened the markets.

Friday's ten-year yield approached the highest in the last 4 years. This happened after Conte, a law professor who does not have previous political experience, could not convince his European colleagues that Rome should be allowed to flaunt the disregard of EU fiscal rules.

In addition to world politics, the monetary policy of the Fed and the ECB is pressing down on the euro. The governing council will get rid of negative deposit rates only at the beginning of 2020 and will bring them into positive territory by September of the same year, experts at Bloomberg predict. By that time, the federal funds rate will rise to 3.25%, their gap will widen from 2.25% to 3%. Note, this is a serious "bearish" factor for the euro / dollar pair.

The political crisis in Italy is now considered the biggest problem for the eurozone, while the risks of trade wars are assessed by experts as balanced. In addition, the events in Rome overshadowed information about the slowest economic growth in China in nearly 10 years.

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The yield of US government bonds rose to a maximum in 10 years

Trading 19 oct 2018 Commentaire »

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The yield on two-year US government bonds rose to a maximum in 10 years after the publication of the hawkish protocol of the September meeting of the US Federal Reserve.

The published minutes of the last meeting of officials of the US Central Bank indicated a high likelihood of further interest rate increases. Perhaps, once this year and three times in 2019.

On Thursday, October 18, the yield on two-year US bonds reached 2.907%, the highest since June 23, 2008. The yield on ten-year bonds also resumed growth after a correctional decline last week.

The index showing the strength of the US dollar against a basket of six major world currencies is in the highs area since August of this year, at the resistance level of 96.00.

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Experts: Investors fear Fed mistakes and lose faith in global economic growth

Trading 19 oct 2018 Commentaire »

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Pessimism regarding global economic outlook has intensified among investors amid growing trade contradictions and expectations that the US Federal Reserve will continue its course aimed at tightening monetary policy, despite the turmoil in stock markets.

This is evidenced by the results of a survey conducted recently by the Bank of America Merrill Lynch (BAML) among the managers of 174 large investment funds with total assets of $ 514 billion.

According to experts of the financial institute, the share of respondents who believe that the global economy is in a late stage of the cycle, followed by a reversal and a slowdown, reached a record high of 85%.

At the same time, 38% of respondents expect a slowdown in global GDP growth over the next 12 months, 35% predict a stagnation in corporate profits, and another 20% predict their decline.

Among the main risks for markets, investors identified trade wars (35%), tightening monetary policy in developed countries, including the United States, and curtailing monetary incentives (31%).

"The overwhelming majority of respondents believe that the S & P 500 index should sink to at least 2500 points before the Fed will refrain from increasing interest rates," said BAML representatives.

"The collapse in the US market in October forced investors to look into the eyes of the four horsemen of the apocalypse. The first is the rising dollar rates, the second is the growing trade wars, and the third is the instability of emerging markets. The fourth, which is still in the shadows, is the crisis around the budget deficit in Italy, which threatens to turn into a debt problem for EU countries," the experts said.

"However, the conditions for a full fall of the markets have not yet matured. According to the survey, investors prefer to keep 5.1% of portfolios in cash. This is 10% more than the average for the last 10 years. Despite the "bearish" view of global economic growth prevailing, there is a high probability that the availability of free funds for investment will give rise to a rebound in the markets," they added.

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Overview of the currency market on 10/19/2018

Trading 19 oct 2018 Commentaire »

The dollar continues its victorious march, and yesterday, it was not the Brexit negotiations that supported it, but macroeconomic statistics and statements about the monetary policy of the Federal Reserve System. So, the worst result for the day showed a pound, but not because of uncertainty about the trade agreement with the European Union, but because of the incredibly weak data on consumer activity. After inflation in the UK slowed down unexpectedly, investors pinned their hopes on retail sales, but their growth rates did not accelerate from 3.4% to 3.6%, but slowed down to 3.0%. So, in the British economy, everything is rather sad, as both inflation and retail sales are declining, so it's not clear how economic growth will be ensured. In the USA, very good data on the labor market came out, since the total number of applications for unemployment benefits fell by 18 thousand, while they expected a decrease of only 1 thousand. which decreased by 13 thousand with an expected growth of 2 thousand. The number of initial claims for unemployment benefits fell by 5 thousand, which is slightly better than the forecast of 3 thousand. The speech of James Bullard was also interesting, since for many his words turned out to be a surprise. Indeed, due to a sharp slowdown in inflation, the Fed was waiting for at least some reaction, but a representative of the Federal Commission on Open Market Operations confirmed that the regulator does not intend to revise its plans based on data in just one month. So, we are waiting for the refinancing rate to increase in December, and three more times next year. Although he noted concerns about inflation and added that the Fed will monitor developments.

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In Europe, no data comes out, so that all attention to the American statistics, which can stop the triumphant procession of the dollar. The fact is those home sales in the secondary market may decline by 0.7%. Of course, this is not such significant data, but given the serious growth of the dollar in recent days, as well as the absence of other news, market participants will clearly want to take profits. So, the single European currency has every chance of rising to 1.1475.

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The pound, on the other hand, has much more reasons for growth, since, besides the same factors that will affect the single European currency, it will be supported by domestic British data. In particular, of interest are data on public sector borrowing, which should increase by 4.6 billion pounds compared to 5.9 billion pounds in the previous month. That is, the growth rate of public sector borrowing is declining, which will be regarded as a reasonable move in the face of uncertainty about the trade agreement between the UK and the European Union. Thus, it is worth waiting for the growth of the pound to 1.3075.

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With the ruble, the situation is somewhat different, since, unlike many other currencies, it held up well. This happened because of the tax period, which supported the ruble. After all, companies can receive profits in anything, but the Federal Tax Service takes taxes only in rubles. This factor gradually fades into the background, and since the ruble did not show any particular aspirations for growth, then it is worth waiting for its weakening. The situation is heated by the words of Elvira Nabiullina. The Chairman of the Board of the Bank of Russia said that, if necessary, the regulator will maintain market stability through interventions, including OFZ purchases. In other words, the Bank of Russia does not exclude the possibility of panic in the market, which could lead to a strong weakening of the ruble. Such statements by themselves do not add confidence to market participants, which will have a negative impact on the ruble. So today, it is worth waiting for the growth of the dollar to 66.00 rubles.

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Wave analysis of GBP / USD for October 19. The pair can go far down

Trading 19 oct 2018 Commentaire »

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Wave counting analysis:

During the trading on October 18, the GBP / USD currency pair lost another 90 basis points more and, thus, continues to build the expected wave 2, in the future 5. However, the news background after the completion of the Brexit negotiations is clearly not in favor of the British pound sterling, so the decline may continue, which may lead to the need to clarify the current wave marking. However, while the working version, involving the construction of an upward wave 3, is preserved. An unsuccessful attempt to break through the 76.4% of Fibonacci level can lead to the completion of wave 2 construction.

The objectives for the option with purchases:

1.3258 - 0.0% according to Fibonacci

1.3300 - 161.8% of Fibonacci

The objectives for the option with sales:

1.3003 - 76.4% of Fibonacci

1.2924 - 100.0% of Fibonacci

General conclusions and trading recommendations:

The currency pair GBP / USD continues to build the estimated wave 2. Thus, I recommend keeping sales open with targets near the marks of 1.3003 and 1.2924. Information from the EU summit does not support the pound, so the decline can continue. For purchases, you need an eloquent signal to complete the construction of wave 2.

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Wave analysis of EUR / USD for October 19. The EU Summit is over. Brexit negotiations have not progressed

Trading 19 oct 2018 Commentaire »

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Wave counting analysis:

In the course of trading on Thursday, the EUR / USD currency pair lost about 50 basis points. Thus, the pair is supposedly continuing to build wave c. If this is indeed the case, the decline in quotations will continue with targets located near the calculated levels of 127.2% and 161.8% on the Fibonacci grid, built on the size of wave b. An unsuccessful attempt to break through the 100.0% Fibonacci mark can lead to a departure of quotes from the lows reached and the construction of an internal correctional wave c.

The objectives for the option with sales:

1.1327 - 127.2% of Fibonacci

1.1194 - 161.8% of Fibonacci

The objectives for the option with purchases:

1.1622 - 50.0% of Fibonacci

General conclusions and trading recommendations:

The currency pair supposedly completed the construction of wave b. Thus, now I recommend selling the pair with targets located near the estimated marks of 1.1327 and 1.1194, which corresponds to 127.2% and 161.8% in Fibonacci. There are no grounds for assuming a change in the working version. The outcome of the EU summit does not give reason to expect the growth of the pair.

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Trading Plan 10/19/2018

Trading 19 oct 2018 Commentaire »

Trading Plan 10/19/2018

The overall picture: A turn towards the dollar.

News in the morning: In the Chinese economy, signs of a slowdown have been noticed. While small, the growth in output has dropped from 6.6% to 6.5%. At the same time, China's top officials in charge of regulating finance and markets made statements, promising support for markets and the economy. China's market grew by + 2.4% in indices.

European currencies are under pressure for two reasons. First, an unsuccessful EU-Britain summit on the terms of relations after Brexit. An agreement could not be reached, we decided to give Britain a long transitional period. The second factor, the expectations of the Fed rate hike strengthened after the Fed minutes

The market turns to wait for the ECB meeting next Thursday.

Pound: We are ready to sell at a break down of 1.2920.

Alternative: Purchase from 1.3260.

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