The US strengthened yesterday against a number of its major counterparts, as the FOMC’s last meeting minutes provided some support. The minutes confirmed expectations that the bank is going to continue to raise interest rates this year. Each and every Fed policy maker (FOMC member) backed the hike at the time and generally agreed that interest rates are to continue to rise. Analysts point out that the US Dollar is getting stronger as there is follow through support, after the release of the FOMC minutes and that USD bulls are playing to the view that the market is underpricing what the Fed can do. It should also be noted that the US benchmark 10 year treasury yield rose to 3.2% yesterday and could also contribute some support for the USD. Should the yields continue to rise, we could see the USD getting further support and USD crosses being more volatile.
EUR/USD dropped yesterday breaking clearly the 1.1577 (R2) support level and the 1.1525 (R1) support line (now both turned to resistance), aiming for the 1.1480 (S1) support barrier. The pair could continue to trade in a bears market, should the positive sentiment for the USD continue. Also the Euro summit could create headlines for the Italian budget that may weaken the common currency. Technically, it should be noted that the pair’s price action has started to form a downward trendline, incepted since the 16th of October and the RSI indicator in the 4 hour chart, approaches the reading of 30. If the market continues to favour the pair’s short positions, we could see the pair breaking the 1.1480 (S1) support line and aim for the 1.1430 (R2) support area. Should the market favour the pair’s long positions, we could see the pair breaking the 1.1525 (R1) resistance line and aim for the 1.1577 (R2) resistance zone.
Sterling loses at lower inflation and negative Brexit headlines
The pound lost some ground yesterday, as the inflation rates, came out lower than expected. However, losses were underscored from EU’s chief negotiator’s comments that more time was needed to secure an exit deal for the UK. The UK seems to be considering the proposal, as it would keep the UK in the EU longer and provide the necessary time to break the current deadlock. On other news, UK’s Brexit Secretary sparked anger among hard Brexiteers, as he implied that the UK’s parliament “meaningful vote”, will be a choice between Theresa May’s plan and a no deal. The Euro Summit along with the UK retail sales growth rate, could provide further volatility for the pound.
Cable dropped yesterday, breaking the 1.3150 (R1) support line (now turned to resistance), aiming for the 1.3080 (S1) support level. We see the case for the pair to continue to trade in a bearish market as technically the pair has started to form a downward trendline, incepted since the 16th of October. Also the release of UK’s retail sales growth rate could weaken the pound. Should the pair continue to trade in a bearish market we could see it breaking the 1.3080 (S1) support line and aim if not break the 1.3025 (S2) support level. Should the bulls take over, we could see the pair breaking the 1.3150 (R1) resistance line and aim for the 1.3215 (R2) resistance hurdle.
In today’s other economic highlights:
During the European session, we get the UK headline and core retail sales growth rates for September and in the American session, from the US the initial jobless claims figure for last week and the Philly Fed Business Index. Bear in mind, that the Euro summit could create volatility for GBP and EUR pairs. As for speakers, ECB’s Governor Mario Draghi and Benoit Coeure (will be attending the Euro Summit and some comments could be made), ECB’s Ewald Nowotny , St. Louis Fed President James Bullard and Fed’s Randal Quarles speak.
EUR/USD 4H
Support: 1.1480 (S1), 1.1430 (S2), 1.1360 (S3)
Resistance: 1.1525 (R1), 1.1577 (R2), 1.1630 (R3)
GBP/USD 4H
Support: 1.3080 (S1), 1.3025 (S2), 1.2965 (S3)
Resistance: 1.3150 (R1), 1.3215 (R2), 1.3285 (R3)
