Forex trading plan for October 6
US dollar was well-supported on better-than-expected economic data and hawkish comments from the Federal Reserve’s speakers. Richmond Fed President Jeffrey Lacker said that the central bank should tighten policy to stem a likely higher inflation. Chicago Fed President Charles Evans expects one rate hike by the end of the year. The possibility of December rate hike is increasing.
American currency now combines 2 things – positive yields and safety. The fact that IMF lowered US growth forecast for 2016 from 2.2% to 1.6% didn’t affect the greenback much.
ADP employment report showed that American economy gained 154K jobs in September. That’s below 166K forecast and the previous month reading of 175K. However, traders will put more weight to American nonfarm payrolls due on Friday than to today’s figures. US ISM services PMI jumped to 57.1 and factory orders showed a small gain vs. an expected contraction. These data should give US dollar another boost.
The single currency reversed its Tuesday declines and jumped from 1.1140 above 1.1200 on Bloomberg report that the European Central Bank is thinking about tapering of its quantitative easing program by 10 billion euros a month. So far the ECB made no official decision on the future of 80-billion-euros a month QE program that is set to expire in March 2017. This idea was rejected by the ECB representative. For now, the speculation looks more likely an attempt to manipulate the market.
EUR/USD met resistance at 1.1230 and may slide lower correcting the recent gains. The overall dynamic sis expected to be sideways, mostly within the week’s ranges. Support is at 1.1180 and 1.1100. Further resistance is at 1.1255. Watch German factory orders and the ECB monetary policy accounts on Thursday.
British pound sank to 3-decade minimum below 1.2700 versus its US counterpart setting a new post-Brexit low. Brexit plans have become more distinct: the nation will start talks with the EU at the beginning of 2017 and the exit will happen 2 years later. Prime Minister Theresa May signaled the UK is prepared to surrender membership of Europe’s single market. Investors are worries about British exporters and the UK banking sector. An industry report warned that Brexit could cost British banks and associated businesses almost 40 billion pounds in lost revenue. Britain’s PMIs exceeded expectations, even the services one. Strong services reading may "cast doubt" on the likelihood of another Bank of England November rate cut. However, so far the positive figures failed to overcome the negative pressure of the market’s pessimism.
GBP/USD breached important support levels at 1.2950 and 1.2790 and this worsens the medium-term outlook. Yet, the pair is now oversold and will likely try to recover to 1.2765 and 1.2840. Below 1.2700 next support levels on the downside are at 1.2600 and 1.2500.
USD/JPY broke above the downtrend since May and is approaching the 100-day moving average at 103.75. Next resistance will be at 104.30 (September high). Support is located in 102.00 area (50-day MA). New buyers will likely appear if the pair goes down to test that support.
The RBA held yesterday but it didn’t add much to AUD/USD. Upbeat retails sales (+0.4%) helped the currency stay above 0.7600. However, the pair’s being pulled down by stronger US dollar.
Resistance for AUD/USD is at 0.7650 and 0.7700. Australia will release trade balance figures early on Tuesday.
Brent rose to $51.85 a barrel, while WTI rose to $49.50 a barrel. According to the American Petroleum Institute, inventories dropped by 7.6 million barrels last week. The market is looking forward to official data later on Wednesday. Gold (XAU/USD) is trying to recover a bit after it lost more than $5 on Tuesday. The precious metal suffered because of speculation that the ECB will taper policy and the Fed will raise interest rates. XAU/USD is still vulnerable for further decline to 1257.50 (200-day MA).