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Trading plan for Oct. 2

EUR/USD was consolidating around $1.2600 forming lower highs and higher lows on the hourly chart. Euro’s under pressure before the ECB’s tomorrow meeting. The markets are nervous as the situation remains uncertain: the ECB has already done much, but so far it has failed to encourage inflation. One thing which is clear is that the ECB is interested in lower euro. Mario Draghi is expected to unveil the details of the ABS purchase program, and traders will be focusing on its size. The possible sum of 500B euro sum was rumored. If the market thinks that what the ECB will announce won’t be enough, euro will fall on the expectations of additional stimulus. On the other hand, the bigger the sum, the bigger is the risk of a relief rally. Technical outlook remains bearish with resistance at $1.2660, $1.2715 and $1.2760. Target $1.2500 and $1.2460 on the downside.

GBP/USD remains supported at $1.6160 in the early US trade. The cable is forming a long-legged candle for a second day in a row – this could be a bullish reversal signal if confirmed. We need to see a daily close above $1.6200 to buy with a target of $1.6270. On the other hand, fix below $1.6160 would open the way to $1.6060. Watch the UK construction PMI on Thursday – the index is projected to slip from 64.0 to 63.7. However, this is still an elevated level, confirming economic strength.  

US Treasury yields keep on falling, giving some hope to the USD/JPY bears. The pair retraced from the daily high at 110.08 into the 109.50 area on Wednesday despite the increase of ADP nonfarm payrolls. Break below the 109.10 support could bring the pair down to 108.40. However, demand for the JPY will likely remain limited ahead of the US labor data on Friday, so we maintain a buy-on-dips strategy.

The dips of AUD/USD are being bought. A rise above $0.8770 will trigger an increase to $0.8830 (a place to sell). Inability to rise above $0.8770 will lead to another decline. Support is at $0.8680. Watch Australian building approvals and trade balance data. Consensus forecasts aren’t very good.

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