Trading plan for Oct. 16
US dollar slumped in all major currency pairs. The market’s confidence in the outperformance of American economy was violently dashed. Retail sales in the world’s leading economy fell, while producer prices declined. It’s a serious blow for the expectations that the Fed will raise rates earlier than expected. Later today the Fed will release its report on the economic conditions – Berge book (18:00 GMT) – and this release will be closely watched as well. Tomorrow there will be more important publications in the US, forecasts are mixed. Also watch for comments from the FOMC members Plosser and Kocherlakota – one is a hawk, another is a dove.
EUR/USD spiked up approaching $1.2900, but then pulled back to $1.2800. If the pair fails to close above $1.2790, it will be a bearish sign. Mario Draghi will make another speech later today, and stronger euro is not what the ECB needs. Support is at $1.2750, $1.2700 and $1.2650. Resistance at $1.2830 guards the way up to $1.2900.
GBP/USD jumped to $1.6050, supported by the upbeat UK labor market data and the dramatic US figures. Traders remain indecisive about the further direction of the cable: on Wednesday the pair has offset the major part of its weekly losses. The price is testing the Oct. 10 low at the time of writing. All eyes are now on the bag of the US data releases on Thursday. More negative surprises could lift the price back towards the $1.6300 resistance. Support lies at $1.5950 and $1.5875.
USD/JPY plummeted to 105.10 on the US data, but has quickly recovered some ground. There are no more data releases scheduled in Japan this week, so watch the US economic news. In the current conditions we would forecast more downside to come. Next support to watch lies at 104.50. The picture remain bearish below the 109.00 mark.