Euro down to 1.1724 due to the strength of the Dollar and the situation in Catalonia
The Euro pushed lower toward key support levels weighed by Catalonia tensions. Meantime US President Trump said that he was “very close” to choosing a Fed chair. Sterling steadied on continued optimism by UK leader Theresa May on Brexit talks. The Dollar retreated against the Yen after testing 3 months highs following Shinzo Abe’s election win. The Dollar Index (USD/DXY) closed little-changed. Data was light.
Canadian Wholesale Sales for September missed with a 0.5% gain against an expectation of 1.1%.
Global stocks were mostly lower. Wall Street shares retreated from record highs ahead of a busy earnings week. The US S&P 500 finished down 0.37%. Spain’s IBEX Index lost 0.6%.
The yield on the Ten year US treasury slipped to 2.37% from 2.38%. Germany’s Ten year Bund yield closed two basis points lower at 0.43%.
USD/DXY – little-changed to 93.846 at the close (93.67 yesterday).
EUR/USD – slips further to 1.1749 from 1.1780 yesterday.
USD/JPY – retreats off 3 months highs to close flat at 113.50.
GBP/USD – steadies, ends at 1.3205, up slightly from 1.3190.
AUD/USD – grinds lower to 0.7807 (0.7815 yesterday).
Outlook: The easy move north for the Dollar has finished. There are some key events and data coming up. This will keep Greenback limited to recent ranges. The European Central Bank’s policy meets on Thursday where they are expected to unveil stimulus plans for next year. Canada’s central bank will announce its rate decision tomorrow. Trump’s choice of the new Fed Chair should be announced within two weeks. The market consensus is focused on 3 candidates, Powell, Taylor and Warsh with the latter two more hawkish.
Events and economic data releases today:
German Preliminary Markit Services, Manufacturing and Composite PMI’s: (GMT 7.30 am, Oct 24/Local Time 6.30 pm, Oct 24): forecast for Services PMI: 55.6 from 55.6; forecast for Manufacturing PMI: 60.0 from 60.6; forecast for Composite PMI: 57.0 from 57.1
Euro Zone Preliminary Markit Services, Manufacturing and Composite PMI’s: (GMT 8 am, Oct 24/Local Time 7 pm, Oct 24): forecast for Services PMI: 55.7 from 55.8; forecast for Manufacturing PMI: 57.8 from 58.1; forecast for Composite PMI: 56.5 from 56.7
US Markit Services, Manufacturing and Composite PMI’s: (GMT 1.45 pm, Oct 24/Local Time 12.45 am, Oct 25): forecast for Services PMI: 55.6 from 55.3; forecast for Manufacturing PMI: 53.6 from 53.1; forecast for Composite PMI: previous 54.8
Trading View: The progress on US tax legislation will be closely followed. Speculation now focuses on Janet Yellen’s replacement for Fed Chair. If she is indeed replaced. Yellen had talks with President Trump about a possible new term. Jerome Powell is the continuity the markets prefer. Powell has largely supported Yellen’s policy moves. Spain’s plan to take over control of Catalan’s regional government could see a flare-up in tensions. The Dollar has much of this priced into the current levels.
EUR/USD – traded to an overnight low of 1.1725 before rallying to close at 1.1749. Immediate support is found at 1.1720/30. The Euro has immediate resistance at 1.1780 (overnight high 1.1777). Ahead of Thursday’s ECB meeting and announcement, we should see more two way trading from here. Spain remains a worry and a flare-up in tensions could see the 1.1670 strong support tested. Likely range today 1.1720-1.1770. Speculative traders are still long.
USD/JPY – soared to 114.10 overnight highs on the Shinzo Abe’s impressive election win. Where to from here? US yields will drive the USD/JPY from here on in. Yesterday, the yield on the US Ten year bond slipped to 2.37% from 2.38%. Japan’s Ten Year JGB yield was steady at 0.06%. While yields consolidate we should see a trading range today. Immediate resistance for USD/JPY lies at 113.70/80 and then 114.00/10. There is immediate support found at 113.30/40. A break of this level would see 112.90/113.00. Speculative Yen shorts were basically unchanged at -JPY 101,286 in the latest Reuters/CFTC report (week ended Oct 17). Total JPY shorts are the largest since early August. Likely range today 113.30-113.80
GBP/USD – managed to hold steady around the 1.3200 level due to a more optimistic outlook on Brexit negotiations between the UK and the EU. Prime Minister Theresa May said she was “ambitious and positive” about negotiations to leave the European Union. Tentative signs of progress between the European Union and the UK had pushed the Pound down on Friday to 1.3088. Sterling has immediate resistance at 1.3220/30 (overnight high 1.3227). Immediate support can be found at 1.3170 and 1.3150. Sterling’s moves will be driven by the Dollar from here. Likely range today 1.3175-1.3225.
AUD/USD – little-changed, closing at 0.7807 from 0.7815 yesterday. The Aussie continues to grind lower. Overnight high traded was 0.7834. The tops are coming lower. Tomorrow sees the release of Australian Q3 CPI data. AUD/USD has immediate resistance at 0.7830/40 followed by 0.7850. Immediate support lies at 0.7800 and then 0.7780. Likely range today 0.7790-0.7830. Look to sell rallies as the speculators remain long of Aussie.
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