Alpesh Patel's NEWSLETTERPRO – Dollar drops mildly against Euro and Pound as Yellen’s speech confirms no early QE, markets show little reaction

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Dollar drops mildly against Euro and Pound as Yellen’s speech confirms no early QE, markets show little reaction

© Alpesh Patel

MORNING BRIEF

Janet Yellen’s confirmation speech in front of the Senate’s Banking committee was the key event of the day yesterday but nothing we didn’t expect came out of it. The first woman ever to lead the Fed reaffirmed her view that the US economy still needs help to recover and that an early reduction in stimulus is not the correct move. She was quoted saying that it is “important not to remover support too soon” as there are “dangers of ending QE too quickly”. Market participants were informed about her outlook ahead of time since her remarks were leaked yesterday thus no reaction was noted in the markets. What matters more now is what lies ahead. Based on what Yellen stated an early reduction in asset purchases in December is probably out of the question and this could mean that the Dollar will remain generally range-bound for the coming period. On other fronts, the Euro ended the session slightly higher against the Dollar even though the GDP figures released yesterday didn’t impress. This move should be attributed to Dollar traders repositioning for tapering after December but today’s Euro-zone Consumer Price Index release might offer some more fuel to the fire and lead the currency higher. Unlikely the Euro, the Pound reached even higher totally unfazed by the weaker Retail Sales release. The UK currency has been on the rise for a third day in a row after the BoE’s Inflation Report called for better than expected conditions in the coming months and the Pound is now ahead of the important 1.6100 resistance. With no Pound-related news today we expect the currency to hold below the important 1.6100 mark for the day and any major moves should be expected coming next week.

Euro-zone CPI and US Production on a light calendar today

Today our calendar only holds a few events for us to keep an eye on. At 10.00 the Euro-zone Consumer Price Index is scheduled for release and analysts expect a 0.1% drop in October. We’re pretty interested to see how the figure prints as a surprise higher might fuel a rally in the slow-moving Euro. Later in the day, at 14.15 the US Manufacturing and Industrial Productions numbers are expected and this information needs to be noted down. The US might be a services-based economy but industrial and manufacturing sectors still play a role in the country’s GDP so we need to keep an eye on how they’re fairing.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

10.00

EUR

Euro-zone CPI (MoM)

Medium

-0.1%

0.5%

10.00

EUR

Euro-zone CPI (YoY)

High

0.7%

0.7%

14.15

USD

Industrial Production

Medium

0.1%

0.6%

14.15

USD

Manufacturing Production

Medium

0.1%

0.1%

 

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TECHNICAL ANALYSIS & LEVELS

EUR/USD

Euro held steady yesterday and remained near the 1.3450 area. We’re optimistic about Euro’s outlook thus we remain on our long position that was triggered yesterday. However, today we need to modify our targets and stops as the week comes to an end and we don’t want to go home for the weekend overexposed. Thus, our targets will be at the 1.3490 and 1.3550 marks and our stop needs to be moved just below the 1.3385 support.

GBP/USD

The Pound continued moving higher yesterday and is now near the important 1.6100 resistance level. We’d like to see how the UK currency reacts ahead of this level prior to suggesting a move. We expect the Pound to remain below this level for the day and wait for next week to attempt a breakout and with no news scheduled today for the UK economy we expect the currency to remain generally unchanged.

FTSE 100

The FTSE 100 moved higher yesterday and closed out our remaining 50% of the trade at the breakeven price. The UK index has been on a downtrend for some days now but is demonstrating quite a volatile behavior with large swings. We attribute this to the previous event-heavy sessions we had for the UK economy this week and we expect next week to be less volatile for the major index. For the time we don’t want to suggest any trades, we’d like the FTSE 100 to drop below 6,600 points to renew our conviction for lower levels.

Gold

Gold moved exactly as we predicted yesterday, it retreated down to the $1,279 support prior to making another move for the $1,286 mark. We have closed out half of our trade there and our stops have been moved to the breakeven price of entry as the yellow metal seems poised for higher levels. Our second target lies at the $1,298 mark and we will remain patient and wait for it to be hit.

All charts have been created using FXCM’s Trading Station platform.

Enjoy a lovely weekend.

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