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Thursday, October 26th
The EUR/USD pair shows positive dynamics for the third session in a row mainly on the back of widespread retreat of the US dollar. Yesterday the pair broke through its important resistance level of 1.1800 and now is consolidating its positions above that mark, despite positive US macroeconomic data, released during the last session. The main reason of greenback’s weakness remains uncertainty regarding who will be the next head of the Fed, as the term of current Fed Chair J.Yellen ends in early 2018. However, any further sharp moves of the pair look unlikely, as investors took a breather ahead of the key event of this week – the ECB meeting. It is expected that the regulator won’t change its current interest rate level, while any ECB QE taper announcement will trigger a massive wave of volatility across the market. Besides the ECB meeting, today we also have pending home sales report due for release later in the NA session, however, it is expected that the market reaction will be limited in the light of more important events.
The USD/CAD pair corrects lower from its 3-month highs, marked at 1.2816 spot during previous trading session after dovish comments of BoC’s authorities. As we expected, the BoC yesterday left its interest rate unchanged at 1% level, however, the pair performed sharp upside rally, gaining more than 150 pips, following dovish remarks of BoC Governor S.Poloz. Yesterday during Q&A session, Mr.Poloz stated that BoC decided to enter ‘wait and see’ mode to gather more information about how the previous two rate hikes affected the Canadian economy. Adding to this the head of the regulator lowered projection of inflation growth pace, expecting it to reach its target level slightly later than initially predicted. However, in general the head of the BoC remained positive on wellness of the Canadian economy, suggesting that further rate hikes are still appropriate. Moreover, mildly bearish dynamics of oil prices, backed by red numbers of oil stockpiles by US EIA, also adds some negative pressure on Loonie, thus contributing to USD/CAD positive trend. On the other hand, broad retreat of the greenback remains the key theme across the FX board, allowing the pair to correct its positions lower. Today the economic calendar won’t offer a lot of market-moving data, so most likely the pair will continue to follow broad trend, caused by latest events.
The GBP/USD pair stepped lower from its weekly highs, touched at 1.3279 earlier this session, as investors are taking profits off the table after recent enormous bullish rally. Yesterday the pair earned more than 1.5 cents after the UK preliminary GDP showed unexpectedly positive results that reinforced market’s expectations of a Nov BoE rate hike. Adding to this, broad sell-off of the US dollar, on the back of uncertainty regarding who will be the next Fed Chair, provides additional support to the pair today, thus limiting its retreat. On the other side, widespread risk aversions across the market amid upcoming risky events exert some negative pressure on the higher-yielding pound. Now all eyes are focused on the upcoming ECB meeting, as sharp moves of the EUR/GBP cross may provide GBP/USD with strong correlation impetus during the European session. Besides the ECB meeting, investors will also pay attention to the pending home sales report, which will provide extra trading opportunities to investors during the NA session.
The AUD/USD pair failed to keep its overnight recovery trend and came under renewed selling pressure despite the weak US dollar, staying in the region of its 3-month lows, marked at 0.7690 post during last session. Yesterday the pair received strong bearish impetus, accelerating its downside rally, after Australia released weaker-than-expected inflation numbers, which forced that pair to lose more than 70 pips. Moreover, prevalent risk-off environment also makes recovery of the pair unlikely today. However, weakness of the US dollar, backed by speculations on who will take the position of the next Fed Chair - hawk of dove, may slow pair’s recent decline. Looking ahead, today the economic calendar will offer only data from the US housing market, so broad market trend will remain the key driving factor the pair during this trading session.
The main events of the day:
ECB Interest Rate Decision – 14.15 (GMT +3)
ECB Press Conference– 15.30 (GMT +3)
US Pending Home Sales – 17.00 (GMT +3)
Support and resistance levels for the major currency pairs:
EURUSD S. 1.1729 R. 1.1859
USDJPY S. 113.04 R. 114.58
GBPUSD S. 1.3052 R. 1.3376
USDCHF S. 0.9831 R. 0.9971
AUDUSD S. 0.7632 R. 0.7818
NZDUSD S. 0.6834 R. 0.6938
USDCAD S. 1.2563 R. 1.2933
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