The FOMC minutes were delivered yesterday, which continue to disappoint Trump. The first day of the EU summit ended with a negative tone around the EU-UK divorce deal.
As we all know, nowadays, the Fed is not the most favourite entity of the US president Donald Trump. He keeps throwing out criticism towards the Federal Reserve that it wants to continue raising interest rates. Yesterday’s Fed Reserve Meeting Minutes stated exactly this, that they remain convinced that a gradual increase of the interest rate is what the US economy needs. This is to be done in order to preserve the economy within a steady growth path. As we know, during the last meeting, the Fed decided to raise rates by a quarter of a percent, which brings it to a range between 2 – 2.5% percent.
The Fed is also not very pleased with certain policies that Donald Trump implements, which have their direct effect on the economy. The FOMC members discussed that, for example, tariffs on aluminium and steel are not really helping, as such a move reduces investment into the energy sector. This also forces some companies to seek other countries, who they can trade with. Farmers were also the ones who got hit by the tariffs, due to the fact that they had to lower their crop prices. Certainly, US have put in place certain compensation schemes that could ease the financial pressure of farmers.
The US dollar managed to show some strong gains yesterday against its major counterparts. The DXY shot up with confidence and headed north. If the USD confidence remains, for now, we could see the greenback moving higher.
Judging by the reactions, it seems that the Brexit topic still remains and issue for the EU, even though the British Prime minister Theresa May keeps trying to reassure everyone that a deal will be reached on time. In the meantime, the EU, which is not satisfied with the progress, keeps analysing a scenario of a no-deal Brexit that could disrupt businesses across the continent. Angela Merkel noted that the talks have hit a “deadlock”. Other EU leaders state that the Westminster is adding more logs into the fire, as they are incapable of agreeing on a plan.
One thing that they all, the EU and the UK, agree on is that they will need to have another Brexit meeting next month in order to find common grounds. As much as Mrs May would like to speed up the process, she keeps finding obstacles inside her own country. As the Brexit minister, Dominic Raab, has stated that any agreement that the UK government would reach with the EU, it would still have to be approved by the British Parliament.
The British pound took a pounding yesterday from the early start of the European trading session. With the uncertainty around Brexit, the currency could continue sloping downwards, unless any positive developments from the EU-UK ongoing divorce process would hit the headlines, which could lift the pound back up again.
UK will deliver its retails sales numbers during the European morning session. Last time, the core and the headline MoM retail sales figures were both at +0.3%, whereas this time, they are believed to be at -0.4% for the core and -0.3% for the headline. The YoY numbers for the core and the headline are expected to come out with the same +3.7%, which would be higher than the previous +3.5% for the core and +3.3% for the headline.
After a confident move higher during Monday and Tuesday, on Wednesday the GBP/USD reversed back down heavily. The ongoing Brexit issue is not supporting the British currency, which makes the bears feel comfortable in the current conditions. The pair is currently resting on a 1.3080 support line, but a break of it could easily send GBP/USD lower to test the short-term upside support line taken from the low of the 15th of October. That said, as long as that line remains intact, we could see the bulls picking up the pace again and driving the pair north.
From a very short-term perspective, if the 1.3080 support zone gets broken and GBP/USD continues to trade below it, we will aim lower for a possible test of the 1.3025 area, marked by the low of the 8th of October. Slightly below that the pair could meet the aforementioned upside support line, which could hold the rate from dropping lower. This is where the bulls could decide to step in and drive GBP/USD higher towards levels, which recently acted as support, like the 1.3080 hurdle, or even the 1.3150, which was the intraday swing high of the 17th of October.
The RSI continues to move south, where it now sits below the 50 line and points to the downside. The MACD is in the negative zone right now, as it is below zero. Also, it is currently below its trigger line and also, like the RSI, keeps pointing to the downside.
Alternatively, if the previously mentioned upside support line breaks, this could be the first strong warning signal that GBP/USD could travel much lower in the near-term. But for a better confirmation of a potential downside scenario, we would need to see the pair closing below the 1.2920 barrier, marked by the low of the 3rd of October. This way we could start examining a possible move to the 1.2870 obstacle, a break of which could open the path towards the 1.2785 hurdle, marked by the low of the 5th of September.
USD/CHF continues to grind higher, but currently it is meeting strong resistance near the 0.9955 barrier. The pair is still trading above its short-term tentative upside support line taken from the low of the 21st of September. As long as that upside line remains intact and USD/CHF jumps above the 0.9955 zone, we will remain positive over the near-term outlook.
As mentioned above, a break through the 0.9955 level, could give signal that USD/CHF is ready to make another push higher towards the 0.9985 area, marked by the 6th of August. If the bulls remain quite comfortably seated, then we could see the pair breaking the psychological 1.0000 hurdle and pushing all the way to the 1.0043 zone, which was the peak of the 19th of July. Let’s not forget a possibility of seeing a correction to the downside, where the abovementioned upside support line could get tested and if not broken, could be a good area for the bulls to step in again.
On the other hand, if the short-term upside support line gets broken and USD/CHF moves below it, still, we will be very cautious. In order to consider further declines in the near-term, for us to get comfortable with the downside, we would need to see a break below the 0.9850 support line, marked by the low of the 15th of October. Only then we could start aiming for the next potential area of support at 0.9830, a break of which could open the gate for the bears to drive USD/CHF lower, to test the 0.9783 obstacle, which was the high of the 27th of September.
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