Wave Analysis from InstaForex

US again "courting" China

The unexpected offer of Americans to resume negotiations with China on trade duties on Wednesday evening led to a surge of optimism in the markets and a local weakening of the US dollar.

It seems that the US will not abandon the desire to "dent" China in the issue of the ratio of trade between countries. So far, they have not been able to do this, because the main problem of "exceptional", in our opinion, is their arrogance towards trading partners and the desire to use any methods to achieve their narrow-minded economic and political goals without taking them into account.

Earlier we have already mentioned that the trade balance not only, according to the latest data, has not shifted in favor of the Americans, but also fell, and the PRC's appeal to the WTO to punish the United States for their illegal actions could force the latter to resort to a new round of negotiations. Also, they may have realized that D. Trump's latest threats to expand the impact of new import tariffs by another 267 billion dollars did not have an effective impact on the leadership of "China", which was the reason for the desire to continue the negotiation process.

On this wave, the US and European stock indexes were supported by the results of trading on Wednesday, but already on Thursday the Chinese did not show such unambiguous optimism, which indicates that local investors are not confident in the success and perceive the proposals of the Americans as another trick and nothing more. We also believe that there will be no success in this process unless the United States engages in constructive and truly equitable negotiations.

Given this state of affairs, we believe that the weakening of the dollar against commodities and commodity currencies will be local, which means that after the weakening of the US currency and another disappointment in the negotiations, we can observe a turn in the interest of market players towards purchases.

On Thursday, from the important events of the day we will highlight the outcome of the ECB meeting on monetary policy. We do not expect any breakthrough statements and changes in the bank's policy. It is likely that it will continue with its plan and then smoothly reduce the program of quantitative easing until the end of this year, which is positive for the euro. But it is unlikely to expect its strong growth when paired with the US dollar, as the process of raising rates in the US will compensate for the pressure of the euro, so we believe that the overall sideways trend of the euro/dollar pair in the short term will continue.

The forecast for today:

The EUR/USD pair is trading in the range of 1.1530-1.1650 in anticipation of the ECB meeting. Probably, the pair will remain in this range, turning down and rushing to its lower border.

The AUD/USD pair is trading above 0.7170. We do not expect a strong growth of the pair, as the RBA is unlikely to decide before the end of this year to raise rates on the wave of instability in the world. A price decrease below 0.7170 may be the reason for the price to fall to 0.7100.

Analysis are provided by InstaForex
 
The pound is waiting for a signal to attack

The meeting of the Bank of England was held without noise and dust, and sterling is preparing to release important statistics on inflation and retail sales, observing the development of the situation in the field of trade wars. According to the regulator, the consequences of the conflict between the US and China for the world economy may be slightly worse than initially expected. The concern of MPC is evoked by developments in emerging markets. The committee unanimously voted to maintain the repo rate at 0.75% and said that by the end of 2019 excess demand could lead to further tightening of monetary policy.

In general, the meeting was held in line with expectations, and the increase in estimates of GDP growth of the UK from 0.4% to 0.5% q/q in the third quarter provided little support to the sterling. Markets were expecting a more positive result amid the acceleration of the average wage to 2.9% y/y and the economy to 0.6% in May-July, however, the central bank cooled the offensive ardor of the bulls with the statement that these figures came in line with the forecast. According to the regulator, inflation is moving in the direction of 2%, which suggests the possibility of using the "let's sit and see" approach.

The pound continues to show increased sensitivity to politics. Rumors that Brussels and London failed to achieve progress on the Irish border, has pushed prices higher, but a statement by the Labour Party that the opposition would vote against Theresa May's plan returned the bulls from heaven to earth. The correlation between the headlines about Brexit and the volatility of the sterling reached a record 70%, which is conclusive evidence that the growth of the GBP/USD is hampered primarily by politics.

Dynamics of correlation between Brexit headlines and sterling volatility

Unlike the volatility of the pound, the volatility of the euro fell to a 5-month low. The ECB's plans to phase out QE and hold rates until at least September 2019 make the monetary policy transparent. Given the fact that the timing of the continuation of the normalization of BoE may shift from the end of 2019 to a later or, conversely, an earlier period, investors have a great opportunity to win back macroeconomic statistics on Britain in the EUR/GBP pair. According to Nomura, the release of retail sales data for August (September 20) looks particularly attractive. A pleasant surprise will contribute to the decline of the euro in the direction of £0.85. It should be noted that the consensus forecast of Bloomberg experts for the end of 2018 is £0.89.

As for the GBP/USD pair, much will depend on the development of the situation in the field of trade wars. Donald Trump threatens to impose additional tariffs of $200 billion on Chinese imports and invites to negotiations. The Chinese media claim that Beijing will not conduct a dialogue at gunpoint. The escalation of the conflict will increase the demand for reliable assets, including the US dollar.

Technically, if the bulls on the GBP/USD pair manage to hold the quotes above the support at 1.3035 and take the resistance by 1.313, the risks of implementing the target by 88.6% on the Shark pattern will increase.

GBP/USD, daily chart

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Analysis are provided by InstaForex
 
Elliott wave analysis of EUR/NZD for September 24, 2018

EUR/NZD should stay above the peak of red wave i at 1.7488 for the next impulsive rally towards 1.8031. If an unexpected break below 1.7488 is seen, the we will have to make a recount of the rally from 1.6534 and count the rally as a series of waves ones and twos. This is not our preferred count, but it remains a possibility as long as re stay below 1.7783. A break above here will confirm that the next impulsive rally is developing higher towards 1.8030 and longer term closer to 1.8369.

R3: 1.7711
R2: 1.7680
R1: 1.7650
Pivot: 1,7620
S1: 1.7586
S2: 1.7539
S3: 1.7488

Trading recommendation:

We are long EUR from 1.7615 with our stop placed at 1.7515. If you are not long EUR yet, the wait and buy a break above 1.7680 and start by using a stop, just below the most recent low.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Analysis are provided by InstaForex
 
The pound has reached a dead end

Can the central bank normalize monetary and credit policy, macroeconomic statistics improve, and the currency fall? Maybe if the weight is attached to its feet by politics. It would seem that the positive signals from GDP, average wages and retail sales should have given the pound an acceleration, because the timing of the next increase in the REPO rate has shifted from early 2020 to summer 2019. Before the Austrian EU summit, everything went smoothly: the GBP/USD pair rose to a two-month high, but Theresa May's speech in Salzburg confused the "bulls" with all the cards.

On the eve of the meeting of representatives of the European Union, the parties were full of optimism. Brussels was determined to provide London with preferential conditions unknown to any other country, Michel Barnier argued that he was ready to work day and night to make the deal happen, and Germany said that it would take the plan in general terms, in order to discuss the details later on. It would seem that everything is going to ensure that, as a last resort, by November, the parties will sign an agreement. However, the EU's rejection of Theresa May's plan has caused heated criticism from the British prime minister. In her opinion, the relationship reached a deadlock, and the UK is better off left without a deal than sign a bad agreement. What is the reason for May's violent aggression? It is unlikely that she was enraged by the reluctance of Brussels to approve the program. Most likely, the head of government needed to get support within the country.

As a result of the sharp speech of the British prime minister, the GBP/USD pair lost about 1.5%, which was its worst daily dynamics in the last 15 months. National Australia Bank claims that 2.5% of the rally of the trade-weighted sterling went too far, its volatility reached its highest level since February, and MUFG notes that the trading range for the analyzed pair can be very wide – from 1.15 to 1.45 – depending on the hard, soft Brexit or lack of agreement on the divorce of the UK with the EU.

The dynamics of the volatility of the pound

The strengthening of political risks and the growth of volatility are important factors that constrain the strengthening of the pound. The higher the volatility of quotations, the less the desire of non-residents to buy British assets. London, on the other hand, needs to finance the current account deficit, so a decrease in capital inflows should be seen as a "bearish" factor for the sterling.

It should be taken into account that there are always two currencies in any pair. And the peak of the GBP/USD pair at the end of the week to September 21 is due, among other things, to a slight recovery of the US dollar. Investors expect an increase in the federal funds rate following the September FOMC meeting, China's reluctance to negotiate with the United States speaks of the escalation of the trade conflict, while the main opponent of the dollar in the face of the euro is burdened by weak statistics on business activity and political problems in Italy.

Technically, there is a struggle for an important level of 1,312. If victory is celebrated by "bears," the risk of a pullback after reaching the target of 88.6% for the the "Bat" pattern will increase. On the contrary, the victory of the bulls will create prerequisites for the continuation of the GBP/USD rally.

GBP/USD daily chart

Analysis are provided by InstaForex
 
Brent ignores Trump's calls

When there is no agreement in the comrades, their business will not go smoothly. Contrary to the calls of Donald Trump, OPEC did not increase oil production in order to suspend the growth of prices. Inside the cartel, there is a clear division between those who can do it, but would like to see a corresponding increase in demand, and those who are unable to expand production, and it is satisfied with the current levels of Brent. Futures on the North Sea variety, by the way, updated the four-year high. The market is amplified by rumors that the increase in global demand (according to the International Energy Agency, the figure will grow by 1.4 million b/d in 2018 and 1.5 million b/d in 2019), the reduction of Iranian exports and the reluctance of OPEC to increase production will lead to such a deficit of oil, which has not been seen for several decades.

Oil closes in the positive territory for the fifth consecutive quarter, which has not happened since the beginning of 2007, when six straight quarters of growth inflated the WTI quotes to a historic high of $147.5 per barrel. In the current situation, the expansion of the imbalance allows banks to set "bullish" forecasts for Brent and WTI. In particular, BofA Merrill Lynch and JP Morgan believe that the North Sea variety can jump up to $95 per barrel.

Not the least role in the September oil rally was played by a weak dollar. Despite the strong US economy and labor market, as well as the Fed's desire to continue the cycle of monetary policy normalization, speculators preferred to get rid of the US currency at the end of the quarter, as the escalation of trade disputes between Washington and Beijing could not provide it with the expected support. At the same time, the risks of Donald Trump's impeachment in the event of the Democrats' victory in the midterm elections to Congress in November are growing. Taking into account the existing correlation of the USD and Brent index, the growth of black gold looks quite logical.

Dynamics of Brent and USD index

It can not be said that politics does not even consider the oil market. Rising prices have the potential to increase ordinary Americans' spending on gasoline and reduce the effectiveness of the fiscal stimulus. This is a serious trump card in the hands of opponents of Donald Trump. In this regard, the President's calls for OPEC to increase production look logical.

Despite the fact that sanctions against Iran are a pronounced "bullish" factor for Brent and WTI, there is an opinion in the market that it is unlikely to become a long-term driver of growth in quotations. Moreover, the reduction in global demand under the influence of trade wars (IMF estimates it at 150-200 thousand b/d) may limit the potential for oil growth. In my opinion, much will depend on the buyers' refusals and on the scale of hostilities between the US and China. So far, several countries have expressed their intention to reduce purchases of oil from Tehran, including India, South Korea, Japan and others.

Technically, the implementation of the target by 113% on the "Shark" pattern increases the risks of a rollback. If the bulls do not stop there, the probability of achieving the target by 161.8% for AB=CD will increase.

Brent, daily chart

Analysis are provided by InstaForex
 
The Fed will open gold eyes

Gold continues to sleep peacefully near the $1200 per ounce mark, but it is unlikely that an experienced investor will be deceived by such calmness. The market is cyclical, trends are replaced by consolidations, trading ranges give way to new trends, so the current sleepy state will probably end soon. We need a reason to wake up. And they are quite capable of becoming the events of the end of September. The Fed meeting, the publication of the draft budget of Italy and the release of data on European inflation will directly affect the USD index, and in fact its dynamics has become the main "bearish" driver for the XAU/USD. Since the beginning of the year, the precious metal has lost about 8% on expectations of an increase in the Federal funds rate and on fears of increased trade tensions.

Despite low prices, physical demand does not support gold. Stocks of the largest specialized stock exchange fund SPDR Gold Shares fell to 742 tons, the lowest level since February 2016. Since the beginning of the year, the figure has lost 11.2%. Rumors of an increase in import duties in India from the current 10% to 12-13%, and possibly up to 20%, increase the risks of reducing demand for precious metals in the country - its largest consumer. At the same time, the People's Bank of China has not purchased gold for two years in order to increase its reserves. However, the holy place is never empty: Russia has claimed the status of the largest buyer, increasing its own reserves to 64.3 million ounces (about 2000 tons). In August, they rose by 31 tons. Bloomberg reports that the official Delhi will leave tariffs at the same level, as it fears an increase in smuggling, and ETF stocks tend to follow the price, and not vice versa.

I believe that the market conditions of the physical asset will gradually improve, and to predict the further dynamics of the XAU/USD it makes sense to look at factors such as trade wars and FOMC meetings. During the current cycle of normalization of monetary policy of the Fed, gold reacted quite clearly to the increase in the Federal funds rate: on the eve of the meetings, it fell, then quickly restored the lost positions. In my opinion, this dynamics is due to the implementation of the principle of "sell on rumors, buy on facts".

Dynamics of gold and Fed rate

The failure occurred in June, when the tightening of monetary policy did not lead to an increase in the value of the precious metal. In summer, investors were keen on buying the US dollar amid divergence in economic growth between the United States and other countries. They believed that China and the developing countries would slow down, while Washington would not feel the pain of trade wars. Currently, the world has changed. The US economy may lose momentum, while EM assets look oversold. In this respect, the former associated with the recovery of gold prices after the FOMC meetings is quite capable of playing.

Technically, the exit of the precious metal from the trading range of $1184-1214 per ounce will allow it to determine the direction of further movement. The breakout of the upper limit will increase the risks of the rally in the direction of $1240 and $1260. On the contrary, a successful storm of support for $1184 will open the way for the "bears" to the south.

Gold, daily chart

Analysis are provided by InstaForex
 
Elliott wave analysis of EUR/NZD for September 28, 2018

The daily trading range is getting smaller and smaller, indicating that energy is building for the next larger move towards the upside. A break above minor resistance at 1.7685 will be the first good indication, that the next impulsive rally towards 1.8030 is developing, while a break above resistance at 1.7732 will confirm this rally is well underway. Support at 1.7580 should continue to protect the downside for the expected break above 1.7685 and above.

R3: 1.7823
R2: 1.7783
R1: 1.7732
Pivot: 1.7685
S1: 1.7651
S2: 1.7626
S3: 1.7580

Trading recommendation:

We are long EUR from 1.7615 with our stop placed at 1.7515. Upon a break above 1.7732 we will move our stop higher to 1.7575. We will take profit on half our position at 1.8000.

Analysis are provided by InstaForex
 
The dollar returns to the game

The US dollar did what it had to do. It strengthened due to the increase in the Federal funds rate to 2.25% and the Fed's intentions to bring it to 3.5% in 2019. The central bank plans to tighten monetary policy once this year and three times next year, which makes the "greenback" a very attractive currency against the background of the slowness of its main competitors. Yes, the head Of the Bank of Austria Ewald Nowotny requires an earlier increase in the rate on deposits from the ECB, but the "hawks" of the Governing Council would not be "hawks" if they did not make such statements. While core inflation in the euro area is not going to go far from the 1% mark, the European Central Bank is unlikely to change its plans.

The divergence in the monetary policy of the Fed and the ECB is not the only trump card in the hands of the "bears" for the EUR/USD. The peak of the pair in April-August was associated with different rates of economic growth and trade wars, and if investors' views on the conflict between the US and China have changed, hen there is little doubt in the strength of the American economy. The growth in the negative balance of trade led to a deterioration in GDP forecasts for the third quarter from the Atlanta Federal Reserve to 3.8%, but this figure is still impressive. At the same time, the dynamics of business activity in the eurozone indicates serious concerns of the manufacturing sector, and given the close correlation of the purchasing managers' index and GDP, it can be assumed that the economy of the currency bloc is far from its optimal conditions. As if under such conditions, the ECB did not have to postpone plans for the start of the normalization of monetary policy in September 2019 for a later period.

Another problem of the euro is Italy. Eurosceptics secured from the Ministry of Finance of the republic a budget deficit of 2.4% of GDP in order to fulfill pre-election promises. But this figure does not effectively reduce the debt of the country to €2.3 trillion. In its absolute size, Italy is the largest borrower of the eurozone, in relative terms – inferior to one in Greece. Yes, after a compromise in Rome was found, the markets calmed down a bit, and the yield differential of Italian and German bonds could not rewrite the three-month highs recorded at the beginning of September, but who knows what will happen in October?

The dynamics of the spread of interest rates on the debts of Italy and Germany

Thus, the EUR/USD pair has plenty of trump cards to continue the downward campaign, however, I would not write off the euro from accounts ahead of time. First, as the midterm elections in the US approach, the dollar will be worried about political risks. Second, if macroeconomic statistics for the eurozone begin to improve, and Italy's financial markets stabilize, the single European currency will gain ground. In this regard, it is extremely doubtful that the main currency pair could rewrite the August low.

Technically, the "bears" for the EUR/USD pair intend to storm the support at 1.153-1.1535 and activate the subsidiary "shark" pattern with a target of 88.6%. If they succeed, the risks of continuing the peak to 1.135 will increase.

EUR/USD daily chart

Analysis are provided by InstaForex
 
EUR/USD: the recalcitrant Italians drown the euro

The narrative around the state budget of Italy for the next year continues, putting strong pressure on the European currency. The EUR/USD pair fell to 1.5 – month lows, currently testing a strong resistance level of 1.1520, which is the lower limit of the Kumo cloud on the monthly chart. If the price is fixed under this level, the pair will soon enter the 14th figure, confirming the dominance of bears on the pair.

Despite the fact that the proposed draft Italian budget does not violate the EU requirements in terms of the permissible size of the deficit (not more than three percent), it caused an uproar in Brussels. The EU leadership has strong arguments for its discontent: if last year the Italian authorities laid the budget deficit at the level of 1.6%, now they want to raise this bar to 2.4% at the previously agreed 0.8%. And this is despite the fact that the size of Italy's public debt is one of the highest in the eurozone (here the Italians are second only to the Greeks), and the unemployment rate in some areas of the country reaches 30 percent. But these facts do not confuse politicians who recently came to power on the wave of populist promises. Now they have to fulfill (at least partially) their promises – at the expense of "inflating" the budget.

It is worth noting that the political events in Italy are unfolding quite dynamically – in the last five years the country was led by four prime ministers. None of them held office for more than two years. Representatives of the current coalition are well aware that time is playing against them, and if Brussels wins the "budget battle", their positions will weaken in many ways. That is why the Italian deputy prime minister said today that he will not back down "one iota" from those expenses that were planned in the scandalous draft budget. In particular, we are talking about an increase in pensions and social benefits. In addition, representatives of the "League" want to carry out next year's tax reform by changing the tax rate on personal income: 15% for households with incomes less than 80,000 per year and 20% for those whose income exceeds this level.

These intentions are opposed by Brussels and Italy's Minister of Finance – practically the only influential "opposition" in the current government. In his opinion, the maximum allowable size of the budget deficit is 1.9%, but not the declared 2.4%. He also recalled that the Italian national debt exceeds 130% of GDP (2.3 trillion euros), and the actions of politicians offset the work on reducing the debt burden. It is noteworthy that to date Italy's budget indicators are consistent with the European Union, according to which the deficit was to be reduced from 1.6% of GDP this year to 0.8% in 2019, and in fact to zero in 2020. Now Rome shows the opposite trend - instead of the previously agreed 0.8%, it proposes to set the bar at 2.4% of GDP.

Such a sharp turn provoked a strong reaction from Brussels. According to the Italian press, if Rome implements the stated scenario, the European Commission will reject the draft budget and even consider the issue of applying sanctions against Italy. It is worth noting that we are talking about a fairly broad time frame: until October 20, members of the Italian government must approve the draft budget (in one form or another), before the end of November, this budget will be considered by the European Commission, and the sanctions procedure can be implemented at the beginning of next year. Therefore, if Rome decides on the declared budget deficit, the European currency will be under pressure for a long time.

In general, the EUR/USD pair reacted quite cautiously to the Italian event, until one of the ECB representatives commented on the situation. Thus, the head of the Bank of Finland Olly Ren said that the plans of the Italian government are alarming, and now the regulator is likely to "carefully monitor the risks." Obviously, if the Italian crisis worsens (especially if the European Commission returns Rome's unapproved draft budget), then at the next meeting of the ECB (October 25), the regulator will significantly soften its rhetoric, thereby putting additional pressure on the euro.

The current situation has its consequences, and not only in the context of the foreign exchange market. In particular, the Italian stock index FTSE MIB lost 3.7% amid a selling of Italian government bonds. If panic increases, this trend will continue.

However, in my opinion, the Italian crisis will end quite quickly when a certain peak is reached. Most likely, a compromise will be reached, assuming a reduction in the budget deficit under the two percent mark. On the one hand, Brussels will avoid a political crisis in Italy, and, on the other hand, Italian politicians will be able to partially fulfill their election promises, and the responsibility for the unfulfilled part will be transferred to the shoulders of the European Union, "which did not allow them to implement their plans." From a political point of view, this is a fairly convenient and "safe" position, so it will be surprising if Italian politicians show excessive principledness on this issue.

From a technical point of view, the euro-dollar pair has reached an important support level of 1.1520 (the lower limit of the Kumo cloud on the monthly chart). If bears push this mark, then the next support level will be the mark of 1.1440 (the bottom line of the Bollinger Bands indicator on W1).

Analysis are provided by InstaForex
 
Gold saved by speculators

If the assets that have been marching in different directions for a long time begin to move in the same direction, there is a reason for bewilderment and search for the causes of what is happening. It turns out – you can find a good investment idea. Over the past few months, the main driver of the weakness of gold was the strong US dollar. Nevertheless, the political crisis in Italy increased the demand for safe-haven assets and contributed to selling the EUR/USD. At the same time, it played the principle of "when everyone sells, there is a great opportunity to buy." At the auction on October 2 at the beginning of the US session, the volume of operations within 10 minutes exceeded the average 100-day indicator by more than 12 times. While the crowd was selling the precious metal, sincerely hoping for a strong dollar, the big players, on the contrary, bought it. Bottoms up?

Dynamics of gold prices

According to Commerzbank, gold will surely move upwards in the direction of $1,300 per ounce, since the external background is favorable for it. First, the increase in the scale of trade wars leads to an acceleration of inflation, which at the current rate of normalization of monetary policy of the Federal Reserve will reduce the real yield of US Treasury bonds. This factor is bullish for the XAU/USD. Secondly, Brexit and the political crisis in Italy, along with trade wars, lead to a slowdown in business activity around the world. This slows down the growth rate of the world economy and delays the central banks' plans to normalize monetary policy. The profitability of the global bond market is falling, and gold is growing. Finally, thirdly, blazing Rome increases the demand for safe-haven assets.

The eurosceptic government persuaded Finance Minister Giuseppe Tria to adopt the draft budget for 2019 with a deficit of 2.4% of GDP. Their predecessors talked about 1.6% in 2018 and 0.8% in 2019. The current plan needs to be coordinated with the EU, which is already beginning to show discontent. So, Jean-Claude Juncker said that Brussels should do everything possible to avoid a new Greece. This time in Italy. Indeed, if the European Union accepts the figures proposed by Rome, the rest of the participating countries will begin to express dissatisfaction, which will strengthen the position of eurosceptics in the eurozone. On the other hand, it is necessary to find a common language with Italy, because from the side of the League and the Five Stars from time to time there is talk that the republic would be better without the euro.

Thus, the political crisis in Europe, trade wars and growing risks of falling real bond yields amid accelerating inflation and declining growth rates of business activity have contributed to the rise of gold towards the upper limit of the medium-term trading range of $1184-1214 per ounce. Speculators did not play the least role in this process. In my opinion, the external background is favorable for the precious metal, which increases the probability of breaking the upper limit of consolidation.

Technically, the output of gold outside the trading border will increase the risks of implementing the target by 88.6% using the "Bat"pattern.

Gold, daily chart

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Analysis are provided by InstaForex
 
AUD/USD. The pair is approaching the stronghold of bulls - 0.7000

The Australian dollar paired with the US currency weakened to 2.5-year lows, entrenched in the 70th figure. This dynamics is associated not only with the strengthening of the greenback, although the rhythm of today's trading is set by the US dollar. "Hawkish" comments of the head of the Federal Reserve provoked an increase in the yield of 10-year treasuries, and this fact in turn influenced the dynamics of dollar pairs.

Despite the clear dominance of the US currency, in the context of the AUD/USD pair, it is worth considering that it will be difficult for traders to break through the base of the 70th figure and go lower. The last time such a maneuver was in January 2016 - but even then the bears of the AUD/USD could not keep the price within the 69th figure for more than one week. Therefore, short positions should be treated with extreme caution: the pair is too close to a strong support level.

The long weekend in China (the country celebrates Independence Day throughout the week) shifted the focus of AUD/USD traders' attention to other fundamental factors. The theme of the US-China trade conflict has faded into the background, as the parties have so far "dispersed in the corners of the ring", also due to the national holiday in China. The Australian dollar did not get any benefit from this fact - on the contrary, now the pressure of the US currency has increased due to the tougher rhetoric of the Fed representatives.

And it's not just about Jerome Powell, who yesterday quite transparently hinted at the acceleration of the rate hike. In particular, speakers in recent days, Charles Evans, Eric Rosengren, Lael Brainard stated the need for further tightening of monetary policy ,and Brainard even allowed the possibility of accelerating the pace of the rate hike. Jerome Powell spoke about this, however, not directly, but in very clear hints. The meaning of its position is difficult to distort: apparently, the Fed will raise the interest rate three or four times next year and only in 2020 will it think about the level of the neutral rate.

The overall strengthening of the US dollar has not spared the AUD/USD pair. The yield spread between 10-year US and Australian bonds expanded to record levels in favor of the United States: the last time such dynamics was observed as much was 37 years ago. By and large, at one point connected many factors, the combination of which had a strong pressure on the Australian dollar.

The Reserve Bank of Australia is also not an "ally" of the Australian, as the devaluation of the national currency plays only into the hands of inflationary processes. The regulator has repeatedly stated this fact, each time voicing their concerns, if the AUD/USD exchange rate was approaching the region of the 80th figure. At their last meeting, which took place this week, the members of the RBA took a wait-and-see position, confirming the general expectations of the market about the prospects of monetary policy. According to the majority of traders, the issue of raising interest rates may not be considered until the second half of next year, and RBA members are in no hurry to dissuade the market from this.

Thus, the Australian currency does not have its own strength to resist, so the "aussie" is entirely dependent on the dynamics of the US dollar. In turn, this means that the motion vector of the AUD/USD in the short term depends on the Nonfarms, the release of which is scheduled for tomorrow. If the number of employed in the non-agricultural sector exceeds the 200,000 mark, the unemployment rate will drop to 3.8%, and the dynamics of the average wage will remain within 0.3-0.4%, the US currency will continue its offensive in all dollar pairs (except for the pound-dollar pair, where the subject of Brexit dominates).

Technically, the AUD/USD pair also shows a clearly bearish picture, and on the "higher" timeframes (daily, weekly and monthly chart). On each of them the price is on the lower or between the middle and lower lines of the Bollinger Bands indicator. Ichimoku Kinko Hyo indicator shows a strong bearish "Parade of lines" signal, and oscillators also signal the priority of the downward movement.

You can define several goals of the downward scenario, depending on the timeframe: D1 – 0,7070 (the goal is almost reached); W1 – 0,7055 and MN – 0,7005. When passing the above values, the pair will target the main "price stronghold" – the mark of 0.7000. Here it should be noted that the above support levels are not a reliable stronghold – the main battle will unfold for a decrease in the 69th figure.

Tomorrow's Nonfarms can impulsively reduce the price to the base of the 70th figure, but this price breakthrough should be treated with caution. In the area of multi-year lows, the pair can gradually buy back, and in the first trading days of the next week it can move away from record lows. Short positions in this case are appropriate only in the range of 0.7090-0.7010 or when the pair is fixed in the 69th figure. But to participate in the "battle" for a breakthrough in the 69th figure is very risky, since its outcome is not predetermined.

Analysis are provided by InstaForex
 
Elliott wave analysis of EUR/NZD for October 8, 2018

There was no time for a correction and EUR/NZD is moving directly higher towards the next target at 1.8030. Support is now seen at 1.7800 and again at 1.7758, only a break below the later support will indicate a deeper correction towards 1.7643 unfolding, before the next advance towards the 1.8369 target.

R3: 1.8100
R2: 1.8030
R1: 1.7900
Pivot: 1.7800
S1: 1 7758
S2: 1.7692
S3: 1.7642

Trading recommendation:
We are long half a position from 1.7500 and we will move our stop higher to 1.7725.

Analysis are provided by InstaForex
 
The pound gets rid of the ballast

If you get rid of the ballast, it'll be a lot more fun. Over the past few months, the policy has restrained the offensive outbursts of the bulls on the GBP/USD. While most investors sleep and see the pound rise significantly higher, political risks prevent them from starting to form long positions. In past years, the Conservative Party conference invariably turned into a collapse of the sterling, and Theresa May's statement about the impasse in negotiations with Brussels leads its fans to sad arguments.

This time, nothing extraordinary happened at the Tory's meeting. The prime minister was not allowed to doubt the leadership. At the same time, rumors about the advancement of the Irish border issue led to a decrease in the EUR/GBP to the area of 3-month lows. Investors are playing on the contrast: while the fire of the political crisis in Italy is only heating up, in Britain, on the contrary, everything is moving towards the conclusion of an agreement. According to Reuters, London's new proposal to Brussels avoids large-scale checks on the border with Ireland, which signals progress in the negotiations.

Not the slightest role in strengthening the pound is played by the growth of the yield of British bonds to the area of 2-year highs. If the UK manages to achieve an orderly exit from the EU, the risks of continuing the Bank of England's monetary policy normalization cycle will increase. At the same time, the threat of an acceleration in inflation forces investors to flee from local debt obligations. If we add to this London's desire to take a step from fiscal consolidation to GDP acceleration and the potential growth of bond issuance associated with it, it becomes clear why the debt market rates are steadily moving upwards. Their increase raises the attractiveness of British assets, boosts demand for them and contributes to the revaluation of the sterling.

Dynamics of British bond yields

At the same time, there are always two currencies in any pair, so the success of one of them does not necessarily lead to a shift in a certain direction. The dollar also looks very attractive at the moment. The futures market increased the likelihood of three acts of monetary tightening of the Federal Reserve in 2019 from 40% to 42%, the duration of employment growth outside the agricultural sector does not get tired of rewriting records (96 consecutive months), and unemployment fell to a low of almost half a century. Against this background, the rise in the yield of US Treasury bonds to the peak in the spring of 2011 should not be surprising.

In the week to October 12, investors working with the GBP/USD will monitor the political situation in Britain, as well as the release of data on GDP of the UK for June-August and US inflation. In May-July, the economy of the United Kingdom accelerated to 0.6%, and if it continues in the same spirit, the pound will receive an additional trump card.

Technically, after a rollback to 50% of the AD wave of the "Bat" pattern, and the rebound from the lower limit of the upward trading channel, the "bulls" on the GBP/USD launched an attack in order to update the September high. If this happens, the chances of implementing the target by 161.8% on the AB=CD pattern will increase. GBP/USD daily chart

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Elliott wave analysis of EUR/JPY for October, 2018

EUR/JPY has seen a low at 129.12 and we are now looking for a break above minor resistance at 129.80 and more importantly a break above short-term important resistance at 130.51. It will confirm that blue wave (2) has completed and blue wave (3) towards 138.10 is developing.
Support is now seen at 129.34 and then at 129.12.
R3: 130.85
R2: 130.51
R1: 130.05
Pivot: 129.80
S1: 129.34
S2: 129.12
S3: 128.99

Trading recommendation: We will buy EUR at 129.10 or upon a break above 129.80.

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GBP/USD. October 15th. Results of the day. The fate of the pound may be decided at the summit on October 17-18

4-hour timeframe

The amplitude of the last 5 days (high-low): 105 p-117 p-79 p-66 p-111 p.

Average amplitude over the last 5 days: 96 PT (97 p). The British pound opened today with a large "gap" down, but managed to close it during the day.

In principle, the technical picture of the last two days for EUR/USD and GBP/USD pairs is the same. The only difference is that the pound is more volatile. At the moment, the price has consolidated back above the Kijun-sen line, which may mean the completion of a deep correction and the resumption of an uptrend. However, the MACD indicator is still pointing down (!!!), which is due to the formation of a "gap" at the opening of the market. Thus, the indicator readings are simply incorrect now. As for the fundamental component, in addition to the report on retail sales in the US, which slightly increased the demand for the pound during the day, there is nothing to note today. Even no new rumors about Brexit has not been received. Thus, market participants are fully focused on the summit, which will be held on 17-18 October, and which is highly likely to be either signed an agreement or negotiations will fail completely. Of course, everyone, especially traders, now believe that the "deal" will be signed. But we think the odds are about 50/50. If the parties could easily concede on the Northern Ireland border, they would have done so long ago. Nobody wants to give in, and Britain needs the "deal" first. But additional concessions to the European Union will lower Theresa May's political ratings even more. Not everyone is happy with her rule and negotiations in the UK.

Trading recommendations:

The GBP/USD currency pair seems to have completed the correction, but the breakdown of the Kijun-sen line may be false, given the nature of the next bar. Thus, now it is recommended to hurry with the opening of new longs, it is better to wait for clarification of the situation.

Sell positions are relevant as long as the price is below the Kijun-sen line. But MACD did not react to the upward correction and now can not signal its completion with a turn down.

In addition to the technical picture should also take into account the fundamental data and the time of their release.

Explanation of the illustration:

Ichimoku indicator:

Tenkan-sen - the red line.

Kijun-sen - the blue line.

Senkou Span A - light brown dotted line.

Senkou Span B - light purple dotted line.

Chinkou Span - green line.

Bollinger Bands indicator:

3 yellow lines.

MACD Indicator:

Red line and histogram with white bars in the indicator window.

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EUR/USD: illusive hopes and pressing problems

The euro-dollar pair has not managed to break out of the price range of 1.1460-1.1620, although today the price has approached its lower limit. But the bulls again seized the initiative and did not allow it to gain a foothold in the 14th figure. However, the upward dynamics also did not receive its continuation, so the pair was stuck in the flat in anticipation for new information impulses.

The fundamental background of the pair is very contradictory: the events of the last day do not have an unambiguous "black and white" color, so it is difficult for traders to determine the vector of further movement. For example, the initial signals from the EU summit significantly disappointed the market, after which the pound and the euro lost their positions. But today there is information that Brussels has offered London to extend the period of the transition period - approximately one year. And the British, apparently, supported this idea - at least the rhetoric of Theresa May (which, however, allowed the prolongation "for a couple of months") eloquently testifies to this. Later, there were also unofficial comments of high-ranking officials of Britain, which also confirm such intentions.

In other words, even if the parties do not have time to agree on key positions before March 2019, Britain will remain within the single market and within the customs Union for almost three years – that is, until December 2021. Such prospects calmed the markets a bit, but it is too early to "relax" – after all, today is the second day of the summit (the most intense in the context of multilateral negotiations), so the participants of the meeting can still present surprises - both of a positive nature and vice versa.

Although the euro follows the pound in many ways (especially when the Brexit issue is discussed), the single currency is not as focused on the summit as the British. Therefore, today the bulls of the EUR/USD focused on the rhetoric of the ECB representative Olly Rehn (head of the Central Bank of Finland). He voiced his expectations about the growth of the interest rate - according to him, the European central bank will consider this issue in the fourth quarter of next year. Naturally, if the dynamics of the eurozone economy will maintain the current pace.

Despite the fact that we are talking about very long-term prospects, traders reacted with optimism to such intentions. Moreover, the position of Rehn sounded simultaneously with the rhetoric of ECB Board member Ewald Nowotny, who said that he sees Jens Weidmann, the head of the Bundesbank, as the successor of Mario Draghi. Let me remind you that Weidmann has long and consistently advocated the tightening of monetary policy. If he really will head the European Central Bank (and it is called the main candidate) next year, then the pace of the rate hike can be significantly revised.

In other words, the fundamental factors that supported the euro today relate to too distant prospects. Therefore, the reaction to them was short-term, and the pair returned to more pressing issues. In particular, the problem of the Italian budget remained in limbo. According to a number of publications, the European Commission next week will reject the draft budget with a deficit of 2.4%, and its revision will take at least a month and a half. That is, this issue may be delayed until December, thus putting background pressure on the euro.

Another factor of uncertainty is the local elections in Germany. Let me remind you that Angela Merkel's partner in the Christian-Social Union coalition suffered a serious defeat in the elections to the Bavarian Parliament. 37% of Bavarians voted for the CSU, whereas five years ago this figure was almost 50%.

For the first time in 60 years, CSU representatives lost a single-party regional government. In addition, an impressive result was shown by the far-right party "Alternative for Germany", whose representatives took 22 seats in the local Parliament. According to some experts, the elections in Bavaria reflected the current political preferences of the Germans – that is, the growth of anti-European sentiment and the decline in the popularity of Merkel. At the end of October (28th) another regional elections will be held -in Hesse, where Angela Merkel is in charge of the "Christian Democratic Union". If the far right will press the CDU there, it will be a very alarming signal for Brussels.

Thus, the euro can not count on the support of the fundamental background, since the news "with a plus sign" are long-term, and "minus sign" is more estimated. In addition, the dollar is also not losing ground – published on Wednesday, the minutes of the last meeting of the Federal Reserve showed the "hawkish" attitude of the majority of regulator members, after which the probability of a hike in December again increased to 80%. Of course, the published opinions of officials are somewhat "overdue" in time – after all, the September meeting was held before the release of the latest inflation data (very weak) and before the events in the stock markets. But in general, the regulator kept a bullish attitude and did not disappoint market participants.

In summary, it should be noted that EUR/USD traders should closely monitor the level of 1.1460 (the lower line of the Bollinger Bands indicator on the four – hour chart) - when it breaks, the pair can sharply gain momentum and go to the bottom of the 14th figure, where the nearest support level is located (the lower line of the above indicator on the daily chart). The technical picture has a further decline (in particular, this is evidenced by the bearish "Parade of lines" signal of the Ichimoku Kinko Hyo indicator on D1).

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Technical analysis of Gold for October 24, 2018

Gold price broke above the triangle pattern as we expected and reached $1,240. Price is now pulling back down towards the break out area. Holding above it is a bullish sign. Breaking below $1,220 would confirm the end of the upward move and the start of a new down trend.

analytics5bd018112d8e3.png


Green lines - triangle pattern (broken upwards)

Black rectangle - major support

Gold price is in a bullish short-term trend. Price broke above the triangle pattern and is now trading above the break out level. Gold price could continue its move higher towards $1,250-60 as long as it does not fall below $1,220. Bulls should raise their stops to protect gains.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
 
Gold spreads its wings

The high demand for safe-haven assets allowed gold to break a crucial inverse correlation with the US dollar. For a long time, the precious metal was in the shadow of the US currency, but the favorable geopolitical situation and the breakthrough of the upper limit of the medium-term consolidation range of $1185-1215 per ounce allowed the bulls to resist the USD index, which still feels confident. It should show the weakness of the dollar, gold immediately go up. So it was at the auction on October 23, when Donald Trump took the old and criticized the current chairman of the Federal Reserve. The president believes that Jerome Powell is experiencing bouts of happiness when he raises the Federal funds rate. An unusual approach that made financial markets smile.

Overly inflated net shorts on the precious metal, increased demand for gold as a tool to hedge the volatility of stock indices and moderately negative medium-term prospects of the "greenback" are the key drivers of growth of XAU/USD. As the midterm elections in the U.S. are approaching, the growth of political risk is able to rein in bulls in the USD index. It is likely that the Democrats will celebrate the victory in the house of representatives, which increases the risks of impeachment. This is well understood by Donald Trump, who threw the voters a bone in the form of potential tax cuts for the middle class. I don't think that's gonna be enough to save the Republicans. Uncertainty will contribute to the growth of volatility of the US stock market and will force some speculators to withdraw from the dollar. But it was the strength of the US currency that prevented gold from breathing quietly for most of the year.

Dynamics of gold and the US dollar

For a long time, precious metals turned a blind eye to trade wars, Brexit and the Italian political crisis. All these events are regarded as a positive external background for safe haven assets, which investors suddenly remembered in October. As a result, speculative demand for gold, Japanese yen and Swiss franc increased. At the same time, the inability of the analyzed asset to break the lower limit of the consolidation range of $1185-1215 per ounce was the reason for the closure of net short positions by hedge funds. They got rid of them at the fastest pace since March. However, the indicator is not far from the record highs, and its further reduction can raise the quotes of the XAU/USD higher.

Along with the US stock indices, the dollar and the geopolitical background, the fact that Reuters experts predict that the world economy will reach its ceiling in 2018 is important for gold. The fading effect of the fiscal stimulus will lead to a slowdown in US GDP, which will adversely affect the USD index. Slower than at present, the Fed's monetary policy normalization in 2019 also acts as a "bullish" factor for the precious metal. Technically, the "Bat" pattern continues to be implemented on the daily gold chart. Its target of 88.6% is located near $1,255 per ounce.

Gold, daily chart

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