Charts of the day:

US dollar Index

The US dollar Index retraced 50% of the bearish wave started the 6^th of this month. Above the 61.8% Fibonacci retracement at 93.86 the gauge could gain speed and test the multiple top in area 94.26. In case of a breakout of this resistance is very likely that EURUSD would trade below this month low 1.1673.

The Bloomberg Cumulative FX carry trade Index

 

The Bloomberg Cumulative FX carry trade Index shows that the total return went above the most recent high but shorting the USD and going long on a basket of emerging market currencies could became a difficult strategy for pull and push factors as well.  When the FED hikes rates there is an outflow from emerging markets a risk premium imbalances usually arise. There are also local risk factors in EM currencies that are having significant weight for leveraged positions as volatility went up.

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Economic Calendar and Today Session (CET Time)

Tuesday October 17, 2017			Forecast	Previous
10:00	EZ	ECB’s Constancio speaks at a conference on financial stability in Lisbon
10:30	GB	Consumer Price Index – Core (Sep; YoY)	2.7%	2.7%
10:30	GB	Producer Price Index Output (Sep; YoY)	3.3%	3.4%
10:30	GB	Retail Price Index (Sep; YoY)	4.0%	3.9%
11:00	EZ	Consumer Price Index – Core (Sep; YoY; Final)	1.5%	1.5%
11:00	DE	ZEW Survey: Current Situation (Oct)	88.5	87.9
11:00	DE	ZEW Survey: Economic Expectations (Oct)	20.0	17.0
11:30	EZ	ECB’s Praet is speaking at “More than ever, Europe matters” conference in Brussels
12:15	GB	BOE’s Carney testifies before the Treasury Committee in London
14:30	US	Import Price Index (Sep; MoM)	0.6%	0.6%
15:15	US	Industrial Production (Sep; MoM)	0.3%	-0.9%
19:00	US	Fed’s Harker speaks on Equitable Transit in Scranton

 

As the Bank of England is expected to hike rates early November, it is key to closely watch the CPI figure at 10:30 CET. With the headline CPI figure forecasted at 3% and being well-above the 2% target, further risk to the upside is possible. PPI and RPI are also set to be released at 10:30. Tomorrow, investors should also follow the unemployment rate and average earnings. Should these readings turn out positive for the UK, it will almost certainly confirm the path for a rate hike on the 2^nd of November.

More inflation data is coming from the Eurozone as Eurostat will release the final reading for September. Downside risk is plausible in the forecasted 1.5% core figure. The other release is Germany’s Economic Sentiment index. After a significant 7 points jump in September, the current economic expectations are forecasted to gain another 3 points. Meanwhile in Spain, investors are awaiting next moves in the political crisis which could affect the euro and the Spanish stock market.

Several central bankers are speaking throughout the day. Constancio and Praet from the ECB are delivering speeches at 10:00 and 11:30 CET respectively. In the afternoon, BOE’s Governor Carney testifies before the Treasury Committee in London at 12:15. Fed’s Harker speaks at 19:00 on Equitable Transit. Other things to watch for the US are the import price index and industrial production figures. The import price index (14:30 CET) is expected to remain unchanged at 0.6% month-over-month, while industrial production (15:15 CET) is forecasted to have risen 0.3% in September. The earnings season also continues with Goldman Sachs and Johnson & Johnson being the noteworthy companies to release their Q3 results. US stocks are likely to open higher should their earnings beat estimates.

Technical Analysis

EURUSD (Daily timeframe)

The pair is losing ground for the third consecutive session and it may test the support in area 1.665. Below this level the rate could slide to 1.1425, the 38.2% Fibonacci retracement of the bullish wave started on January. A breakout of the supply line generated last month could lift EURUSD to 1.2092, its 2017 top.

USDCAD (Daily timeframe)

USDCAD is making lower highs and could make soon a breakout of the medium term supply line. Above 1.26 the pair could rise to 1.2929 and above this level, that is a 50% retracement of the bearish wave started on May, it could reach the psychological level 1.3.  Below 1.23 the pair it may test its 2017 low at 1.2062.

USDZAR  (Daily timeframe)

The South African Rand found support on its 200 MA daily and could test area 14. Above this level carry trade reversal could increase. If the pair would slide below 12.65 it may test thus year low at 12.31.

USDMXN  (Daily timeframe)

USDMXN went above its 200 MA and could test 20 soon. Above 20.28,the 61.8% Fibonacci retracement, the rate would could make a multiple top near its 2017 highs. Only below 18.3 the pair could see a bearish wave that could bring USDMXN to test its 2017 lows.