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Fed Spreads Dovishness for December Rate Hike; U.S. and U.K. Inflation Rates in Focus

The greenback dipped as Fed Chair Yellen and Vice Chair Fischer started to spread dovishness in the market. The euro remained calm as the inflation report didn't unveil surprises while sterling traders remain tuned for the U.K. inflation report coming out today. U.S. inflation report will also be a highlight today that may drive U.S. dollar higher if indicator surpasses market forecasts.

U.S. Dollar Tumbled on Fed Dovish Signals
The U.S. dollar dropped against all the majors on the dovishness the Fed members started to spread in the market. Firstly, Fed Chair Janet Yellen, at her speech on Friday, hinted that raising rates based on employment and inflation may be premature given the state of the global economy. She also expressed its liking on low rates to let the economy get stronger and pick-up its recovery pace, such as improvement in the labor force participation and the business investment. Secondly, Fed Vice Chair Stanley Fischer tried to convince market participants that raising interest rates is not that simple, as there are other factors that affect low rates like technological innovation and demographics that has little influence from Fed. Later in the day, the market will keep a tab on the U.S. inflation report which is very important for Fed's December rate decision.

Daily Technical Analysis and Forecasts

Euro Mixed as CPI Met Expectations
The euro was traded mixed against its majors with losses versus the commodity currencies and little gains against the U.S. dollar. Eurozone's consumer price index released yesterday didn't contain any surprises. The headline inflation rate remained unchanged at 0.4% yoy while the mom picked up to 0.4% in September from 0.1% in August. Euro traders stay tuned for ECB monetary policy announcement on Thursday.

EUR/USD – Technical Outlook
The EUR/USD pair rose more than 0.4% since yesterday and surpassed the 1.1000 psychological level. The main currency is developing below the falling trend line which is holding over the last five months. The technical structure suggests further bearish movement, however, we could experience a pullback towards the 1.1050 resistance level. If the price breaks the latter level to the upside will expose to the 1.1120 resistance level. The RSI oscillator continues to follow a downward path while it is moving near the 30 level. The MACD indicator lies below its zero line and during the rally of the price, crossed below its trigger line, confirming the downward momentum.

Daily Technical Analysis and Forecasts

GBP Traders Looking Forward to U.K. Inflation Report
The British pound was also traded mixed against its G10 peers as GBP traders expect today's U.K. inflation report to be published. The discussions ahead for the Britain's way out of the European Union worry the investors for the impact that may have on the U.K. economy. The inflation is one of the main indicators that show the strength of an economy and as U.K.'s headline CPI started to pick up this year following a weak period, economists want to avoid blocking this incline with Brexit.

GBP/USD – Technical Outlook
Sterling will be in focus this week due to the busy economic calendar. The GBP/USD pair plummeted more than 16% since May and recorded a fresh 31-year low at 1.1978 price level. On a monthly basis, the pair is creating the sixth red candle in a row, following the rebound on the 1.5020 resistance level.

From a technical point of view, over the last five days the pair is establishing and trading within a consolidation area roughly around the 1.2200 price level, whilst moving down to psychological support at 1.2100 and up to 1.2330 resistance level. Currently, the cable is moving near the 1.2230 region and if the bears are strong enough to push the price further down, we would expect extensions towards the 1.1978 barrier. Otherwise, a failure to broke the 1.2100 obstacle, if there is a successful penetration of the 1.2330 resistance level which overlaps with the 50-SMA on the 4-hour chart, then should prompt an upward move. Then, the pair will challenge the 1.2500 significant region. Technical indicators are still moving in a bearish area, however, MACD and RSI, are sloping upwards.

Daily Technical Analysis and Forecasts

USD/CAD – Technical Outlook
This week the focus will return to Canada and its economy with the Bank of Canada interest rate decision. The USD/CAD is establishing within a rising channel over the last five months and made several attempts to break this pattern.

During yesterday the pair challenged the 1.3180 resistance level which overlaps with the 100-SMA on the 4-hour chart, however, the price dropped 0.4% after the rebound on the latter level. Moreover, the commodity pair reached our suggested target at 1.3100 psychological level and slipped below it. The next level to watch is the 1.3030 support level which coincides with the 100-daily SMA. Therefore, if the price surpasses the aforementioned psychological level will probably retest the 1.3180 barrier.

Going to a lower timeframe, the technical indicators seem to be in agreement with the bearish attitude since MACD and RSI are following a negative territory. The MACD oscillator lies below its trigger and zero lines with strong momentum whilst the RSI indicator is moving near the 30 level.

Daily Technical Analysis and Forecasts

What to watch today
Today is a CPI day! Both U.S. and U.K. will release their inflation reports. The U.K.'s headline inflation rate is expected to advance by 0.8% in September from 0.6% yoy in the month prior. Contrary, on a monthly basis, the market forecasted the consumer prices to have risen just 0.1% in September versus a slightly stronger increase of 0.3% the previous month. The producer price indexes for input and output are coming out as well. The U.K. retail price index is predicted to show a small improvement of 0.2% in September compared with the same month the year before, while it's expected to its growth to weaken slightly to 0.1% versus August's figure of 0.4%.

Daily Technical Analysis and Forecasts

In the U.S., the consumer price index is estimated to jump 1.5% in September from 1.1% yoy the previous month. The indicator will be cautiously watched as Fed Yellen signaled that December's rate hike is data-dependent and inflation is one of the main headaches of U.S. economy. A better than expected figure could lift the dollar as if the figure meets the forecast, the headline inflation will record a 22-month high.

Daily Technical Analysis and Forecasts

The National Association of Home Builders (NAHB) will release the housing market index for October which is expected to slow down marginally at 63 from 65 before. In the midnight, Australian midyear economic and fiscal outlook report will be published, as well as, the GDP growth of China for the third quarter.

Author

Efthivoulos Grigoriou

Efthivoulos Grigoriou joined JFD Brokers in late 2013. He is a leading Strategist and investment specialist applying global micro – macro approach to investing in G10 currencies.

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