INTRADAY TECHNICAL ANALYSIS 20 OCTOBER (observation as of 05:20 UTC)
[EURUSD]
Important Levels to Watch for:
- Resistance line of 1.16730 and 1.16953.
- Support line of 1.16008 and 1.15785.
Commentary/ Reason:
The euro gained 0.15% to $1.16492 on Wednesday, hovering just below the 2-week high recorded overnight.
The euro is benefiting from rising interest rate increase expectations, as a decline in shorter-dated yields putting the dollar on the back foot. The two-year Treasury yields hovered around 0.405% after retreating sharply overnight from Monday’s 19-month high of 0.448%, signalling a scaling back of bets for early Fed interest rate hikes.
A rally in the equity market also curbed the liquidity demand for the dollar.
The upside in the euro however was capped on dovish comments from ECB Governing Council member Villeroy who said "there is no reason for the ECB to raise interest rates next year" as inflation will come back below the ECB's 2% target.
The EUR/USD has tested the 1.167 resistance line with a touch in yesterday’s trading which saw the return of selling activity. The rally continues, however, and another test of the resistance line is to be expected.
[USDCHF]
Important Levels to Watch for:
- Resistance line of 0.92504 and 0.92721.
- Support line of 0.91800 and 0.91583.
Commentary/ Reason:
The dollar rose against the Swiss franc on Wednesday, added 0.11% to 0.92396. The pair bounced following the overnight decline to the lowest level since September 15.
The franc traded lower against the dollar today with investors trading cautiously ahead of the CPI data scheduled to be released on Friday, which may give hints on the rate of inflation in the country.
The dollar found a footing as soft economic data in China and climbing oil prices jangled investors’ nerves that inflation will drive interest rates higher.
The USD/CHF pair attempted to break the key support overnight but bounced bullishly to head towards potential test to 0.925 resistance, to keep the price stuck between these levels that represent the next trend keys, waiting to breach one of these levels to detect the next destination clearly.
[USDJPY]
Important Levels to Watch for Today:
- Resistance line of 114.776 and 115.056.
- Support line of 113.870 and 113.590.
Commentary/ Reason:
A rise in long-term U.S. yields helped to boost the U.S. dollar to a four-year high against the yen at 114.550 per dollar.
The dollar climbed as high as 114.692 yen for the first time since November 2017, with benchmark 10-year Treasury yields touching a fresh five-month high at 1.6630. Higher long-term U.S. yields increase the allure of those assets to Japanese investors.
In addition to that, the yen was also dented by expectations of a wider trade deficit in Japan due to rising oil prices and on views the BoJ will stick to loose monetary policy even as other central banks move to tighten their policies.
Both the dollar and yen were under pressure from a global equity rally that sapped demand for assets regarded as safe havens.
The USD/JPY pair is still making moves higher, although price action indicates that the rally is waning. Small-bodied candles suggest the rally has lost steam and a reversal or at least a stall may be imminent despite the apparent buying pressure. Momentum indicators are bullish and RSI signals that the pair is overbought.
[GBPUSD]
Important Levels to Watch for:
- Resistance line of 1.38488 and 1.38873.
- Support line of 1.37239 and 1.36853.
Commentary/ Reason:
Sterling rose 0.10% to trade at $1.38045 on Wednesday, hovered just below a one-month peak of $1.38829 in the previous session.
A decline in shorter-dated yields putting the dollar on the back foot against most other major peers, as traders scaling back bets for early Fed interest rate hikes. The Federal Reserve expected to wait until 2023 before raising interest rates, according to most economists in a Reuters poll who nonetheless said the greater risk for the U.S. economy was persistently higher inflation over the coming year.
The British pound meanwhile was supported as odds of a more aggressive BoE rose. In a speech on Sunday, BoE Governor Andrew Bailey argued that they will have to act to contain inflation and inflation expectations. Analysts expect that the bank could start tapering in its November meeting and then start hiking in December.
The GBP/USD pair has rallied significantly during the course of the trading session on Tuesday to go looking towards the 1.3850 area, an area that has been resistance in the past, and build support base above it, which supports the continuation of our bullish overview efficiently on the short term and medium-term basis, paving the way to head towards 1.384 and 1.388 that represents our next target.
