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Еuro rebounds to 55-day SMA

Key issues currently driving the FX market:

- US new homes sales surged 4%

- US consumer confidence unexpectedly rose in October

- The S&P 500 hit an all-time high of 4,598.53

- The 10-year UST yield fell to 1.61%

- Gold slid $25 to $1,782/oz

- Chinese authorities told the head of China Evergrande Group Chairman to use his personal wealth to alleviate the developer’s debt crisis

- US authorities revoked the license of China Telecom to operate in the United States, citing “national security” concerns

The EURUSD pair dipped 0.10% to 1.1596 on Tuesday, October 26. At the beginning of yesterday’s session, the price rallied to 1.1626. The demand for risk-sensitive assets remained unchanged until the North American session. After US macro data came out, the dollar strengthened across the board. Price action dropped to 1.1585 by the close of European trading.

The US consumer confidence index unexpectedly rose to 113.8 in October, up from109.3 in September (vs.108.3 forecast).

US new home sales soared 14% MoM to 800k on an annualized basis (vs. the median estimate of 760k).

Today’s macro agenda (GMT 3)

  • 11:00 Switzerland: ZEW economic sentiment index (October)
  • 15:30 US: durable goods orders and trade balance (September)
  • 17:00 Canada: BoC interest rate decision
  • 17:30 US: EIA weekly petroleum status report
  • 18:00 Canada: BoC press conference

Current outlook

By the time of writing, major currencies were nearly all trading in positive territory, with the aussie dollar topping the leaderboard after data from the Australian Bureau of Statistics showed that core consumer prices rose faster than expected last quarter.

In the morning, the market was roiled by news from China and the US. Chinese authorities told China Evergrande Group Chairman, Hui Ka Yan, to use his personal assets (over $7 bln) to pay off creditors and alleviate the deepening debt crisis.

The authorities made it clear that they were not going to pull him out of the debt hole. Investors believe that his property is illiquid. The news exerted an adverse impact on Asian stocks, with the Hang Seng Index tumbling 1.83% to 25,577.

Stateside, the Federal Communications Commission (FCC) on Tuesday revoked its license for a division of China Telecom, one of the China’s top three telecom providers. US authorities are said to have made this move because of Taiwan. The FCC claimed that “China Telecom Americas’ ownership and control by the Chinese government raise significant national security and law enforcement risks”.

The dollar has been firming against rival currencies for the past five days. The DXY index has not managed to breach 94, as investors prepare for key events – tomorrow’s ECB meeting and US 3Q GDP.

The focus today will be on September durable goods and trade balance. The Bank of Canada (BoC) will announce its monetary policy decisions at 20:00 GMT.

Technical analysis

The key pair recovered to 1.1607. The dollar opened lower in European trading. The UST10Y yield fell to 1.62%. The yield has headroom to drop to 1.60%.

By the time of writing, the euro was trading below the 55-day SMA (balance line). It now acts as resistance at 1.1613. At 1.1622, there is another resistance zone (the upper line of the channel consisting of three levels ​​1.1591-1.1585-1.1626). Buyers need to breach the second level, i.e. not only cross it but also close the day above 1.1626.

There is one other key issue. If durable goods come in stronger than expected, there is a risk of the euro dropping to 1.1580. This is the only data point that could turn the euro around today, as was the case yesterday when new US home sales data came out.

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