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This is a discussion on Wave Analysis by InstaForex within the Analytics and News forums, part of the Trading Forum category; Technical analysis for EUR/USD for January 10, 2019 EUR/USD has finally broken above and out of the trading range it ...

          
   
  1. #341
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    Technical analysis for EUR/USD for January 10, 2019

    EUR/USD has finally broken above and out of the trading range it has been in for the last two months. This is a bullish sign. We could see a pullback as a back test towards 1.1450-1.1480 but I remain bullish on EUR/USD looking for at least a move towards 1.17.



    Light blue dots - medium strength support

    Blue dots - maximum strength support

    Green line - trend line support

    Blue lines - extension targets

    EUR/USD after three attempts at 1.15, buyers have finally broken above it and closed above it as well. We were favoring the bullish scenario despite being in a neutral sideways trend, because of the warning we had seen by the Daily RSI bullish divergence. Our target is now at 1.17 and any move higher will increase the chances of a major low to be in place at 1.1215 and a new up trend to start. A daily close below 1.1435 is something bulls do not want to see.

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

  2. #342
    Senior Member InstaForex Gertrude's Avatar
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    GBP/USD: do not succumb to the illusions of growth

    The pound/dollar pair is now extremely unreliable in the context of any forecasts and in the short term, and even more so in the long term. The general weakness of the US currency can create the illusion of the northern trend of GBP/USD, but in this case it is absolutely impossible to focus on the dynamics of the dollar. "Cable "for two and a half years is completely subject to Brexit, so the vector of price movement here depends only on the fate of the "divorce process".

    However, sometimes emotional news related to the prospects of the Federal Reserve's monetary policy still drowns out Brexit. One of those rare occasions happened yesterday. The resonant statement of the head of the Federal Reserve of Atlanta that the regulator can hypothetically reduce the interest rate coincided with the failure of the British parliament to vote for Theresa May's government. The GBP/USD pair remained in its positions (showing even the northern dynamics) only at the expense of the dollar that had sharply fallen throughout the market.

    Although in reality there are no reasons for optimism among bulls of the pair, and there was no. Although in reality there are no reasons for optimism among bulls of the pair, and there is no.



    On the one hand, the amendments adopted yesterday by British MPs do not entail any serious consequences - at least for today. Members of the House of Commons have adopted amendments to the tax law, thereby limiting the powers of the Cabinet of Ministers in this area in the event of the development of a "hard" Brexit scenario. Now the Ministry of Finance will not be able to change the amount of taxes (thus offsetting the negative effect of "hard" Brexit), if this step is not approved by the deputies. According to legislators, this rule will prevent the country's chaotic exit from the EU: "Now Theresa May must by all means reach a compromise solution with the European Union and the British Parliament," said Labour leader Jeremy Corbyn.

    The logic of this law is to "force negotiations": as many politicians believe, Theresa May has largely conceded to Brussels, and now "frightens" the Parliament by the lack of any alternative to the agreement reached. The above norm, in the opinion of the deputies, will incline the prime minister to additional negotiations with the EU.

    British MPs adopted another rule and is very significant of character. Parliament ordered the government to prepare a new Brexit plan if the members of the House of Commons do not vote on January 15 for the proposed draft deal. Moreover, ministers are obliged to present a "plan B" within three days after the failed vote. 308 of the 618 deputies of the lower house of Parliament voted in favour of the proposal, while 297 opposed the idea.

    It is not even the essence of the adopted bills that is important here (although their content also speaks volumes) - yesterday's voting showed a preliminary political alignment in the Parliament. And apparently, it is clearly not in favor of "soft" Brexit. The results of the vote suggest that the majority of deputies in the House of Commons are opposed to leaving the EU without an agreement May's opponents are not only among Labour and other opposition parties, but also among "their" conservatives.

    Thus, the British prime minister's "saving strategy" seems to be a fiasco. Let me remind you that the local press this week discussed a possible scenario in which the Parliament approves the deal, but only if Brussels provides additional guarantees regarding the duration of the special regime on the Northern Ireland border. As you can see, the Parliament decided to go its own way, playing ahead. In addition, representatives of the European side also hurried to assure their British colleagues that they will no longer discuss the terms of the deal under any conditions.



    What are the options then? According to the majority of experts, there are not so many of them, or to be more precise, only two: either the prime minister will postpone the vote again, as it was in December, or she will postpone the country's exit from the EU for an indefinite period, using the decision of the European Court of Justice, which at the end of last year clarified the provisions of the 50th article of the Treaty of Lisbon. Both options are negative for the British currency, despite the fact that they save from the "hard" Brexit. The market is quite exhausted by the two-year period of uncertainty, so the prolongation of this regime will be bad news for GBP/USD bulls.

    That is why the northern dynamics of the pair now looks unreliable and unconvincing. Long positions on the pair are too risky, especially on the eve of January 15, when a key vote in the British Parliament is to be held. If Theresa May takes one of the two decisions listed above at the weekend, the pound may collapse on Monday for several figures, as it was in mid-December. It will be possible to speak about the confident growth of the "cable" only when the "soft" Brexit becomes a reality that is, when it receives the approval of the British parliamentarians.

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  3. #343
    Senior Member InstaForex Gertrude's Avatar
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    Brexit: Scenarios of the movement of the British pound. May, Tusk and Juncker exchanged courtesies

    The euro fell in the first half of the day to the area of a minimum amid weak industrial production data, indicating the likelihood of a slowdown in economic growth in 2018. A further bearish trend in the EUR/USD pair gets more real.

    Eurozone

    According to the report, industrial production in the eurozone in November last year declined more significantly than expected. As noted in Eurostat, industrial production in the euro area fell by 1.7% in November compared with October. This is the biggest drop since February 2016. Economists had expected a decline in production of 1.3%. Germany, where production fell by 1.9%, and Spain, where the decline was marked by 1.6%, were among the leaders in countries where production was falling the fastest.



    Thus, the decline in industrial production in many European countries only confirms the weakening of the global economy.

    This was noted in today's report of the Organization for Economic Cooperation and Development, which states that the growth rates of the United States and many other developed countries will continue to slow down this year. The only exception may be the Chinese economy, which shows signs of stabilization. But even here, a lot will depend on the trade agreement with the United States.

    According to the data, the leading indicator for the US fell for the third month in a row, being at the level of 99.6 points. China's indicator rose to 98.9 points, indicating a less active slowdown in economic growth. The leading indicator of the eurozone is below the level of 100 points, indicating a continued slowdown in the pace of activity.

    As for the technical picture of the EUR/USD pair, it remained unchanged compared with the morning forecast. Buyers of risky assets need to go back to the resistance level of 1.1490 since the future direction will depend on it. If this fails to be done, then it is likely that the bears will continue to push the euro down to the support of 1.1425 and 1.1370.

    UK and Brexit

    The British pound continues its growth, which, apparently, is still more speculative. Traders positively perceived the information that the Prime Minister of Great Britain today sent a letter to Tusk and Juncker, in which she confirmed her intentions to carry out the decision made during the referendum. However, despite this, May is concerned about the fate of the Brexit deal, which is under threat due to concerns over Northern Ireland. The Prime Minister of Great Britain assured that the EU's concerns about the threat of a rigid border are groundless and negotiations will continue immediately after the vote in the UK. The focus of these negotiations will be on technology that will give up the guarantee of the absence of a rigid border.

    In turn, Juncker and Tusk responded to May in the same style, sending her a letter with assurances regarding the Brexit deal, but adding that they would not agree to anything that changes the agreement or does not correspond to it. Juncker also noted that the EU will quickly work on a trade agreement in order to avoid applying the guarantee of the absence of a rigid border in Ireland.

    All of these suggest that if the deal with the EU in the framework of a vote does not receive the support of parliamentarians tomorrow, the British pound may remain in the side channel until a final decision is reached since there are a lot of future development scenarios. Starting from the postponement of the exit of the UK from the EU, ending with indiscriminate exit without the adoption and approval of the basic laws.

    The prospect of complete abolition of Brexit also has a place to be that will support the British pound when information appears about the next referendum on this matter.

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  4. #344
    Senior Member InstaForex Gertrude's Avatar
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    EUR/USD. Spotlight on China and Brexit

    The economic calendar of the foreign exchange market is nearly empty today. Nevertheless, the most important release of the day caused quite a strong resonance among traders. We are talking about the publication of data on the state of China's foreign trade.

    The importance of this indicator is due to the general concern of investors about the slowdown in the world economy. Any facts that somehow confirm this concern have a strong impact on the dynamics of trading both in the currency and stock market. Today's figures once again reminded the market of the consequences of the trade war, which is still ongoing, despite the intention of the parties to conclude a broad deal.

    On the one hand, the surplus of Chinese foreign trade was at an impressive level the December figure came out at 57.1 billion dollars, reaching a three-year high. Immediately after the publication, the market was optimistic about these figures. But the structure of this release is frankly disappointed, as the performance of imports and exports showed weak dynamics, continuing the trend of slowdown. Thus, according to China's General Administration of Customs, exports from the country (in dollar terms) fell by 4.4% year-on-year. Imports fell more significantly-immediately by 7.6% year-on-year. In other words, Chinese exports and imports in the last month of last year showed the sharpest decline in two years.



    According to experts, the lion's share of Chinese imports is imported into the country not for final consumption, but for further production of goods. That is, a significant decrease in imports is a wake-up call, which indicates the upcoming slowdown in the Chinese economy as a whole. According to preliminary data, last year the Chinese economy grew by only 6.6% - this is the lowest rate in the last 19 years. Naturally, such weak results of the second world economy in nominal GDP will provoke a "domino effect". In particular, at the end of last year, the head of Apple sharply reduced the forecast for revenue for the first quarter of 2019 by 8 percent, that is, from 91 to 84 billion dollars. It is noteworthy that Apple has revised downward quite a fresh forecast: the target of 91 billion was set just two months ago. According to Tim Cook, the negative dynamics associated with the slowdown of the Chinese economy and the "tough" policy of the Federal Reserve.

    The situation with Apple is just one example, which is the most recent and revealing. If the economic momentum of the PRC continues to lose its strength, such situations will be repeated more often, not to mention the slowdown of the commodity market with all the ensuing consequences.

    A broad trade deal between the US and China could change this state of affairs at least in the long run. But the parties are in no hurry to disclose the details of the latest negotiations, although the officials promised to publish them "in the near future". More than a week has passed since then, but the cart is still there. The very fact of such silence suggests certain thoughts, the essence of which is reduced to the presence of unresolved problems between Washington and Beijing. And although all this is still speculation, the overall situation in the market remains uncertain.

    The EUR/USD pair also cannot determine the vector of its movement. The dollar index drifted at the base of 95 points, and the European currency is under pressure from the uncertain prospects of Brexit and negative data on the growth of industrial production in the eurozone. The indicator came out much worse than expected: year-on-year at 3.3% (with a forecast of -2.2%), and month-on-month at 1.7% (with a growth forecast of 0.3%). In France, this figure subsided due to long-term protests of "yellow vests" in Germany because of problems in the automotive industry, and a general decline in the entire industry was recorded in Italy.



    Conflicting fundamental picture does not allow EURUSD to demonstrate a strong momentum, so traders have to bargain in a flat in anticipation of a strong infopovod. It is obvious that Brexit, or rather today's discussion of this issue in the British Parliament, will become such an occasion.

    At the moment, it is known that the European Union has sent a written appeal to London, which assures the British that the subsequent negotiations in the transition period will avoid the use of the backstop mechanism. In the evening, during Theresa May's speech to the Parliament, we will learn the details of this letter, and so far the market is in limbo and regarding the prospects of the "divorce process", and regarding the prospects of the US-Chinese trade conflict.



    On the technical side, the EUR/USD bulls need to gain a foothold above 1.1530 to demonstrate their advantage. In this case, the Ichimoku Kinko Hyo indicator on the daily chart will form a bullish "Parade of lines" signal , increasing the probability of price growth to the borders of the 16th figure. If the general interest in the risk fades, the pair may already return to the average line of the Bollinger Bands indicator on D1, that is, to the level of 1.1410. A break of this level will send the pair to the lower boundary of the Kumo cloud, that is, to the level of 1.1350.

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  5. #345
    Senior Member InstaForex Gertrude's Avatar
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    EUR/USD: Italy, Draghi, Brexit

    The foreign exchange market in anticipation of key events of today, month, and possibly - the year. The British Parliament will deliver its verdict on Brexit late tonight (and possibly late at night), so today's trading is cautious and quite volatile. In particular, at the beginning of the US session, the euro/dollar pair surprised traders with a downward impulse toward the founding of the 14th figure. Considering the fact that the pound was relatively calm at the same time, it was possible to conclude that Brexit had nothing to do with it.

    Later it became known that the single currency reacted so keenly to the statements of the Italian prime minister, who criticized the European Central Bank. Italy again reminded of itself, although traders turned over this Chapter at the end of last year, when Rome and Brussels agreed on a budget, thus preventing a disciplinary procedure. However, now conflict situations have arisen in a somewhat different plane. The fact is that the ECB is seriously concerned about the state of the Italian banking sector, especially after a number of recent events. I recall that in early January, the European regulator took control of the tenth largest bank in Italy, Banca Carige. The European Central Bank has appointed three temporary administrators and a supervisory committee, thereby replacing the bank's board of directors.



    And here it is worth noting that Banca Carige is one of the most troubled Italian banks, which was provided with assistance in the amount of 320 million euros from the Italian Interbank Fund last fall. But because of the frankly inept management and the conflict of shareholders, the bank failed to restructure and get rid of "bad" debts. The Fitch rating agency, in turn, lowered the bank's credit rating to CCC + with a negative outlook, while warning that Carige could go bankrupt. As a result, the Italian National Commission on Companies and Stock Exchanges ceased trading in bank shares, as the board of directors wereunable to reach an agreement on raising capital. This was the last straw for the majority of the members of the Board of Carige, after which the leadership was transferred to the temporary administrators appointed by the European Central Bank. By the way, after that, both Italian and German government bonds collapsed, putting significant pressure on the euro.

    The above situation did not remain without consequences. Two weeks later, that is, today, the ECB demanded that Italian banks prepare reserves to cover the so-called "bad loans" for seven years. Italy's Vice Prime Minister Silvio Matteo "with hostility" took this demand, calling it "irresponsible." In his opinion, the European regulator demonstrates double standards and abuses its powers, using them for political purposes. He also noted that the central bank's intervention on banks which are "undesirable", can be an expensive cost for Italy- Matteo announced the amount of 15 billion euros. In addition, the Italian Deputy prime minister warned that the European regulator by its actions could provoke political and financial instability in the country.

    Such harsh statements came as a complete surprise, so the single currency reacted accordingly. Mario Draghi, who spoke today in the European Parliament, added fuel to the fire. He said that the latest macroeconomic indicators turned out to be "much weaker" than forecasts, and this fact suggests that stimulating the economy through soft monetary policy is "still necessary."



    He also said that the regulator will pursue an accommodation policy in the foreseeable future until inflation rises to the target level. Given the fact that inflation has recently shown only negative dynamics, it is not difficult to build an appropriate logical chain. In other words, the chances of an ECB rate hike within the current year are melting before our eyes, especially in the face of uncertain prospects for Brexit.

    By the way, it was Brexit's question that put pressure on the pound and the dollar in the second half of today: and the closer the time to "X hour", the more volatility is expected in the market, and for no apparent reason. For example, the dollar index fluctuated without any enthusiasm throughout the day, but by the end of the day it soared up, although the producer price index in the United States and the Empire Manufacturing index were worse than expected (the last figure dropped to 1.5-year lows). The general nervousness of the market affects the dynamics of the US currency, although there are still no significant reasons for strengthening the greenback.

    All this suggests that before a vote in the British Parliament, traders are best to take a wait-and-see attitude: events in London will have an impact not only on the pound or the euro, but also determine the mood of the entire foreign exchange market.

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  6. #346
    Senior Member InstaForex Gertrude's Avatar
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    GBP/USD. Results of the day. Cancel Brexit, Brexit transfer, new Brexit negotiations?



    The amplitude of the last 5 days (high-low): 94p - 73p - 156p - 112p - 246p.

    Average amplitude for the last 5 days: 136p (106p).

    The British pound sterling on Wednesday, January 16th, is not moving. Traders, with such a feeling, do not know what to do next. On the one hand, yesterday, a fateful decision was made for Britain. On the other hand, the situation with Brexit did not become clearer. It only became clear that the UK is not exactly leaving the EU according to the Chequers plan. However, whether it will leave the European Union at all and under what conditions it is now is unknown. Today on the agenda in the British Parliament is the question of distrust of Theresa May, initiated by the leader of the main opposition party (Labour), Jeremy Corbyn. If the majority of deputies vote in favor, Theresa May will be dismissed. We believe that this is exactly what will happen. But again, it is not known how traders will react to this event. From our point of view, the resignation of Theresa May will give a chance for new negotiations with the EU, perhaps more productive and beneficial for the United Kingdom, as well as a chance for the country not to leave the EU at all. Thus, Theresa May's resignation could provoke ... the growth of the British currency. In any case, it is best to wait for the evening and find out how the debate in Parliament will end. Inflation, published today in the UK, did not cause any reaction from the market, as it corresponded to the predicted value - 2.1% y/y in December. In his speech today, the head of the Bank of England, Mark Carney, noted that the loss of Theresa May and the strengthening of the British pound means that markets believe in reducing the chances of a disorderly exit of the country from the EU.

    Trading recommendations:

    The GBP/USD currency pair remains in an upward trend on the eve of a new vote in the British Parliament. Once again, we do not recommend opening any positions in the current situation, as it is associated with increased risks. The pair can again be extremely volatile in the next few hours.

    The same applies to sell orders. Any positions you can open, aware of the increased risks and always placing protective Stop Loss orders.

    In addition to the technical picture, fundamental data and the timing of their release should also be taken into account.

    Explanation of illustration:
    Ichimoku Indicator: Tenkan-sen-red line. Kijun-sen blue line.
    Senkou span a light brown dotted line.
    Senkou span B light purple dotted line.
    Chikou span green line.
    Bollinger Bands Indicator:
    3 yellow lines.
    MACD:
    Red line and histogram with white bars in the indicator window.

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  7. #347
    Senior Member InstaForex Gertrude's Avatar
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    EC and the United States: a new trade war between the EU and the USA is very close



    The European currency again failed to gain a foothold above key resistance levels and began to gradually lose ground against the US dollar in the afternoon after the release of a good report on the US labor market, as well as before the publication of the report of the US Department of Commerce, in which the import of cars from the European Union will be important.

    The trade war is gaining momentum.

    It is expected that in the above report it will be clear whether US President Donald Trump will return to a protectionist policy towards the EU, since from an economic point of view, the import of cars is strategically important and can pose a threat to US national security. For example, last year tariffs on Chinese goods were introduced in this way.

    Even today, EU authorities have imposed restrictions on the import of steel in order to combat the consequences of US trade policy, which makes it possible for the US president to verify the need for import duties on metals, which were introduced last year by the United States.

    The European Commission said that the new measures involve the introduction of quotas on imports of 26 categories of goods, as well as 25% duty on imports in excess of this quota. This decision will take effect from February 4 and will replace the temporary solution, which was introduced in July 2018.

    Today's data on inflation in the eurozone, as yesterday in Germany, fully coincided with the forecasts of economists, which is likely to force the European Central Bank to adhere to a wait-and-see approach at a meeting to be held next week. However, the main focus, of course, will be shifted towards the deterioration of the growth prospects of the European economy in 2019.

    According to the statistics agency, the consumer price index CPI of the eurozone in December this year remained unchanged and year-on-year grew by 1.6%, fully coinciding with the forecasts of economists. The Core CPI core consumer price index, which does not take into account volatile categories, rose 0.5% in December compared to November and 1.0% year-on-year. The consumer price index of the eurozone excluding tobacco products in December was 1.5%.

    The US labor market data provided some support to the US dollar. According to a report from the US Department of Labor, the number of initial jobless claims for the week from 6 to 12 January fell by 3,000 to 213,000. Economists had expected the number of applications to be 220,000.

    Activity increased in the mid-Atlantic region of the United States in January. According to the Federal Reserve Bank of Philadelphia, the index of business activity rose to 17.0 points in January 2019 against 9.1 points in December, while economists had expected the index to reach 8.0 points in January. The report notes that companies remain optimistic for the next six months, with more than 46% of the companies surveyed expecting increased activity.

    As for the technical picture of the EURUSD pair, the bears are trying to resume the downward movement in the market after an unsuccessful attempt of bulls to return to the game. The breakout of 1.1375 may lead to a larger decline in risky assets with the update of the lows of 1.1340 and 1.1310. In the case of another false breakout at 1.1375, the bulls may be willing to return, which will lead to a powerful upward momentum with a test and a breakthrough of the intermediate resistance of 1.1415 and the main goal of updating a high of 1.1450.

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  8. #348
    Senior Member InstaForex Gertrude's Avatar
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    Technical analysis: Intraday level for USD/JPY, Jan 21, 2019



    Today, Japan and the US will not release any economic data. So there is a probability the USD/JPY pair will move with a low to a medium volatility during this day.

    TODAY'S TECHNICAL LEVEL:
    Resistance. 3: 110.20.
    Resistance. 2: 109.98.
    Resistance. 1: 109.77.
    Support. 1: 109.50.
    Support. 2: 109.29.
    Support. 3: 109.07. (Disclaimer)

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  9. #349
    Senior Member InstaForex Gertrude's Avatar
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    British Triangle: Tory, Whigs and Theresa May

    Tonight (at about 15:30 London time) Theresa May will again try to convince the British Parliament to support her deal with Brussels. In anticipation of this event, the pound is behaving extremely cautious after a significant decline on Friday. At the end of last week, the pound slumped in a matter of hours by more than a hundred points, as the initial optimism was replaced by habitual pessimism. Today, the mood of traders has not improved: judging by the rhetoric of May's entourage, she does not intend to postpone Brexit's term, not excluding the "hard" scenario.



    A new vote on the updated version of the agreement with the European Union will be held in the House of Commons on January 29. But here it is worth noting that the British can demonstrate increased volatility today, that is, until the key moment of the vote. The fact is that many market participants are worried that the government will only make superficial changes to the original version of the agreement, keeping the key points unchanged. Such fears are logically justified - for several days it is simply impossible to prepare an alternative deal, eliminating the positions agreed with the EU. This means that the transaction will retain its design, and all changes will be only of a formal nature.

    According to most experts, Theresa May will present a new version of the resolution of the Irish border problem today. This issue is the main stumbling block that impedes the approval of the transaction. Having enlisted the support of the deputies, she will actually go to Brussels with an ultimatum: either the European Union will make concessions, or Brexit will follow the "hard" scenario, without concluding a deal. That is why May categorically rejects the option of postponing Brexit date - in this case, the whole point of the ultimatum of negotiations is lost.

    According to available information, the British prime minister will propose to conclude a separate agreement between Britain and Ireland. In this document, the parties will fix the details and terms of the special border regime with Northern Ireland. By and large, we are talking about those legal guarantees from the EU, which have been talked about for so long in the British parliament. It is quite probable that the deputies of the House of Commons will support this scenario - however, it is absolutely impossible to count on the same support from Brussels. First, the Europeans initially stated that they would not revise the agreement reached. Secondly, the idea of London to conclude a bilateral agreement on the border has already been rejected by Ireland.

    Therefore, even if the British deputies today support the above proposal of May, the pound can ignore this fact or even react with a decline - after all, this scenario is not viable, given the position of Brussels and Dublin.

    But if the House of Commons supports the idea of extending the 50th article of the Lisbon Treaty, then the British currency can demonstrate a strong enough northern impulse. And although the Theresa May government is categorically against this option, this does not mean that it cannot be realized. The previous polls suggest that the prime minister's opponents can, in a fit of unity, take the necessary decisions, regardless of party affiliation.



    For example, not only Labour, but some Conservatives also voted for amendments to tax legislation. More than 100 Conservatives voted against the original deal, in unison with the Labour Party. And this is not a complete list of situations when representatives of the Tories find agreement with representatives of Whigs And in this case, they can also vote in harmony, trying, on the one hand, to avoid the chaotic Brexit, and on the other hand, to force May to return to the negotiating table with Brussels.

    There is one more scenario, in which the Parliament will gain control over the negotiation process. However, in the context of today, this scenario is unlikely - they can return to it in case of a failed vote on January 29.

    Thus, today's statement by the prime minister in the British Parliament will not be formal. Moreover, the presented "Plan B" will make it possible to understand in what direction the subsequent events will develop - either the prime minister will rely on Brussels, or will nevertheless try to convince her party members.

    In any case, Brexit continues to be the number one topic for the GBP/USD pair, so you should not focus on the release of tomorrow's data on the growth of the labor market in Britain. Published figures may provide temporary support for the pound (forecasts are mostly optimistic), but the initial reaction may be a trap. Representatives of the Bank of England have repeatedly stated that the prospects of monetary policy directly depend on the prospects of the "divorce process", so macroeconomic data in this context play a secondary role.

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  10. #350
    Senior Member InstaForex Gertrude's Avatar
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    A preview of the January meeting of the Bank of Japan

    Tomorrow, the Bank of Japan will hold its first meeting this year. Traditionally, investors do not expect the Japanese regulator to take any action on the parameters of monetary policy: the central bank will continue to purchase bonds for 80 trillion yen a year, the interest rate on deposits will remain at the level of -0.1%, and the target yield of 10-year government bonds-at about 0%. There are no prerequisites for any radical actions on the part of the central bank now, so the main attention of traders will be focused on the press conference of Haruhiko Kuroda.

    Here it is worth recalling that since the summer of last year, a form of "sword of Damocles" hangs over the yen. The fact is that then the Japanese central bank expanded the range of the estimated rate, thus admitting the likelihood of monetary policy easing. And although since then Kuroda has not voiced such intentions on a practical plane ("scaring" only traders with a hypothetical probability), this fact has a background pressure on the yen. It is obvious that the regulator has reserved this scenario for the future, if inflation trends become negative. And given the weak growth rates of wages and inflation, now there is every reason for concern: at the January meeting, traders may well hear hints of a possible reduction in the interest rate to -0.2%.

    The fact is that consumer prices excluding the cost of fresh food (this is the main indicator of inflation monitored by the Japanese regulator) in December fell to 7-month lows, continuing a consistent decline. Thus, the Core Inflation Rate in September-October was kept at the level of 1%, while in November it decreased to 0.9%, and in December - to 0.7%. At each meeting, Haruhiko Kuroda recalls that inflation remains below the two-percent target, and achieving it "requires a larger time range than previously thought". However, in this case, it can respond to the current negative trend with sharper wording of the "dovish" character.



    Weak growth rates of consumer spending against the background of the decline in the oil market have created fertile ground for reducing inflation. Although oil prices showed positive dynamics during the last month, this is clearly not enough to reverse the situation as a whole. Therefore, tomorrow Kuroda can voice soft rhetoric, thereby exerting pressure on the national currency.

    Another intrigue of the January meeting of the Bank of Japan is the possible expansion of the range of fluctuations in yield on 10-year government bonds. According to some experts, the regulator will allow a decrease in profitability in the negative area. Let me remind you that last summer the Japanese central bank decided to limit the fluctuations in yield in the range of -0.2% to + 0.2%. The minutes of the last meeting showed that one of the members of the regulator proposed to expand this range, arguing that the stagnation in this issue will neutralize the positive effect of soft monetary policy in the context of inflation expectations. However, there is no unambiguous position on this issue among the members of the regulator: the members of the Board of Governors of the Bank of Japan disagreed, de facto keeping the parameters of monetary policy at the same values.

    What to expect from Haruhiko Kuroda following the results of tomorrow's meeting? First, a "dovish" rhetoric. And although the market has long been accustomed to the soft position of the head of the Japanese central bank, tomorrow it may still surprise the market if it allows an interest rate reduction in the foreseeable future. Second, the regulator may lower its forecast for inflation and GDP growth this year. The probability of such a step is quite high, given the recent inflation trends. Thirdly, Kuroda can comment on the issue of a possible expansion of the yield fluctuation range on 10-year government bonds.

    The rhetoric of the head of the Bank of Japan can put significant pressure on the yen, especially if it goes beyond the usual theses (and there are prerequisites for this). In this case, the USD/JPY pair can demonstrate a pulse growth to the first resistance level of 111.05 this is the upper line of the Bollinger Bands indicator on the daily chart.



    In general, from a technical point of view, the Ichimoku Kinko Hyo indicator currently demonstrates one of its strongest signals, the Golden Cross, in which the price fixed above the crossed lines of Tenkan-sen and Kijun-sen, while the Kumo cloud is still above the price chart . This signal indicates the upward direction of the pair. Also, the upward movement is confirmed by the location of the price between the middle and upper lines of the Bollinger Bands indicator, which began to narrow its channel. The support level is the Tenkan-sen line, which corresponds to 108.80. And the resistance level is the upper line of the Bollinger Bands indicator - the price is 111.05.

    Analysis are provided byInstaForex.
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