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Forex trading plan for October 14

Weak China trade data lowered the risk appetite on Tuesday, putting the commodity currencies under pressure. On Wednesday, we will be watching China’s CPI and US retail sales and PPI. These events could deepen the slowdown on the financial markets.

AUD/USD is forming an engulfing candle on the daily chart. A daily close below 0.7270 will confirm the end of the early-October rally. We recommend selling the Australian dollar in this case.

EUR/USD remains sustainable despite the drop of risk appetite. We concede a spike towards the 1.1500 resistance in the coming sessions. After that, the pair could enter a consolidative phase.

GBP/USD was the main driver of the session, falling by more than 100 pips on weak UK CPI. Drop below 1.5330 was a bearish signal. We expect the pair to float to the 1.5160 support in the coming sessions. Recovery above 1.5330 is needed to negate the new bearish move.

USD/JPY Fundamental Analysis – October 14, 2015 - Forecast

The USD/JPY  eased by 19 points as Japanese markets returned from holiday and evaluated the Bank of Japan minutes looking for clues of additional stimulus ahead of the BoJ meeting on October 30th. Minutes from the BoJ's September 14-15 meeting see it singling out emerging markets as a reason for a shift in the domestic economy's performance. In fact, a simple count sees the number of times "emerging" was used in the minutes jump to 34 in September from 16 at the August meeting.

In discussing developments in Japan's economy, the central bank said exports had "recently been more or less flat", having said in August they had been "picking up, albeit with some fluctuations".

Another area that had flattened out, having been picking up previously was industrial production. However, the Bank still retained its optimistic slant that it was likely to increase moderately.

This month, the BoJ held off on increasing its monetary stimulus program, heightening expectations the central bank would pull the trigger at its upcoming October 30 meeting and expand its effort to boost the economy. However, Governor Haruhiko Kuroda said yesterday at an IMF-World Bank pow-wow in Peru that he saw little need for new stimulus.

The Bank of Japan minutes from September saw some board members suggest consumer prices may fall in the year ended March with a close eye on oil prices.

As well, bank lending in Japan rose 2.6%, a slower pace than the 2.8% gain in August with firms cautious about implementing capex plans as seen in sluggish machinery orders amid slow domestic consumption and global growth.

AUD/USD Fundamental Analysis – October 14, 2015 - Forecast

The AUD/USD declined by 53 points to 0.7309 after sharp rises on Monday after China initiated stimulus programs to help the ailing economy.  Reserve Bank of Australia Deputy Governor Philip Lowe welcomed a weaker Aussie, speaking Tuesday to the CFA Institute Australia Investment Conference at Sydney.

He repeated the RBA's recent messages that the fall in the Australian dollar is helping the economy re-balance away from mining investment.

Flexibility in the exchange rate is important, Lowe said.

"Depreciation over the past couple of years is playing an important role in helping the economy adjust to the wind down of the boom in mining investment," he said.

In Australia's NAB's business confidence survey for September reached plus-5 from an expected plus-4 and the August level of plus-1. Business conditions came in at plus-9, the same as August.

China's dollar-denominated exports fell 3.7 percent in September from a year earlier, while imports plunged 20.4 percent to chalk up their eleventh consecutive month of decline, official data showed on Tuesday. That produced a trade surplus of $60.34 billion for the month, slightly beating market expectations.

China has made some dramatic changes to help boost its economy. "Under the policy, the Chinese central bank will allow more commercial banks to use loans as collateral to borrow cheaply from the [People's Bank of China]. These banks are then supposed to increase lending to the private sector, especially to the small and medium enterprises, where an increase in bad loans has made Chinese banks more cautious with extending loans to businesses deemed risky. This helped to trigger a rally in the Chinese equity markets, particularly the smaller-cap stocks," IG market strategist

EUR/JPY Fundamental Analysis – October 14, 2015 - Forecast

The EUR/JPY dipped 16 points to trade at 136.19 as the yen gained after the release of Bank of Japan minutes.  Members of the Bank of Japan's monetary policy board said that the country's economic recovery remains more or less on track, minutes from the bank's September 14 and 15 meeting revealed on Tuesday.

Inflation expectations appear to be rising, the minutes said, while exports and industrial production have been more or less flat. Downside risks include the health of commodity exporters and emerging markets, as well as the pace of the economic recovery in the United States.

At the meeting, decided to maintain its target of raising the monetary base at an annual pace of about JPY 80 trillion. It also kept its benchmark lending rate unchanged at 0 to 0.10 percent.

The central bank will continue to take steps as needed to achieve its goals, the minutes said.

"Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the Bank will continue with QQE, aiming to achieve the price stability target of 2%, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate," the minutes said.

NZD/USD Fundamental Analysis – October 14, 2015 - Forecast

The NZD/USD  tumbled 46 points in the Asian session to trade at 0.6642 after a rally on Monday as commodities climbed after China announced additional plans to stimulate the economy. The kiwi is trading at 0.6672.

Looming large is the Fed's rate hike decision. Fed officials have said for months that the first rate hike -- referred to as "liftoff" -- is likely to come this year. But uncertainty is building on whether it's coming this year. That uncertainty has caused investors to pull their cash out of emerging markets at a rapid pace.

The global economic slowdown, historically low commodity prices and low inflation all remain long-term concerns too.

The People’s Bank of China announced over the weekend that it will expand a pilot program aimed at boosting bank lending, a move interpreted as a version of quantitative easing.

Markets in Asia closed mainly higher after the news, as a People’s Bank of China official also said China’s stock-market correction is “almost over.”

The New Zealand dollar extended its gains for a seventh day as a holiday in the US kept global markets quiet and as local inflation data comes into focus for traders assessing whether the Reserve Bank will cut interest rates again.

Investors are preparing for the release of the September food prices index, the final component before Friday's September quarterly inflation reading, which will provide a gauge on whether New Zealand's central bank will cut interest rates further. Traders are pricing in a 22 percent chance of a cut at this month's monetary policy review.

EUR/USD Fundamental Analysis – October 14, 2015 - Forecast

The EUR/USD continued to gain moving to 1.1372 with no help from today’s eurozone inflation which remained at 0%. The dollar halted its decline leaving the euro overvalued.  German ZEW economic sentiment declined to its lowest level in 12 months in October, as concerns over the ongoing Volkswagen (DE:VOWG) scandal coupled with worries over the health of the global economy weighed, industry data showed on Tuesday. The widely watched investor confidence index calculated by the ZEW economic institute sank 10.2 points to stand at just 1.9 points, its lowest level since October 2014, the think-tank said in a statement.

"The exhaust gas scandal of Volkswagen and the weak growth of emerging markets has dampened economic outlook for Germany," said ZEW president Clements Fuest.

"However, the performance of the domestic economy is still good and the euro area economy continues to recover. This makes it rather unlikely that the German economy will slide into recession," Fuest said.

In a report, the ZEW Centre for Economic Research said that its index of German economic sentiment fell by 10.2 points to 1.9 this month from September’s reading of 12.1. Analysts had expected the index to fall by 6.1 points to 6.0 in October.

It is too early for the European Central Bank (ECB) to decide on expanding its asset-purchase stimulus program, ECB executive Benoit Coeure told CNBC today.

The ECB’s €60-billion program was launched six months ago, but Reuters stressed that many experts believe that the stimulus should be expanded. The news agency stressed that the ECB program wasn’t able to increase the Eurozone prices, as in September the inflation turned to negative.

The month-bond-buying program, which will run through September 2016, was announced by ECB to raise inflation by raising the supply of money and reducing borrowing costs. However, Wall Street Journal reported on 30 September, that Eurozone is still facing a deflation threat, in spite of the stimulus program.


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