Bank of Japan is expected to maintain stability of the monetary policy. In case Japanese Yen appreciates aggressively, the probability that the BOJ will intervene increases. The Japanese yen is expected to remain in the range from 105.00-115.00 within the next 12-months. A major positive factor for the USD/JPY is an FX carry trade. The negative factor is the escalation of the US-China trade war.
XAU/USD expects appreciation for this quarter due to the geopolitical uncertainty combined with higher oil and soft commodity prices, creating the right uptrend for gold. In addition, US and Iranian political and military escalation, following the US air strike which killed the Iranian general, gave the market the excuse to look for the safe-haven assets.
Sterling estimates that the Tories might win the election by double digits and Corbyn's chances of winning the prime ministerial seat are about 5%. It is expected that the victory of the Conservative Party will move the GBP/USD to 1.3500.
The pound rose to 1,2990 last month after polls continued to show Torie's favourite to win the December 12 National Elections and resolve the 3.5 years of political uncertainty. Prime Minister Johnson through the manifesto promised to invest more social funds for the British people. In addition, it was said that the new taxes are off the table, as opposed to the opposition leader who promised more taxes on funds, businesses and the rich. Tories’ majority give more value to the pound, but the more positive ones give the BOE more room to pursue the monetary policy without obstacles.
AUD/JPY expects appreciation for this quarter due to the US-China trade solution. If the US and China will find a solution, then the Chinese monetary policy will be easing and it will help Australia to increase the commodities exports to China. On the other hand, the risk is if US-China trade talks break down before the year-end which means negative effect for AUD. In addition, Australia Dollar is very sensitive to China's incoming news.
The euro area economy is no longer affected by external conditions, as the trade war is not escalating, and China's stabilization is expected to accelerate by 2020. Markets predict inflation to change from 1.1% to 1.4% in 2020 and the ECB's monetary policy to continue in 2020 and QE at least until the end of 2020 respectively.
The Euro appreciated due to risk factor improvements during the previous month. The ECB has signalled its intention to remain accommodative for as long as it is needed which is one more factor to help Euro to appreciate. In contrast, markets expect two more rate cuts next year. The US Dollar remains overvalued compared to the Purchase Power Parity of around 1.2900. Interest rate differentials against the euro declined during the last 6 months.
The Australian economy is trying to move away from commodity intensive and has begun to develop local products and services, but progress is not convincing. The problem that I thought of was the very high housing prices as well as the high levels of household debt. All of the above factors prevent the Aussie to appreciate aggressively.
The CAD's depreciation of about 1% of its value last week after the Bank of Canada's announcement left room for monetary policy easing in the coming months. The Bank of Canada left interest rates unchanged at its October meeting, and President Poloz said the risks to the Canadian economy were on the table and it was time to justify a more favourable monetary policy as a form of insurance against all risks.
The EUR/CHF remains of the defensive, but the probability of a break above the 1.1139 seems to have increased. If the price breaks the 1.1139 level, it could possibly force the pair as high as 1.1239 and 1.1480 respectively. In contrast, the first support is found at 1.0816 and 1.0783 respectively. If the price breaks below the 1.0783 level, it could possibly force the pair as low as 1.0649. The RSI (W)remains at the neutral to positive level and the CCI (W) closed at the overbought territory.
The USDCAD remains overbought and the probability of Markets reaction (Short side) has increased. The first support is found at the 1.3014 and 1.2934 respectively. If the price breaks below the 1.2934 level it could possibly force the pair as low as 1.2811. In contrast, resistance is found at the 1.3136 and 1.3253 respectively. A break above the 1.3253 could possibly push the pair as high as 1.3382. The RSI (W) remains at the neutral levels. The CCI (W) remains at the oversold territory.
The market is expecting that the ECB will not ease its policy further at Thursday's meeting, while awaiting that during the next December's meeting it will cut interest rates by 10bps from -0.50bp to -60bp. PMI for September was very low, with the services index down 1.9 points from August. It is expected that President Draghi will support his latest decision through the final meeting before Christine Lagarde takes over as ECB president.