This week, the US dollar is likely to trade in a corridor across the market, waiting for the meetings of the ECB and the Fed. In the coming days we do not expect drastic changes in the mood of investors because of the relatively small array of expected economic data, as well as the celebration of Thanksgiving in the US on Thursday.
Last week we bought 7 binary options on currency pairs with the US dollar. Our outlook for the US currency was virtually neutral: 4 binary options were bought in favor of the dollar, and 3 – against. Markets are awaiting for the Fed’s decision on interest rates, so we can hardly expect any sudden movements of the US dollar until December 16.
Traders Are Waiting for ECB Meeting
As for the euro, last week, the ECB continued to prepare investors to take new stimulus measures. Mr. Draghi again hastened to demonstrate determination and to convince the market that the ECB has the necessary tools to stimulate inflation and output to the target level. We doubt that the ECB wants to take a risk and to maintain the status quo at the upcoming December meeting that is likely will lead to a sharp rise in the euro and a blow to the inflationary expectations. The time remaining before the December meeting of both central banks, EURUSD is likely to trade quite differently, however, bullish attempts can be used for Put binary options buying.
We traded a single European currency not so often as the US dollar last week. Of the 13 opened positions, we have bought 5 options on currency pairs with the euro. At the same time, we bought 2 Call binary options on EUR and 3 – Put options. Our forecast for the euro as well as the US dollar was close to neutral, as traders expect the ECB meeting next week, so we expect the European currency trading in the current price range.
Yen Remains under Pressure
Last Friday, as might be expected, the Bank of Japan has left annual asset purchase program at 80 trillion yen and Mr. Kuroda rather optimistically estimated the economic and inflation prospects. In particular, the head BoJ predicts growth of inflation expectations in the long term. However, he also stressed that it is necessary to accelerate the pace of wage growth. In any case, it is clear that the Bank of Japan keeps space for more decisive action on the monetary front. Given the downside risks of inflation, we forecast the adoption of additional stimulus measures by the Japanese central bank before the end of this year.
As well as the euro, we bought 5 binary options on the pairs with the Japanese yen, however, in contrast to the US dollar and the euro, we had a steady bullish outlook for the Japanese currency: 4 binary options were bought in favor of the yen and 1 – against. Despite the fact that the outlook for the Japanese currency against the background of a possible easing by the Bank of Japan looks bleak, the yen looked significantly oversold last week, which gave us a reason to consider buying a Calls on it.
This week, investors will focus on inflation data, which may disappoint given the sluggishness of the Japanese economy. The expectations of new stimulus action from the BoJ as well as the relative stability of demand for risk should put pressure on the yen and lead to its decline against other major currencies, especially the US dollar.
Aussie Recovery Will be Short-lived
Australian dollar continues to climb and the changes in the technical situation favors of the upper boundary restoration in the consolidation range of the last few weeks in the area of 0.7345, a break above which would be a good sign for the bulls and suggests the possibility of a further correction to the levels in the range between 0.7500 and 0.7600. The balance of short-term risk is biased in favor of the growth to 0.7400, but it is believed that there aren’t reasons to expect a more significant improvement in the dynamics of the Australian currency. The increase is due to the rebalancing of traders positions in Aussie and runs counter to the dynamics of commodity prices.
We have bought 3 binary options on the Australian dollar amid mostly negative outlook in relation not only to the Australian currency, but the entire block of commodity currencies because of bad signals originating from China.
The situation in China does not give a reason to wait for a change of trend, it is worth to keep in mind that attempts to develop a sustainable recovery of the AUD is likely to be negatively perceived in the RBA. The market is underestimating the risks of rate cuts in Australia on the background of a further deceleration in economic activity in Asia and the fall in commodity prices.