iFOREX Daily Analysis – 10/02/2016

The dollar extended losses against the other major currencies on Tuesday, as concerns over global economic growth continued to dominate market sentiment.

Concerns over the health of European banks prompted investors to sell financial stocks on Monday, sparking a rout in European and U.S. markets, while trade volumes remained thin in Asia with markets in China closed for the five-day long Lunar New Year holiday.

Today the U.K. is to produce data on industrial production and Fed Chair Janet Yellen is to testify on the semiannual monetary policy report before the House Financial Services Committee in Washington.

The current climate in global financial markets has changed dramatically since Yellen last spoke publicly before Christmas. Over the last two months, oil has plunged to 12-year lows below $30, the Dow Jones Industrial Average has lost approximately 1,600 points and U.S. fourth quarter GDP slumped to 0.7%, considerably below initial expectations of 2%. Arguably, conditions are even worse abroad. In China, GDP growth expanded at its lowest level in a quarter century last year, while in the euro zone stocks plummeted to a 16-month low on Monday, as the financial sector continues to recoil in large part due to the crippling effects of negative interest rates.

EUR/USD

The euro surged nearly 1% on Tuesday, jumping to its highest level in three months, as the dollar continued its prolonged slump ahead of a highly-anticipated appearance by Federal Reserve chair Janet Yellen.

The currency pair traded in a broad range between 1.1163 and 1.1338 before settling up 0.91% on the session. Since slipping below 1.08 in late-January the euro has soared nearly 4% against the dollar.

Today investors will focus on Yellen testifies at the U.S. House of Representatives' Financial Services Committee; it will mark her first public appearance in 55 days and her first since the Fed abandoned a seven-year zero interest rate policy in December. Yellen could address prospects of softer U.S. economic growth, tighter financial conditions and troubles abroad in the first of her two-day appearance on Capitol Hill.

Pivot: 1.118Support: 1.1235 1.116 1.108Resistance: 1.134 1.14 1.146Scenario 1: long positions above 1.1235 with targets @ 1.1340 & 1.1400 in extension.Scenario 2: below 1.1235 look for further downside with 1.1160 & 1.1080 as targets.Comment: technically the RSI is above its neutrality area at 50.

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Gold

Gold futures held near the prior session’s eight-month high in North America trade on Tuesday, as step declines in global equity markets continued to support demand for safe-haven assets.

Furthermore Japanese equities slid over 5%, while markets in Europe and the U.S. extended declines, as concerns surrounding global growth and weak oil prices continued to grip markets.

Prices of the precious metal have been well-supported in recent sessions, amid indications global economic and financial headwinds could make it tough for the Federal Reserve to raise interest rates as much as it would like this year.

Attention now shifts to Fed Chair Janet Yellen, who is scheduled to deliver her semiannual testimony to Congress today, amid ongoing uncertainty over the U.S. central bank's ability to raise interest rates.

Market participants are anticipating just one more rate hike this year, most likely in December, compared with four according to Fed policymakers' guidance.

Pivot: 1174.5Support: 1174.5 1164 1152.25Resistance: 1211.5 1222 1240Scenario 1: long positions above 1174.5 with targets @ 1211.5 & 1222 in extension.Scenario 2: below 1174.5 look for further downside with 1164 & 1152.25 as targets.Comment: the RSI lacks downward momentum.

WTI Oil

Crude futures fell sharply on Tuesday, retreating back near 12-year lows, as a bearish report from the International Energy Agency forecasted a further widening of the supply-demand imbalance on global markets, placing added downside pressure on dwindling energy prices.

The surplus of supply over demand at the start of the year is "even greater" than initially expected, the International Energy Agency said in its latest monthly report. Supply may exceed consumption by an average of 1.75 million barrels per day in the first half of 2016, compared with last month’s estimate of 1.5 million, and the excess could swell if OPEC members bolster production.
Investors today await the release of the American Petroleum Institute's weekly inventory report, for further indications of demand strength in the U.S., the world's largest consumer of oil.

Pivot: 29.27Support: 27.4 26.75 26Resistance: 29.27 30.59 31.35Scenario 1: short positions below 29.27 with targets @ 27.40 & 26.75 in extension.Scenario 2: above 29.27 look for further upside with 30.59 & 31.35 as targets.Comment: as long as 29.27 is resistance, look for choppy price action with a bearish bias.

S&P 500

U.S. stocks ended a volatile session slightly lower on Tuesday, as a late day rally led by materials and healthcare shares offset another big drop in oil prices.

Energy was the day's weakest sector, with the energy index falling 2.5% as U.S. crude settled 5.9% lower.

Yesterday the Dow Jones industrial average closed down 0.08%, the S&P 500 lost 1.23 0.07% and the Nasdaq Composite dropped 0.35%. The S&P 500 bounced 33 points from its session low to its high.

Today Yellen is expected to defend the U.S. central bank's first rate hike in a decade and likely insist that further rises this year remain on track, albeit at a slower pace, when she addresses Congress.

Pivot: 1950 Support: 1821 1738 1650 Resistance: 1950 2010 2080 Scenario 1: short positions below 1950 with targets @ 1821 & 1738 in extension. Scenario 2: above 1950 look for further upside with 2010 & 2080 as targets. Comment: the RSI is capped by a declining trend line.

Written By: iFOREX