Tuesday, September 29, 2015

Euro – dollar in a choppy sideways pattern for more than a week | German non-inflation has no impact

The EURUSD pair, which we trade a lot using the Mandelbrot algorithmic routine, has been in a resolute sideways and choppy pattern all last week and so far in this one. The extremes of the range lie at 1.13 at the top and 1.11 at the bottom (as previously noted, the market likes round numbers when it comes to establishing support and resistance levels). Over the last couple of days, the range-bound action has even confined itself to the 1.12 level on the downside (see chart above). This coincides with zone of the 200 period Exponential Moving Average (EMA) on the 4-hour chart but this is to be expected as, mathematically, it is equidistant between the two extremes mentioned.

We prefer the solid sweep of rhythmic trend trading, but Mandelbrot is designed to deal with this type of ranging situation as well. Its job under these circumstances is to preserve capital while staying active in the market so that it will benefit when the big profit opportunities reappear, which can happen at any time.

It would appear that the market participants that have the capacity to move the exchange rate are sitting on their hands in the run-up to the Non-Farm Payrolls report on Friday, which will mark the final such report prior to the next FOMC monetary policy statement, on October 28th. There now has to be a very strong expectation that the Fed will finally raise rates on that occasion. However, there is one other meeting this year, in December, which would also allow for the fulfilment of the prediction of many Fed members that rates will begin to rise ‘this year’.

German non-inflation has no impact

Yesterday saw the release of German inflation figures. No matter what way they are measured, whether month-on-month or year-on-year, or by means of the German CPI (Consumer Price Index, released by Statistisches Bundesamt Deutschland) or the Harmonised Index of Consumer Prices (HICP, released by the Statistics Office of the EU) inflation is non-existent or negative in the most important economy in the Eurozone. Annualised CPI was 0.0% y-o-y, as against 0.1% previously, while HICP for the year came in at -0.2%, as against -0.1% previously.

Normally, such news could be expected to trigger a sell-off of the Euro, as it is calculated to accelerate ECB Quantitative Easing (QE), but in the hiatus that has prevailed since early last week the Forex market, as represented by EURUSD and the crosses of those two currencies, does not seem to be responding to any fundamental triggers.

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