10.10.201708:05 Forex Analysis & Reviews: Continuation of correction

EUR / USD, GBP / USD

As expected, the correction took place on Monday, but in case it will continue today until tomorrow will make the issue more complicated, while the macroeconomic data may contribute with this. Yesterday, the German industrial production in August showed an increase of 2.6% against expectations of 0.9%. The European Sentix Investor Confidence for October increased from 28.2 to 29.7. Today, Germany can increase the trade balance for August from 19.5 billion to 20.1 billion euros and the growth of industrial production in France for September is expected at 0.5%. In the UK, the commodity trade balance for August is expected to increase from -11.6 billion pounds to -11.2 billion. Industrial production also in the UK is expected to grow by 0.2%, while the manufacturing in the construction sector in August could gain additional 0.1%, with a background of the previous fall at 0.9% which appeared to be weak. Important data is not anticipated for the United States.

The talks regarding the dismissal of Foreign Minister Boris Johnson by British Prime Minister Theresa May happened, as Johnson attempted to consolidate his own foreign policy influence. The pound strengthens after such decisions. Also, the Bank of England said that the statistics management incorrectly calculated and underestimated the inflation indices. Now, the Bank of England will reconsider its opinion on monetary policy based on the revised data. According to reports, BoE will raise the rate this year. We are expecting for the continuation of the correction on the euro to 1.1820, and 1.3250 to the pound.

USD / JPY

The Japanese yen is trading in the 112.50-113.30 range for eight straight days, and there are no market forces capable to manage an exit from this range. Yuriko Koike, Chairman of "Party of Hope", presented the main points of her election programs which include the revision of pacifism principles, prevention of the increase on sales tax planned for 2019 and to abandon nuclear power.

These three main points, particularly the refusal to tax increase is essentially nothing more than shifting the government debt to the shoulders of citizens, which are understood by the people. Shinzo Abe can not remove from himself the label as the reformer-loser, but he can win the election - a very strong breakaway from Koike. The first debate between the main rivals was televised on Sunday. Abe admitted that he would lose part of the seats in the parliament, but he hoped to retain the post of prime minister. The yen still failed to climb after the release of US employment data on Friday and remains impossible to raise even during the corrective weakening of the dollar, and on the closed Japanese venues due to the national holiday.

Today, the markets were optimistic in the Asian session, but the yen remained to be not affected. The Japanese stock index Nikkei 225 added 0.39%, the South Korean Kospi SEU rose by 1.84%, and even yields on Japanese government bonds are growing, only the yen remains unchanged. Japan's balance of payments for August showed growth, while the seasonally adjusted surplus increased from 2.03 trillion yen to 2.27 trillion yen, the surplus without taking into account seasonal fluctuations increased from 2.32 trillion to 2.38 trillion yen. In terms of optimism, the head of the Central Bank Haruhiko Kuroda failed to gain traction.

In this situation, the market rule can work if the asset was unable to grow which would probably fall. In the future, the macroeconomic data will be weak, the base index of orders for machinery for August will be issued tomorrow and is expected to increase by 0.9% against the previous jump of 8.0%. The volume of bank lending is forecasted on Thursday from 3.2% YoY to 2.6% YoY. Under the pressure of the continuing correction for the dollar, we expect a decline to 111.60 or lower to 111.00.