Financial market research and analysis

The pound reversed earlier gains as the growth in UK's average earnings contracted to 2.1% year-on-year in May versus 2.4% expected by analysts. The GBPUSD remained capped below 1.2800, as the EURGBP rebounded higher from 0.8765.

Slower wages growth combined to a fast rising inflation hints at gradually lower purchasing power for British households. This is why, the gap between the wage and price inflation should translate into softer inflationary pressures in the second half of 2017, as expected by the Bank of England (BoE).

Now, the attention shifts to the MPC (Monetary Policy Committee) meeting due tomorrow.

The balance between the hawkish and the dovish MPC members will be the main highlight for the pound traders.

Although the rising inflationary pressures have become a serious threat to the Bank of England’s (BoE) loose monetary policy, the majority of the MPC members will likely remain on hold in hope that the inflation would be curbed before climbing above the critical 3% level.

The expectation is a 7-0-1 vote in favour of the status quo. If more members shift to the hawkish camp, the pound could make a renewed attempt to $1.30.

Still, the market assesses no more than 11.1% probability for a BoE rate hike before the end of this year.


Dow Jones hits record pre-Fed decision

The Federal Reserve (Fed) is expected to raise the interest rates by 25 basis point today. The US dollar and the US yields are calm before the Fed decision, the markets are almost fully prepared for the US rate hike. The Fed’s balance sheet normalisation plans and the future outlook of the US rate policy should determine the short-term direction in the USD markets.

The US 10-year yields are steady near the 2.20% level.

The Dow Jones traded at a fresh all-time high yesterday, the S&P500 gained 10 points. The US futures remained on the back foot in Asia, yet reversed the earlier weakness as European traders took over the market.

As we mentioned in our yesterday’s report ‘any Fed outcome could be positive for the US stocks’. A hawkish Fed would underpin enthusiasm on solid US recovery and lift the stock prices, while a dovish Fed would suggest a longer period of softer yields and cheap liquidity and encourage increased allocation in the stock markets.

As a result, if stock traders are willing to seek reasons to stay invested in stocks, there will be plenty of them.

Therefore, any Fed decision could wet investors’ appetite and push the US stocks to uncharted territories.

The Dow is set to open 12 points higher at $21’340, a record high level.


Gold rebounds on flat US yields

Gold found buyers prior to the 50-day moving average ($1’260) yesterday. The market reaction to the Fed’s decision should give a clearer view on the short-term appetite. The key support stands at $1’255 (50% level on May – June rise), if broken, should encourage a further fall to $1’245 (major 61.8% retrace & 100-day moving average) and $1’240 (200-day moving average). On the upside, offers are touted at $1’276.50 (minor 76.4% retrace), if surpassed, should gather a stronger momentum toward the $1’295/1’300 mid-term resistance.


AUDUSD clears 0.7565-resistance

The AUDUSD cleared the 0.7565-offers (June double top).

The Fed decision and the Australian employment figures (due Thursday) could emphasize or reverse the positive breakout in AUDUSD.

The Australian economy is expected to have added 10’000 new jobs in May. The proportion of full-time to part-time jobs is delicate, as full-time jobs are considered being more stable and representative of the economic health. In April, the Australian economy erased 11’600 full-time jobs. In case of no improvement in the latter segment of the labour market, the data could dampen the recent positive mood in the AUD markets.

The key resistance stands at 0.7588/0.7600, if surpassed, could build a basis for mid-term extension toward 0.7650 (minor 76.4% retrace on March – May decline) and 0.7750/0.7800 mid-term resistance. Support is eyed at 0.7515 (200-day moving average).