Financial market research and analysis

The pound started the week on a positive note. Cable gained ground above the 100-day moving average (1.3115) in Asia, after having plunged to 1.3069 on Friday due to aggressive USD purchases following the US GDP data release.

The pound will likely flirt with the bulls before the Bank of England (BoE) decision and the Quarterly Inflation Report (QIR) due on Thursday. There is little doubt about the BoE’s decision to raise rates at this week’s meeting, provided that the inflation hit the 3% level in September. Hence, the BoE is expected to increase the interest rates by 25 basis points to 0.50% to ease the inflationary pressures in the UK. A no-action would be an unpleasant and under-priced surprise for the market.

It is important to keep in mind that a 25 bp hike is extensively priced in, therefore the BoE’s tone will matter the most. A dovish hike (one-off action) could send Cable below the 1.30 support, even if the BoE raises rates on Thursday. At this point, the market needs a stronger commitment from the BoE, such as a hint that more rate hikes could be underway if the economy doesn't react to the first hike fast enough. One or two more rate hikes could be needed to rectify the inflation, especially if the pound remains soft following a rate hike. As a result, the BoE hike per se is not a done deal for pound traders. The dovish risks could cap the upside attempts in the pound market. Offers could come into play pre-50-day moving average (1.3255) against the US dollar.

The FTSE 100 appears to be on a slippery ground above the 7500p level. The pound recovery dents the appetite, except for the energy stocks.

UK’s energy stocks (+0.35%) capitalize on firmer oil prices. The Brent consolidates above $60/barrel, as WTI crude tests $54/barrel. Stronger positive trend suggests an extension to $55.00 and $55.67 (Jan high). Support could be found at $52.90 (resistance turn support) and $52.50/52.20 (area including 100 and 200-hour moving averages).

BP will release 3Q results tomorrow and the adjusted earnings per share is expected to have jumped to 0.0802 from 0.0347 printed last quarter. Royal Dutch Shell earnings are due on November 2. Expectations are also positive.


Busy political, economic and corporate calendar in the US

The strong US dollar and solid US earnings were among the major trading themes last week. The US dollar index (DXY) advanced to highest levels since mid-July and the US 10-year yield tested 2.48% as the US 3Q GDP surprised on the upside by a solid 3% print (year-on-year annualized), compared to 2.6% expected by analysts.

The US dollar opened the week rangebound. The US has a busy corporate, political and economic agenda this week.

The Republicans will release the much-expected tax plan and may or may not satisfy investors which have been driving the US stock markets higher since Trump’s election nearly a year ago. We remind that the S&P500 gained 23.86% since November 2016, the Dow Jones rallied by 32.40% and Nasdaq soared by 34.79% and hit a historical high (6’223.515) on Friday.

Solid corporate results fueled the US’ stock rally during last week and the US companies will continue releasing earnings this week. Big names, as Mastercard (Tuesday), GoPro, Tesla, Facebook, Kraft Heinz (Wednesday), Ralph Lauren, Starbucks and Apple (Thursday) results will be closely monitored. Apple suppliers were well bid after being asked to double their capacity as Apple X pre-orders were ‘off the charts’ on their first day.

The FOMC will meet on Wednesday and is expected to keep the interest rates unchanged at this week’s meeting. The probability of a December rate hike stands at 85%. Under these circumstances, the Fed could hardly surprise on the upside, if it were to surprise the market this week. But this does not mean that the USD-bulls would sit on their hands.

President Donald Trump will likely announce the new Chair of the Federal Reserve (Fed) before Friday; Jerome Powell is the front-runner.

Finally, the US unemployment and non-farm payrolls (NFP) will be released on Friday. The consensus for October NFP is 310K, versus -33K printed a month earlier.


Precious metals, yen under pressure

Strong risk appetite and improved US yields continue pressuring the precious metals on the downside. Gold remains offered below its 100-day moving average ($1’275). Next support is eyed at $1’260 (200-day moving average). Silver is struggling near its 100-day moving average ($16.80) as well. Light support could be found at $16.32 (October low).

The USDJPY held ground above 113.50 in Tokyo. Japanese retail sales improved by 0.8% on month to September (vs -1.6% a month earlier), yearly sales grew by 2.2%, slightly slower than 2.3% expected by analysts. The Bank of Japan will meet on Tuesday and is expected to maintain its dovish stance, especially after PM Shinzo Abe’s victory at last week’s snap election. Large call options stand at 113.80 and 115 at today’s expiry. The market is widely hedged for a further rise past the 115.00 level. It is certainly just a matter of time before the USDJPY takes over the 115 mark.


Euro consolidates, IBEX rallies

The EURUSD extended losses to 1.1574 on Friday. The key support to the April – September rise stands at 1.1509 (major 38.2% retracement), which should distinguish between a consolidation within 1.15/1.18 area and a mid-term bearish reversal. The European Central Bank (ECB) convinced investors that the Eurozone’s monetary policy will remain soft despite reduced monthly bond purchases from 60 to 30 billion euros from January. The Quantitative Easing (QE) program will continue running at half speed until September 2018, but will not end abruptly.

The EURGBP fell to 0.8825 and could extend losses toward the 200-day moving average (0.8792) if the GBP-bulls return to the market before Thursday’s BoE meeting.

The Catalan worries seem to be fading in the financial markets, after hundreds of thousands pro-unity citizens marched in Barcelona over the weekend. The IBEX (+1.52%) opened upbeat on the back of the unity hope. Yet risks prevail as Catalan separatists rejected the Spanish rule; traders should remain vigilant to news.


The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.