Financial market research and analysis

The FTSE 100 opened upbeat on softer pound and higher demand in energy stocks (+0.47%) in the continuation of a positive session for oil companies in Asia.

The WTI deals with solid offers pre-$55. A positive breakout would cheer up the latent buyers and pave the way for a positive shift in the price range to $55/$57. On the other hand, failure to break above this level could trigger a short-term downside correction to $53.40 / $53.00 (50-day moving average / weekly support).

The pound trades on a slippery ground against the greenback. Cable traded down to 1.2383 on Monday on speculations that Scotland could call for another independence referendum. Brexit concerns keep sellers in charge of the pound market.

The GBPUSD consolidates within 1.2412/1.2451.


US holding breath as Trump prepares to unveil fiscal plans 

Today is finally the day Donald Trump will speak before the Congress for the first time. Markets, especially the US stock markets, are holding their breath as Trump prepares to unveil his much-expected fiscal plan. According to White House aides, US President Trump would propose $54 billion increase in defense spending, which would be 10% rise on the current defense budget. Such historical rise in the military budget would certainly imply sharp cuts in several federal agencies’ budgets to balance the sheet. Consequent cuts are expected for the US State Department and the Environmental Protection Agency (EPA).

Trump also vowed to spend ‘big’ in infrastructure. Recently he had hinted at as much as $500 billion infrastructure spending, besides ‘phenomenal’ corporate tax cuts. Based on Trump’s early promises, the expectations are high. The US stocks extended gains as we move toward Trump’s address in Washington tonight. The Dow Jones extended record for the twelve consecutive sessions to $20851. The S&P500 traded at the record high of $2371.54.

Today’s major question is could it be a buy-the-rumour sell-the-fact? Or could Trump surprise the markets beyond the actual outrageous pricing? Hedging positions and stops could amplify a potential sell-off in the US stock markets in case of disappointment in the US session.

The US dollar remained rangebound against the G10 majors in Asia. The probability of a Federal Reserve (Fed) rate hike in March is priced in at 50% in the US sovereign bonds market.

The US 10 year yields held ground above 2.30% level, which will be closely monitored as Donald Trump reveals his fiscal plans. An eventual disillusion could pull the US 10-year yields below the 2.30% support and weigh on the US dollar across the board.

 The US stock futures are trading marginally softer. The Dow Jones is set for a flat open.


Seeking top selling opportunities in euro crosses 

The EURUSD remained capped below the 50-day moving average (1.0640) yesterday, although the French 10-year yields hit a month low on hopes that the rise in Emmanuel Macron’s popularity could be an important barrier to much-feared Le Pen victory in the upcoming French presidential election. On the other hand, the Eurozone banks cut their cross-border lending given the rising stability concerns at the heart of a monetary union in crisis. The lending among the EZ banks fell by 6% in January. Traders seek top selling opportunities in euro crosses, especially on a potential Trump-related rally. EURUSD offers are touted at 1.0647 /1.0680 (100-day moving average / weekly resistance).

From a policy perspective, the European Central Bank (ECB) is not expected to announce another round of TLTRO (Targeted Long-Term Refinancing Operations) although the current program is due to end next month. The latter could avoid additional sell-off in the EURUSD yet will certainly not discourage sellers from taking fresh euro short positions.

The euro-pound is sold into the three-week down trending channel top, 0.8535. Surpassing this level, more resistance is presumed pre-200-day moving average (0.8588).

The single currency extends its slide against the Aussie as well. Increased carry appetite suggests a further fall toward the 1.35 handle. Resistance is eyed at 1.3883 (minor 23.6% retracement on Dec 29 to Feb 21 decline) and 1.4043 (major 38.2% retracement).


China opens up to boost growth 

In China, the People’s Bank of China (PBoC) said it would allow foreign firms to repatriate profits normally. China is also preparing to open its sovereign bond market to foreign investors and allow foreign investors to conduct FX derivative business to hedge against the currency risks.

In summary, China speeds up reforms to halt the decline in growth. According to a recent Bloomberg survey, the Chinese government would revise its 2017 growth target to 6.5%, down from 6.5%-7% range a year earlier.


Yen depreciation is needed to boost export driven recovery

 The USDJPY traded in the tight range of 112.45/112.82 in Tokyo, after preliminary data revealed an unexpected 0.8% month-on-month contraction in Japan’s industrial production in January. Soft data revived the Bank of Japan’s (BoJ) doves, as Japan’s export driven recovery plans need the yen to remain cheap. In opposition, the recent bearish reversal in USDJPY suggests the possibility of a further appreciation in yen against the greenback. The USDJPY could slide down to 110.60/110.00 (Fibonacci 50% level on post-Trump rally /psychological level). Offers are presumed pre-113.20 (100-day moving average).

The BoJ Governor Kuroda reiterated that Japan’s monetary policy would remain accommodative to support businesses and growth to bring inflation back to Japan.

The BoJ announced its JGB purchases calendar for the first time to increase transparency of its monetary policy.


Aussie consolidates gains

The AUDUSD consolidates the positive trend, as the 50-day moving average has crossed above 100 and 200-day moving averages. This is a solid bullish signal for an extension of gains toward 0.7775/0.7800 area, especially as the iron ore is set for its best run in five years. Iron ore futures in Dalian (China) declined from three-year high levels yet for the fourth session over five. But for now, the pause is interpreted as a consolidation after the iron ore future prices rose by more than 35% since December. Therefore, the significant rise in iron ore demand should remain supportive of a further AUD appreciation.

Any Trump related sell-off could provide an additional positive support from carry traders.