Financial market research and analysis

Euro traders are holding their breath before the critical European Central Bank (ECB) meeting.

The ECB is expected to maintain the interest rates unchanged. The announcement on the future of the Quantitative Easing (QE) program will likely be the main highlight. According to the latest news, the ECB’s technical committee created different QE scenarios on the size and the duration of the program and none of them is identified as a preferred scenario. The announcement will likely be delayed to next month’s meeting due to the strong euro, low inflation and global risks. This week’s press conference could be about what President Mario Draghi won’t say.

This said, Mario Draghi will likely remain optimistic on solid Eurozone recovery and deliver a speech in favour of gradual QE tapering moving forward. A kneejerk sell-off in sovereign bonds is in nobody’s interest.

The euro markets could be frantic during President Draghi’s press conference. Traders should be prepared for two-sided volatility. Resistance and large call options sit at the critical zone of 1.1950/1.2000. Failure to clear 1.1950-1.2000 offers could encourage a downside move to 1.1800-support and 1.1755 (50-day moving average). On the upside, a breakout above the 1.20 level could trigger a rally on stops and stretch toward 1.2100/1.2130.

The DAX (+0.42%) and the CAC (+0.09%) trade within their 100 and 200-day moving averages and could lack direction before the ECB's verdict. A stronger euro could dent the appetite and keep the market in the gradual downside correction trend.


Cable gains on soft USD

Cable benefits from the USD depreciation. The pound hit 1.3080 (major 61.8% retrace on Aug decline) against the US dollar. Technically, the pair stepped in the bullish consolidation zone and could extend gains. Surpassing 1.3080 should strengthen the short-term positive momentum and underpin a further rise to 1.3150 (minor 76.4% retrace). It is important to remember that the GBPUSD move is driven by the broad-based USD depreciation and a potential pause in the USD sell-off could encourage a correction to 1.2990 (50-day moving average).

Brexit talks will occupy the UK’s headlines as British policymakers will debate on Theresa May’s key Brexit bill today. The opposition is solid and the opinion divergence is a major barrier to the smooth progress of the EU discussions.

FTSE 100 opened flat in London. Stronger pound and softer commodity prices are weighing on the index. Micro focus gained another 2.52%.


US dollar slides on data, Fischer resignation

The US dollar sold off following the softer-than-expected services PMI and ISM non-manufacturing data in August. The Federal Reserve (Fed) Vice Chair Stanley Fischer resigned. The first Fed resignation in Trump administration rang the alarm bell and revived talks that Janet Yellen may not be far behind. Yellen’s term will end in February and may not be extended thereafter.

Speculations on who may be the next Fed governor could impact the US dollar in the coming months. It is likely that the new Fed head could be a business man/woman, or a private sector economist. On the other hand, President Trump had sounded favourable for Yellen’s reappointment, describing her as a ‘low-interest-rate person’ in an earlier speech. Although she may not renew her mandate, the new comer will likely have a business friendly approach to the economy. Another good reason for US stock traders to hold on to their positive outlook.

US stocks gained on Wednesday; the Dow Jones (+0.25%), the S&P500 (+0.31%) and the Nasdaq (+0.28%) closed yesterday's session higher. Energy stocks (+2.12%) rallied in the Wall Street as the WTI crude recovered to $49.62/barrel.

The EIA will release the weekly oil inventories data. Analysts expect an expansion in the US oil inventories due to the massive disruptions in US refineries caused by Hurricane Harvey last week. A higher than expected read could weigh on oil prices. The WTI could pull back to $48.70 (minor 23.6% retrace on August – September recovery) and $48.15 (major 38.2% retrace). Resistance is eyed at $49.80/$50.00.

On the other hand, Hurricane Irma continues threatening the US coast and the storm Katia has strengthened into the third hurricane, suggesting that the turmoil may not be over.

The US stock futures edged lower in Asia and in early European trade.

The Dow is called 46 points softer at $21'761 in the US market open.


North Korea: No news, good news

Chinese President Xi Jinping and the US President Donald Trump discussed on ways to ease the North Korean tensions. The US is asking for harder UN sanctions against North Korea, such as oil embargo and action on Kim Jong Un’s personal assets. Military action is not Trump’s ‘first choice’.

Gold pared gains on improved US yields and the absence of news on North Korean nuclear threat. However, the geopolitical risks are looming. The downside correction in gold could find support by $1'331 (100-hour moving average).


Loonie in hawks’ hands

The Loonie rallied after the surprise rate hike from the Bank of Canada (BoC) on Wednesday. The BoC raised rates for the second time in a row as it decided to ‘remove some of the considerable monetary policy stimulus in place’ and pay close attention to ‘the sensitivity of the economy to the highest rates’. The BoC's overnight lending rate is back to 2010-2014 level. We remind that the BoC had already warned investors that the rate hikes would not be regular. Therefore, the BoC could be expected to pause at its next policy meeting. The probability of October rate hike stands at 40%.

The USDCAD extended losses to a two-year low (1.2132). Trend and momentum indicators remain comfortably negative as the BoC hawks are in charge of the market after 50 basis points hike in two months. The next natural target for USDCAD-shorts is 1.2100. Resistance is eyed at 1.2335 (last week double dip), 1.2425 (weekly resistance) and 1.2560 (50-day moving average).


AUD retreats on weak data

The AUDUSD plunged to 0.7975 as the Australian trade surplus unexpectedly retreated from A$ 888 million to A$ 460 million in July. Analysts expected an improvement to A$ 1000 million. The AiG performance of construction index fell to 55.3 in August from 60.5. The sell-off in iron ore futures (-3.0%) reinforced the AUD sales. Traders seek dip-buying opportunities below 0.80 level to take advantage of the interesting AU-US rate differential.

Intra-day support is eyed at 100 and 200-hour moving averages, 0.7974/0.7955 respectively.


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.