Financial market research and analysis

European markets were handed over a bullish market.

FTSE opened upbeat, all sectors started the session in the positive territory.

Tesco (+3.39%) pared yesterday’s losses after announcing the strongest sales figures in seven years as a result of its abstention to raise prices along with the rising food inflation in the UK.

UK policymakers rang the alarm bell on the rising inflation. As Kristin Forbes maintained her hawkish view at Thursday’s MPC meeting, she was joined by two other members, Michael Saunders and Ian McCafferty, in a totally surprise move. The Bank of England (BoE) voted 5-3 to keep the Britain’s interest rate at the historical low of 0.25%, versus 7-0-1 expected by analysts. The concrete hawkish shift at the heart of the MPC hints that if the slowdown in the economic activity and lower wages growth do not translate into a softer inflation soon, the BoE will be brought to raise rates prematurely.

The hawkish surprise gave a positive spin to the pound. Cable tested the 1.2824 (minor 23.6% retracement on March – June rise & June double top). Surpassing this level should pave the way toward the $1.30 level. A re-test of the mid-term resistance at 1.3044 (major 38.2% retracement on post-Brexit sell-off) would now be meaningful, given that there is a concrete hawkish shift in the BoE’s policy outlook. Daily support is eyed at 1.2652 (100-day moving average).

Across the Channel, the Eurozone inflation is the major macro highlight of the day, along with the Greek debt puzzle.

According to the latest news, Greece and its international creditors have agreed on the next steps of the €86bn bailout plan. The agreement removed the risk of a default next month, according to FT, when Greece was due to reimburse as much as €7.3 billion.

There will certainly be no major surprises on the data front. The Euro area’s May headline inflation is expected to print 1.4% year-on-year in line with the estimates; the core inflation is seen steady at 0.9%y/y.

Unlike the Bank of England and the Federal Reserve (Fed), the European Central Bank (ECB) has given no signs of willingness to discuss about a policy normalisation.

The EURUSD eased to 1.1132 on Thursday. Minor support is eyed at 1.1117 (23.6% retrace on April – June rise) and 1.1070 (50-day moving average), before the critical 1.1012/1.1000 (major 38.2% retrace / psychological level), area which should distinguish between the continuation of the two-month positive trend and a mid-term bearish reversal against the greenback.

The EURGBP is set to test the 0.8700-support on the back of the surprise BoE/ECB divergence favouring the pound. The downside move could reasonably extend to 0.8595/0.8590, zone including the 50, 100 and 200-day moving averages.


Improved US yields weigh on gold

The US dollar and the US yields recover from an exaggerated reverse reaction to Wednesday’s Fed decision.

The US 10-year yields rebounded from 2.10%.

Gold broke into a short-term negative trend. With prospects of further improvement in US yields, the negative breakout could encourage a further weakness to $1’245 (major 61.8% retrace on May – June rise & 100-day moving average) and $1’238 (200-day moving average).


Dow Jones preparing to renew record

Appetite in the US stocks remains intact in the aftermath of the Fed rate hike.

Wall Street rolling index traded at fresh all-time highs, up to $21’405, hinting at another day of record.

The S&P500 and NASDAQ futures are up by 0.7% and 0.25%.


Yen-bears in charge as BoJ maintains status quo

The Bank of Japan (BoJ) maintained its policy unchanged at today’s meeting. It appears that the BoJ will remain well behind its leading G10 peers to exit the monetary stimulus, given that the inflation isn’t rising at a desired pace although the output gap tightens.

The USDJPY advanced to 111.27 in Tokyo, as the US dollar broadly pared the post-FOMC losses. The concrete divergence between the Fed and the BoJ policy should encourage a further upside move to 111.40 (50-day moving average), 111.65 (100-day moving average) and 112.05/112.13 (200-day moving average & 38.2% retrace on January – April slide).