Financial market research and analysis

The euro gained as the European Central Bank (ECB) President Mario Draghi delivered an optimistic speech regarding the Eurozone economy, yet gains remained timid as his speech delivered no hints regarding an eventual change in the ECB's accomodative policy.

Draghi said that the ECB’s current monetary policy is bearing fruits, as the Eurozone printed sixteen straight quarters of growth. Moving forward, he sees the economic growth staying above trend across the Eurozone area, although the inflation remains 'more muted than one would expect'. According to Draghi, the inflation is low due to external factors such as the collapse in global oil and commodity prices, the output gap, and the global slack.

The low inflation does not prevent Draghi from being confident regarding his monetary policy, but holds him back from a premature policy tightening.

The EURUSD is rangebound within the top range of the April – June rise, 1.1123 and 1.1294 (minor 23.6% retracement on April – June rise and the June high). A positive breakout would wet the EUR-bulls’ appetite for a further rise toward the 1.15 mid-term target.


Mark Carney versus the BoE-hawks

The Bank of England’s (BoE) Financial Stability Report and Governor Mark Carney’s speech may cause volatility in the pound and the FTSE stocks today, yet may fail to give a convincing direction to the markets.

Mark Carney is openly dovish regarding the BoE’s policy outlook due to the Brexit uncertainties. His speech will likely weigh on the pound and could bring the buyers back to the FTSE.

Yet the pound bears are defied by an increasingly hawkish view at the heart of the Bank of England. Although Mr. Carney has a good reason to justify his unorthodox policy stance despite a perhaps temporarily high inflation, three out of the eight MPC members voted in favour of a BoE rate hike in the June meeting and this number is set to increase if the weakness in wages growth does not rapidly translate into a softer inflation in the UK.

A pound below the 1.30 level against the US dollar will likely keep the inflation worries on the table and encourage rebounds following short-term price pullbacks.

Therefore, the BoE hawks remain buyer on the dips. Support is eyed at 1.2672 (100-day moving average), 1.2577 (50% retrace on March – May rise) and 1.2555 (200-day moving average).


Conservatives’ DUP deal to be toxic in term

PM Theresa May and the Northern Ireland’s Democratic Unionist Party (DUP) finally agreed on a deal. May managed to survive the dramatic outcome from the June 8 snap general election as the Conservative – DUP pact gives her the support she needs to stay in office.

News are positive for the pound, given that the deal means less uncertainty regarding the post-election chaos.

From a political standpoint however, the collaboration with such a sharp-edged party could be toxic for the Tories, who have already lost the majority support of voters at the latest general election.


Grey clouds hang over the US dollar

The US durable goods orders missed estimates at the May preliminary read, by a worse-than-expected 1.1% month-on-month contraction versus -0.6% expected. Last month’s figure has been revised down to -0.9% from -0.8%.

President Donald Trump obtained the Supreme Court’s win on the travel ban. The citizens of the countries subject to the travel ban could enter the US if they have a ‘credible claim of a bona fide relationship’.

The US dollar is holding its breath before the Federal Reserve (Fed) Chair Janet Yellen’s speech due later in the session. Investors are looking for more policy insight, yet Yellen is unlikely to give away any meaningful information on top of what has been said at the FOMC’s June policy meeting.

At its latest policy meeting, the FOMC hinted at the possibility of one more rate hike before the end of the year, three rate hikes during the course of next year and warned about a forthcoming balance sheet normalisation without too much details on the timing and the size of action.

As a result, the Fed’s portfolio tightening is increasingly subject to speculation.

New York Fed’s William Dudley said that the recent easing in the US financial conditions is another reason to tighten the policy. Yet the weakness in the economic data could spoil Janet Yellen’s efforts to become less data-dependent and further weigh on the US yields and the dollar.

The US sovereign yields eased to fresh year-to-date lows.

The Dow Jones is called 9 points softer at $12’400 at the New York open.


Gold pares losses after the fat-finger plunge

A fat finger squeezed the gold prices on Monday, as the price of an ounce unexpectedly and aggressively plunged to $1’236 (200-day moving average). A huge spike in volumes was reported in the New York futures at 9am London time due to erroneous order.

The fat-finger move did not damage the short-term positive bias. The yellow metal already retraced a part of yesterday’s losses and gained back the $1’248 level (100-day moving average).

With the US sovereign yields standing at new year-to-date lows, we could expect a further recovery to $1’259 (38.2% retrace on June decline).


AUD, NZD up on carry demand

The antipodeans (AUD, NZD) are the leading gainers, as carry traders benefit from the low borrowing costs in the US, EU and Japan to invest in better yielding currencies.

The AUDUSD took over the 0.76 offers. The next positive target stands at 0.7635 (June high), before a further push toward the 0.7750/0.7800 mid-term resistance.

In New Zealand, the sharp deterioration in the trade balance sent the NZDUSD down to 0.7274, yet the pair rebounded quickly and is determined to challenge the 0.7318 (June high) before a further attempt toward 0.7375 (February high) and 0.7400 mark.