Financial market research and analysis

The FTSE started the week slightly upbeat. Although the stronger pound dented the buyers’ appetite, the mining and energy stocks drove the markets higher. The FTSE 350 hit a fresh all-time high, as the FTSE 350 Mining index gained 0.94% shortly after the opening bell in London.

Cable hovered around the 1.25 handle, given that the Bank of England (BoE) Governor Carney’s assessment of an additional slack in the UK’s economy failed to revive the BoE doves this Monday. According to a Bloomberg survey, 87% of analysts think that the BoE’s next move will be an interest rate hike, up from 65% a month earlier. Of course, the BoE will more likely remain neutral in the medium term as the Britain exits the European Union, yet the leading macro-metrics are the major motives for the short-term shift in expectations. In this respect, the inflation is an important data to watch. Due on Tuesday, the UK’s inflation may have retreated 0.5% month-on-month in January, yet the yearly inflation is forecasted at 1.9% (vs. 1.6% in December). Faster inflation is good news for the BoE hawks, so for the pound. Rising inflationary risks should keep the pound sellers contained before the data and pave the way for a firmer pound throughout the session.

The key GBPUSD support stands at 1.2410 (100-day moving average). The EURGBP is offered below 0.8565 (200-day moving average).


Janet Yellen will unlikely point at March action

The US dollar firmed against the majority of the G10 currencies in Asia, as the US futures traded higher.

This is a critical week for the greenback. On Tuesday and Wednesday, Janet Yellen will deliver her first semi-annual testimony since Donald Trump’s election as the President of the US.

Trump’s first weeks in the office were rather energetic and electric. While a number of actions he has taken, or attempted to take were heavily criticized or overturned, some of them are still fueling the rally in the US’ stock prices. As such, the Trump-based reflation pricing remains the major driver in the US’ stock markets and thirsty investors are waiting for more details on Trump’s corporate tax cut plans.

In the current set-up, Janet Yellen has no choice but to play safe and balanced. The Federal Reserve's (Fed) monetary policy is highly contingent on the US’ fiscal policy, therefore the looming uncertainties will be a major challenge for Yellen, who will be facing quite an unusual political setting to defend her position and her policy decisions.

Investors are interested in how and to what extend Janet Yellen would bring forward the fiscal uncertainties due to the Trump administration? How concerned is the Federal Reserve (Fed) on the slippery playground and what would be the implication in terms of the US monetary policy? Is it time for the Fed doves to fight back the Trump-flavoured rise in the hawks’ camp, or would the ambiguities keep the trend traders on the buy side of the game?

Overall, we expect Janet Yellen to remain muted to avoid any wave of unnecessary panic in the financial markets.

Either way, the market expectations for another US monetary action in March are very low. Traders cut their net long USD positions for the 5th consecutive week, to the lowest levels since mid-October.

The US stocks are poised yet for another record high open in the US. The Dow Jones is called 40 points higher at $20309, the S&P500 is seen 2 points firmer at $2318.


Australia’s yield curve steepens

Sharp recovery against the Kiwi has limited the upside potential in the Aussie crosses in Sydney despite a 5.62% rally in iron ore futures and a steeper AUD yield curve. Yet, the trend and momentum indicators hint at a solid positive view in the AUDUSD. Clearing the 0.77 offers would shift the attention to 0.7778 (Nov’16 high), whereas a failure to clear the 0.77 offers in the continuation of the current developing positive trend could mean an eventual pullback to 0.7490 (major 38.2% retracement on Dec-Feb rise).


Leveraged funds trimmed speculative short positions in yen

Japanese stocks started the week upbeat despite a slightly softer than expected 4Q preliminary GDP read (0.2% quarter-on-quarter vs. 0.3% expected). Cheaper yen fueled exports in the fourth quarter, yet domestic consumption remained weak.

It is the good news on the political front that revived enthusiasm in Japan, as the US President Donald Trump and Japanese PM Shinzo Abe agreed upon a new economic dialogue after a two-day visit. Nikkei (+0.41%) and Topix (+0.49%) gained, as the yen (-0.54%) lost the most against the greenback in Tokyo. The USDJPY broke above the 114.00 level and extended gains to a two-week high of 114.17. Buyers are presumed above 112.80/113.00 for a further push toward 115.05, the 50-day moving average. Solid resistance is eyed at this level given that leveraged funds and macro managers trimmed their short yen positions last week, suggesting that tactical sellers could dent the upside potential in the USDJPY in the short-run.