Financial market research and analysis

The FTSE 100 found buyers at the Friday’s open, as the Bank of England (BoE) meeting temporarily dented the appetite in the pound market. The temporary pause in GBP appreciation encouraged a recovery above the 7400p. The key resistance stands at 7447p, all-time high.

It seems like the pound traders temporarily abandoned their $1.30 target, after the Bank of England (BoE) Governor Mark Carney said that the ‘low rates are not excessive’, they are ‘appropriate’. He also added that the wages growth is not expected to be ‘especially fast’, which partially explained the expectations of weaker inflationary pressures moving forward. The inflation forecast was revised up to 2.8% from 2.7%, yet forecasted down to 2.4% from 2.6% in the last quarter of 2018, and to 2.2% from 2.4% in the last quarter of 2019. The growth forecast was updated to 1.9% from 2.0% due to slower growth at the beginning of 2017, yet the BoE revised the 2018 and 2019 estimates slightly higher.

Bank of England said to assume a smooth Brexit

The pound traders abandoned their $1.30 target, after the Bank of England (BoE) Governor Mark Carney said that the ‘low rates are not excessive’, they are ‘appropriate’. He also added that the wages growth is not expected to be ‘especially fast’, which partially explained the expectations of weaker inflationary pressures moving forward. The inflation forecast was revised up to 2.8% from 2.7%, yet reviewed down to 2.4% from 2.6% in the last quarter of 2018, and to 2.2% from 2.4% in the last quarter of 2019.

Although the MPC has been more optimistic regarding the future in terms of growth and trade relationship with the EU posterior to the UK’s exit from the union, the future of the monetary policy will comprehensively depend on the outcome of the Brexit.

The market assesses 56% probability for a BoE rate hike before the end of 2018. The next rate hike is fully priced in for the last quarter of 2019.

The BoE communiqué caused disappointment among the GBP-bulls. The GBPUSD retreated to 1.2848. The downside move could be the sign of a toppish development pre-1.30 and the correction could further develop. The next support levels are eyed at 1.2779 (minor 23.6% retracement on March – May rise) and 1.2651 (major 38.2% retrace & 50-day moving average). Option barriers at 1.2900 could prevent Cable from closing the week above the 1.2900 level.

The UK election talks are expected to take over the headlines from next week.

German GDP grows at expected pace, EUR under short-term selling pressure

German 1Q GDP data printed 0.6% q/q as expected. The inflation in April remained stable at 0.0% on monthly and 2.0% on yearly basis.

The EURUSD tested the 1.0849 (major 38.2% retracement on April – May rise) as a result of a short-term selling pressures and the sentiment remains bearish following this week’s extensive post-Macron profit-taking. The downside correction could extend to 1.0795 (50% level). The intra-day resistances are eyed at 1.0895 (100-hour moving average) and 1.0915 (200-hour moving average & minor 23.6% retrace).

The EURGBP is rangebound between the 0.8310 and 0.8535 (April low and 23.6% retracement on September-April decline). A breakout in either direction should signal a short-term directional development. Above 0.8535, the rise could carry on toward 0.8602 (200-day moving average). Below 0.8310, the sell-off could extend to 0.8230 (major 61.8% retracement on post-Brexit rally)

The G7 leaders meet today and the Greek debt issues will be on the agenda. German finance minister Schaeuble said that the issue was discussed on the sidelines of the meeting and he expects a solution. In our view, there will unlikely be a miracle resolution in the Greek debt burden. We expect a limited market reaction to the news.

USD traders could regain appetite with data

The USD-bulls were not fully convinced to buy into Federal Reserve (Fed) Rosengren’s suggestion to start shrinking the balance sheet after the next rate hike, which is 100% priced in for June. The lack of appetite was perhaps due to the extremely hawkish nature of the proposition. In addition, economists underlined that allowing maturing assets run off the Fed’s portfolio would cause less than 25 basis points rise according to the latest Wall Street Journal survey.

As such, New York was busy watching developments surrounding the FBI director Comey’s sudden dismissal.

The US stocks traded in the red. The S&P500  wrote-off 5 points, as the Dow Jones retreated to its 50-day moving average ($20’785), where it saw support. The VIX index advanced to the highest level in a week, yet remained comfortably below its historical averages.

There are no signs of stress although the US stocks are set for a negative open in New York. We remind that the S&P500 refreshed record on Tuesday, as markets continued day-dreaming about Donald Trump’s major tax reforms.

The Dow Jones is called 44 softer at $20’875 at the open.

The US inflation and retail sales data are on today’s economic agenda. The retail sales may have advanced to 0.6% in month to April from -0.2%, bringing the monthly headline inflation to 0.2% from -0.3% printed a month earlier. Solid read would give a last push to the USD-bulls before the closing bell, yet we do not expect a significant price action in the US cross-asset markets, unless there is a major surprise in the data.

Gold’s short-term recovery could extend to $1’233

In the dirt of positive momentum in the USD and the US yields, the gold found a window for a short-term recovery. The ounce traded at $1’227 on Thursday. The current upside move could target $1’233 (minor 23.6% retracement on April – May decline). The key resistance to the actual bearish development is eyed at $1’245 (major 38.2% retrace).

USDJPY down on lack of momentum

The yen has been the biggest G10 gainer against the US dollar in Tokyo. Nikkei (-0.39%) and Topix (-0.39%) closed the last trading session of the week of a negative note. Chinese stocks recorded the fifth consecutive week of losses. Iron ore futures traded in the red, while copper recovered slightly.

The USDJPY remained capped below the 114.60 resistance (major 61.8% retracement on December – April decline). Price pullbacks could be interesting for dip-buyers, given that the macro fundamentals and daily trend and momentum indicators point at the possibility of a further rise toward the 115.00 mark.