The net speculative long positions in the US dollar climbed to the highest levels since February, on rising expectations that the Federal Reserve (Fed) would proceed with an interest rate hike by the end of 2016. Although the FOMC Chair Janet Yellen sounded hesitant as she warned that ‘reversing a long-term damage may require more accommodative policy than otherwise’, the markets refused to readjust their expectations for a December rate hike, which is priced in at 66% on Monday morning.
The US dollar trades mixed against the G10 currencies, while emerging market currencies continue losing ground. The Turkish lira is among the worst performers against the US dollar; the USDTRY hit 3.1057 in Istanbul as the Central Bank of Turkey is expected to trim the upper corridor by another 25 basis points to 8% at this week’s monetary policy meeting.
The EURUSD rebounded from 1.0964 in Asia. The sentiment in the euro remains negative as the single currency opened softer against the pound and the yen in Frankfurt this morning. The European Central Bank (ECB) will meet on Thursday and is expected to maintain the status quo. Yet the markets broadly anticipate to hear more details from Mr Draghi regarding the future of the Eurozone’s monetary policy. The ECB should give more clarity on whether or not it will expand its 80 billion euro worth of asset purchases on monthly basis beyond March 2017, and if the answer is positive, how would it do given that the Eurozone's sovereign markets are facing quite restrictive eligibility issues.
In the UK, the pound struggles to take-off for a sustainable recovery. Offers against the US dollar are eyed at 1.2295, the major 38.2% retracement on Sep 29th to Oct 7th flash crash, if surpassed, could bring along a further recovery towards 1.2380 (200-hour moving average) and 1.2440 (Fibonacci 50% level). On the downside, stops are eyed below 1.2080 and 1.2000.
The FTSE started the week on a negative note and slipped below the 7000p level shortly after the opening bell. All sectors are in the red; energy stocks lost 1.11% in London, while Pearson erased 78 points off the FTSE 100 after the stock price tanked by 9.37% amid the significant 7% fall in sales during the first nine months of the year. Revenue in North America declined by 9%. Despite difficulties post the FT’s sell-off, the market remains 43% buyer in Pearson, aiming a 12-month target price of 885p (vs current price at 755p); 30% of investors remain hold, while only 26% are positioned on the sell-side.