Financial market research and analysis

Asia handed over a positive market to European traders. The FTSE 100 (+0.75%) and the European stocks (DAX +0.52%, CAC +0.20%) opened on a positive note.

In London, energy (+0.50%) and mining stocks (+1.58%) lead gains in the continuation of the positive trend in Asia.


Bearish US dollar is the key theme

The US dollar is losing blood against the majors and a majority of emerging market currencies on the back of dovish comments from the Federal Reserve (Fed) Chair Janet Yellen earlier this week.

The USD depreciation is enhanced by somewhat hawkish suggestions from the Bank of England (BoE) Governor Mark Carney, the Bank of Canada (BoC) Governor Poloz and a truly misinterpreted European Central Bank (ECB) President Mario Draghi.

The US 1Q GDP read is due later in the session. According to analysts, the US GDP grew at the pace of 1.2% quarter-on-quarter annualized. A softer surprise could further weigh on the greenback.


Pound gains as Carney hints at imminent ‘debate’ about ‘raising rates

The GBPUSD advanced to 1.2975, as BoE’s Carney said that the ‘MPC (Monetary Policy Committee) will debate issues around raising rates ‘in the coming months’’ and that the ‘readiness to raise rates hinges on how much weaker consumption is offset by business investment’.

Earlier this week, the Financial Stability Report revealed that the BoE is now seeking ways to cool down the UK’s inflationary pressures by using macro-prudential measures, such as higher capital requirements from the UK lenders and more control over the consumer credit growth.

To resume, this week’s discussions suggest that Governor Carney is preparing the ground for the alternative scenario of raising rates, as he sees gradually less support at the heart of the MPC. These developments are interpreted positively by pound buyers, who have lifted Cable nearly by the $1.30 level against the greenback. The EURGBP eased to 0.8800 level.

The key resistance against the US dollar stands at 1.3045, the major 38.2% retracement of the decline including the Brexit-based GBP sell-off and Trumpflation-induced USD rally. Breaking above this critical mid-term resistance should suggest a mid-term bullish reversal in Cable. Moreover, the convergence between the Fed and the BoE’s policy outlooks should give an additional support to an eventual bullish development. We remind that the possibility of a BoE rate hike has been very lightly priced in so far. This is a new piece of information for the pound and carries a potential for more price action.


Loonie firmer on BoC Poloz’s comments, oil

The Canadian dollar benefited from a softer US dollar and firmer oil prices to gain territory against the greenback. The USDCAD eased to 1.3020 for the first time since February. BoC Governor Poloz has already shaken the Loonie earlier this month, when he first suggested that the BoC’s monetary policy is bearing fruits and the bank could consider a policy action in the foreseeable future. Yesterday’s speech has only been a confirmation of his previous thoughts as he reiterated that the ‘interest rate cuts have done their job and the bank needs to consider its options.’ The key support stands at 1.2968, January low.


Euro extends gains regardless of ‘misinterpreted’ Draghi

The euro swung up and down on ECB officials’ various comments. Some ECB officials said that President Draghi’s speech has been misinterpreted by the markets. Indeed, Mario Draghi has never mentioned any form of ECB stimulus unwind in his speech on Tuesday to trigger decent purchases in euro. Yet, Draghi’s refusal to comment kept the euro-bulls on the field. The truth is the euro’s positive momentum was also, and perhaps mainly due to the US dollar depreciation and the stop rally above the solid 1.13 resistance. For the moment, the softer Fed is enough to drive the euro higher against the US dollar. The 1.15 level is the next natural target for the EUR-longs.