Financial Market Research and Analysis

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GBP gains on PMI, Fed min, ADP in focus
The FTSE 100 stocks opened upbeat in London; energy (+2.03%) and mining stocks (+0.52%) lead gains on the back of firmer oil and commodity prices. Copper futures traded 1.45% higher.

The barrel of WTI extended gains past $51.50, the 100-day moving average, as the American Petroleum Institute announced that the US stockpiles decreased by 183’000 barrel over the last week. The EIA report is due later in the session and is expected to print a decline as well.

The FTSE tested the 200-day moving average, 7350p, and could encounter decent offers from 7350p to 7385p (March 29th high) due to the pound appreciation.

The GBPUSD extended gains to 1.2483 (200-hour moving average) on the back of solid PMI services data. The UK’s services sector expanded faster than analysts’ expectations in March.

From a technical perspective, daily trend and momentum indicators remain positive; suggesting that dip-buyers in GBPUSD could continue seeing opportunity pre-100-day moving average.

The 100-day moving average, 1.2410, continues lending support to Cable despite the Brexit volatility and some traders’ reluctance to purchase the pound in the middle of the EU/UK shenanigans. Resistance is eyed at 1.2496 (minor 23.6% retracement on March rise), before considering a further rise to the critical 200-day moving average, 1.2570.

The EURGBP reversed gains on the post-PMI pound appreciation. Earlier in the session, the cross tested the 0.8590/0.8596 (50-day moving average / 50% retracement on February-March rise) on the upside.

From an intraday perspective, the 50-hour moving average crossed the 100-day moving average on the upside, suggesting that short-term traders could still pursue the positive momentum in EURGBP. A break above 0.8596 could encourage a further rise to 200-day moving average, 0.8615.


Euro driven by economic data as French worries dissipate on second tour polls

The French election polls suggest that Emmanuel Macron could win against the far-right, anti-EU candidate Marine Le Pen at the second and final round of the presidential election.

According to Bloomberg’s combined survey results, Le Pen is given 26% chances for winning the first tour of the French election due on April 23rd; Emmanuel Macron and Francois Fillon are given 24% and 20% respectively. In the second tour however, Marine Le Pen is expected to finish the race in the second position.

As such, the French election worries aren’t significantly factored in the euro’s value. The PMI data released in the morning, the US dollar and the Brexit concerns are the major drivers of the actual price variation.

The EURUSD rebounded from 1.0635, after trading a stone’s throw higher than the 100-day moving average (1.0622), yet gave back part of gains on the back of weaker PMI services data from Italy and France. German services grew at the pace anticipated by analysts. In total, the Eurozone services sector performed worse than expected. Moreover, the two-speed growth at the heart of the Eurozone dented the appetite in the euro.

The short-term resistance is presumed at 1.0700 (50% retracement on March rise), if surpassed, could encourage a further recovery toward 1.0750 (38.2% retracement).

On the downside, buyers are touted at 1.0622 (50-day moving average).


FOMC minutes, ADP employment report in focus

The US dollar index consolidates near its 50-day average before the release of ADP employment data and the FOMC’s (Federal Open Market Committee) March meeting minutes due later in the day.

The Federal Reserve (Fed) raised the interest rates by 25 basis points at the March meeting and investors labeled the Fed action as a ‘dovish hike’ on the back of the Fed’s accompanying statement. However, soon after the March interest rate hike, several FOMC members voiced hawkish comments, mentioning the possibility of two or three additional rate hikes in 2017.

The Fed minutes are expected to give some clarity to confused investors. The US 10-year yields tested the 2.30% level on the downside. Of course, the Fed hawks need the economic data to be supportive for a steeper rate normalization path in the US. This week’s labour data could give a fresh direction to the US dollar and the yield curve.

The US ADP report is due today. According to analyst expectations, the US economy may have added 184’000 new private jobs in March, versus 298’000 printed a month earlier. The nonfarm payrolls data is due on Friday; the consensus is 174’000 versus 235’000 in February. Given the weak expectations, there is room for a positive surprise.

Therefore the Fed hawks are expected to remain alert into the labour data and the minutes. ------- The US stocks are poised for a flat open in New York.


Gold challenged the 200-dma resistance

Softer US yields sent the gold higher to its 200-day moving average for the second time in two weeks. Offers are sheltered at $1260, yet heavy US yields could encourage further capital inflows into the yellow metal and underpin a recovery toward $1280.

SPDR Gold shares, the world’s biggest gold ETF, benefits from light inflows to challenge the $120 resistance.


Chinese stocks lack direction before Trump, Xi meeting

Chinese stocks opened mixed after two-day bank holiday. Hang Seng (-0.19%) and Shanghai’s Composite (+1.06%) diverged as the US President Trump and Chinese President Xi are preparing for their first face-to-face meeting scheduled on Thursday.

Discussions could be tense between the two leaders, especially given Donald Trump’s unenthusiastic take against China.


Aussie tests the 200-dma on the downside

The AUDUSD had a positive session in Sydney following five consecutive days of losses. The AUD-bears are willing to break the 200-day moving average (0.7552) support, before attempting to 0.7490 (March low).

Should dip-buyers prepare to step in?

For the moment, carry traders are unwilling to jump in, as the Reserve Bank of Australia (RBA) warned against the strong Aussie at yesterday’s monetary policy meeting. Yet, the repetitive warnings combined to no-action are believed to be harmful in terms of the RBA’s credibility and could bring the carry traders back in the market, should the US yields continue their journey to the south.

Failure to clear 0.7550/0.7500 support could encourage a short-term bullish reversal for a renewed attempt toward the mid-term resistance at 0.7800.


BoJ reduces 1-3 year JGB purchases

The USDJPY continues sitting on the 110 mark on the back of softer US yields. Nikkei (+0.27%) and Topix (+0.01%) saw limited demand in Tokyo, gains were mostly recorded into the session close. 

The Bank of Japan (BoJ) purchased 280 billion yen worth of 1-3 year JGBs and 380 billion yen worth of 3-5 year JGBs, higher than anticipated in BoJ’s April plans. Expectations were 250 billion yen of 1-3 year JBs and 350 billion yen worth of 3-5 year JGB purchases.

The slowdown in purchases do not hint at a tighter monetary policy in Japan, given that the BoJ is committed to maintain its policy accommodative to support growth and inflation, Nevertheless, the BoJ is actively managing its activity on the bond markets in order to avoid shortages.

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