Financial market research and analysis

The overnight trading session was quiet on Friday, as Japan was closed for holiday. The USDJPY remained offered at 114.14. The Australian dollar was the only loser against the US dollar. The EURUSD showed no preference for a directional move.

The pound got hammered on Super Thursday. As expected, the Bank of England (BoE) raised the interest rate by 25 basis points to 0.50%. Yet the accompanying statement dampened the mood in the pound market, as the BoE’s communique hinted at a one-and-done action and a dovish policy outlook for the coming years. The BoE is leaning toward a ‘gradual’ and ‘limited’ rate tightening over the next two years, forecasting only two rate hikes during this period. As a result, the BoE’s dovish hike hit the GBP-longs on Thursday, the GBPUSD dived to 1.3040.

The latest PMI data showed that the British service sector expanded at a faster-than-expected speed in October. The solid data sent Cable to 1.3077, yet sellers dominate with increasing endeavor for a further decline toward the 1.30 mark and eventually below. Resistance is eyed at 100-day moving average (1.3125).

The EURGBP rebounded past the 0.89 mark, leaving the 200-day moving average (0.8795) far behind it. The pair could stretch toward its 100-day moving average (0.8967) and the 0.90 mark on the back of a broad-based retracement in the pound.

The FTSE 100 stocks are edging higher on softer pound, firmer oil and commodity prices. The index is seeking to extend gains to a fresh all-time high (above 7598.99 reached on June 2nd, 2017).


US stocks gave little reaction to tax proposal

The much-expected details on the US tax reforms have been released with no major surprise compared to what we have been hearing prior to the official announcement. The Republicans proposed a corporate rate cut from 35% to 20%, but the investors remained mainly skeptical given that the proposal will likely meet resistance in the congress before turning into a legislation and there is a chance that the tax bill doesn’t see the daylight, a failure similar to the one experienced with the healthcare bill.

On the other hand, if approved, the major tax cuts would mean that the US stock earnings should improve by a solid 12% next year in order to justify the actual valuation in the market, according to Bloomberg. If investors find the latter number a bit too ambitious, then the stock prices will need to correct lower sooner rather than later.

The tax bill would add $1.49 trillion to the US’ budget deficit, which may require a collaboration from the Federal Reserve (Fed) in order to cool down an eventual overheating in the US economy, given that the major fiscal expansion would happen at a time where the US GDP growth stands around a solid 3% and the unemployment at a decade low.

President Donald Trump appointed Jerome Powell as the new Federal Reserve (Fed) Chair. The market is pricing a continuity trade on Fed expectations.


US NFP expectation at 313K versus -33K a month earlier

The US jobs data is the main highlight on the US economic calendar today. The consensus is a solid 313K versus -33K printed a month earlier. If the ambitious expectation is met, the US dollar could swing higher before the weekly closing bell. A read above 200K is already a strong read and should not have an impact on Fed expectations. A sell-off could kick in if the data is lower than the 12-month average of 172K.

The US dollar is firm against its G10 counterparts. US stock indices trend higher, partly due to Apple's strong holiday sales forecast.

Apple gave a record sales forecast on solid demand for its newly launched iPhone X. Profit and sales beat estimates, as Chinese sales rose by a robust 12%. Apple suppliers gained. Nasdaq futures traded up by 0.33%.


Aussie retreats on soft economic data

The AUDUSD remained capped at the 200-day moving average (0.7710), as the worse-than-expected Australian retail sales in September and softer-than-expected Chinese composite PMI weighed on the sentiment in Sydney. The pair is expected to trade sideways between 0.7610/0.7710 (daily Bollinger band bottom/200-dma). Bears could slowly take over the market before the Reserve Bank of Australia (RBA) meeting on next Tuesday.


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