Financial market research and analysis

The UK threatened to quit the Brexit talks, if the EU persists on requesting the €100 billion divorce bill.

The GBPUSD finds more sellers than buyers above the $1.30. There could be a further stagnation followed by a pullback, if the 1.3044 (major 38.2% retrace on post-Brexit sell-off) is not successfully broken. Some traders are willing to build tactical short positions on the pound before June 8 general election.

The UK and the European equity markets are surfing on a globally positive wave at the weekly open. Soft pound and firmer oil and commodity prices should help the FTSE gaining some more territory above 7500p into the OPEC meeting.

The WTI crude kicked-off the week 1% higher on solid supply-side speculation into the May 25th OPEC meeting. OPEC and Russia are expected to extend the production cuts by additional nine months, which would, according to Bloomberg news, bring the supply slightly below the 5-year average by March 2018. The WTI is testing 100-day moving average ($51.35) on the upside. There is room for further rise toward the $53 level. Support to the current positive trend is seen at $49.75 (200-dma), $49.52 (minor 23.6% retrace on May rise), and $48.45 (major 38.2% retrace). On the upside, solid resistance is eyed at $53/55, as some investors remain skeptical about the OPEC’s ability to reduce the global oil supply. In fact, OPEC exports fell visibly less than the production in the first quarter of 2017. Combined to the stagnating global demand, the OPEC and Russia are somewhat swimming against the stream.


Euro just a figure away from the Trump election peak

The EURUSD traded past 1.1200 at the start of the week. Trend and momentum indicators remain positive and the next eye-catching target stands just a figure away, 1.1300, the Trump’s election-day high. Offers could creep in at this level, provided that the short-end of the European Central Bank’s (ECB) AAA Euro Area government curve remains perfectly flat to further boost the euro against the greenback.
Against the pound, the single currency is taking over the 0.86 level. The next positive targets could be 0.8673 (major 38.2% retracement on September – April decline) and 0.8785 (50% retrace & February peak).


US dollar recovers pre-Fed minutes

The US dollar started the week on a positive note, after having recorded its worst week in nine months.

Investors have their rose glasses on, as President Donald Trump’s visit to the Middle East has not caused any drama so far.

The Federal Reserve (Fed) minutes, due on Wednesday, is a major macro highlight of the week and could give an energy boost to the Fed-hawks. Fed’s Bullard said that he would not object to a June rate hike, however would disagree with steady rate hikes moving forward. The balance sheet normalisation should have a ‘minimal’ impact on the US bond markets according to him. The probability of a June rate hike remains high at 97.5%.

The US equity futures traded in the green on the back of the global risk-on and could extend gains at the New York open.


NAFTA renegotiation could weigh on MXN, CAD

Despite today’s recovery, the US dollar index is currently at the lowest levels since November 9th, the US presidential election. Traders see the NAFTA (North American Free Trade Agreement) renegotiations as the next potential risk to the currency markets. The Canadian dollar (CAD) and the Mexican peso (MXN) could come under pressure.

The USDMXN is bid above 18.50 (April support). On top of the NAFTA risks, the rising political tensions in Brazil weigh on the peso. Last week’s surprise interest rate hike by Banxico helped tempering the selling pressure in the peso, yet the MXN-bias remains bearish due to looming external risks.

The Loonie has been supported by improved oil prices and softer US dollar since the beginning of this month. The USDCAD is preparing to test the critical 1.3477 support (major 38.2% retracement on January – May rise), which should distinguish between the continuation of the positive trend in USDCAD, and a mid-term bearish reversal. The Bank of Canada (BoC) will meet on Wednesday and is expected to maintain the status quo. The OPEC meeting and the Fed-BoC outlooks are the major upside risks to the USDCAD this week.


Asia starts on a positive note

Asian stocks started the week on a positive note. Nikkei (+0.45%) and Topix (+0.51%) gained marginally, as the USDJPY spent the most of the session above the 111.00 mark in Tokyo.

The Bank of Japan (BoJ) doves took the control from the earlier hours, as the Japanese trade surplus fell more than expected in April, from 614.7 billion yen to 481.7 billion yen versus 520.7 billion yen expected. Exports were down to 7.5% from 12.0%. The USDJPY has recently been under a decent selling pressure due to weakening USD and soft US yields. Yet, the BoJ-doves could gain some territory before Friday’s inflation data. Dip-buyers are eyed at 110.00/110.20. Decent put options stand at 111.40 at today’s expiry, call options wait to be exercised at 112.00.

The Australian ASX 200(+0.76%) diverged positively in the Asian session, as energy stocks (+2.15%) and miners (+1.76%) lead gains. The AUDUSD traded rangebound between 0.7435/0.7466. Solid offers are eyed pre-0.75 level.