Financial market research and analysis

Trading volumes were thin in Asia. In Japan, better than expected June machinery orders and a stronger second quarter capital expenditure (CAPEX) partially waned expectations of a need for an emergent monetary stimulus from the Bank of Japan (BoJ). The USDJPY tested the 101.00 support, as the US dollar loosened against all of its G10 counterparts. The market could become increasingly curious to see how it feels like to be around the 100 level. However, the prospects of a slide below 100 remain poor, given that the BoJ-doves would certainly not be willing to leave the market into the hawks’ hands.

The kiwi was the biggest gainer (+0.61%) in Asia against the US dollar. The NZDUSD made an upside attempt to clear the 0.72 resistance, while there is 25 basis points cut from the Reserve Bank of New Zealand (RBNZ) pending on the skyline. Downside risks prevail, as the RBNZ will certainly leave the door open for more action. Today’s rally could hide interesting opportunities for the RBNZ-doves. Yet, the downside potential is seen limited given uncertainties surrounding the Fed expectations.


UK yields at record lows

FTSE opened downbeat. Royal Dutch Shell (-0.81%) and BP (-0.56%) trade under decent selling pressure as oil slipped below $43.

Cable bounced higher after hitting 1.2955 yesterday. A short-term recovery could be underway given the oversold pound market. Yet the broad bias remains on the downside.

According to the latest CFTC report, the net speculative short positions in the pound have reached fresh historical highs last week. Two facts are hidden in this data; First, it is possible that the downside potential in the pound has not been fully washed-out yet. Second, the large size of short positions could hint at a sharp upside correction if a sufficient number of shorts are brought to cash in their gains all at once. Hence, the possibility of a massive move is the major upside risk to fresh short positions in the pound, although the mid-term bias remains comfortably negative.

As anticipated, the Gilt yields in the UK hit record lows. The back-end of the curve took the biggest hit, as the UK's sovereign yield curve flattened significantly since the Bank of England decided to increase its bond purchases target by £60 billion. The 10-year gilt yields hit an all-time low of 0.544% into the London open. The rally in the UK’s sovereign bonds will perhaps give a headache to the Bank of England, in a similar way as in Japan and in Europe.

Nevertheless, the rush into the gilts market has just started in the UK and the prospects of further capital gains should keep investors on track until further signs of exhaustion.