Financial market research and analysis

Investors rushed to the safe haven assets on Tuesday after North Korea fired a ballistic missile over Japan, which fell 1’200 km from Hokkaido. Japanese PM Abe commented that it was an ‘unprecedented, grave and serious threat’.

Gold rallied to $1’322 for the first time since the US presidential election. The USDCHF hit 0.9500, the lowest level in a month.

The Japanese 10-year yield fell to the lowest level in more than four months. The USDJPY traded at a fresh August low (108.34). Data-wise, the Japanese household spending unexpectedly contracted by 0.2% year-on-year in June. The latest data is bad news for inflation and could have revived the Bank of Japan (BoJ) doves, however the safe haven inflows overshadowed the yen-bears today. The USDJPY could get caught by light put options within the 110.00/108.00 range at today’s expiry. Resistance is eyed at 109.80 (minor 23.6% retracement on July – August decline).

Asian stock markets were squeezed by geopolitical tensions. Nikkei (-0.45%) and Topix (-0.15%) were offered in Tokyo, as the Australian ASX 200 lost more than 1.00% and closed Tuesday’s session 0.72% lower as traders trimmed their short positions before the closing bell.

European markets were handed over a risk-off market. The DAX (-0.85%) and the CAC (-0.92%) opened downbeat, the euro trading above 1.20 against the US dollar reinforced sales.

The DAX cleared the 200-day moving average (12’030) on the downside. The negative breakout should encourage a further downside correction toward the major 38.2% retracement on November – June rise (12’810), which should distinguish between the continuation of the positive trend building since November and a mid-term bearish reversal.

The FTSE 100 stocks (-0.88%) were aggressively offered as traders returned from the UK bank holiday.

Gold miners surfed on the rally in gold prices. Randgold Resources (+3.83%) and Fresnillo (2.78%) outperformed in London. Energy stocks (-1.13%) lead losses on refinery shutdowns due to the re-energized Hurricane Harvey.

Cable edged higher due to the broadly weaker US dollar, yet the upside move is certainly not driven by a better pound appetite. Brexit uncertainties continue weighing on the pound markets. The EU-UK discussions are unfruitful as the UK is demanding a fast track to the post-Brexit deals, while the EU is rather willing to focus on the divorce first. The US dollar weakness alone may fall short for a sustainable pound recovery. Offers are eyed at 1.2962 (major 38.2% retracement on August decline), 1.2980 (50-day moving average) and 1.3020 (50% retracement).


Oil prices rise on continued threat from Hurricane Harvey

Oil recovered losses, after the barrel of WTI traded down to $46.25, the 50% level on June – August rise.

Meanwhile, the Hurricane Harvey continues devastating the Texas-Louisiana border and companies including Exxon Mobil and Motiva are expected to pause their operations, which should be reflected in US oil inventories over the coming weeks and support a minor recovery in oil prices.

Gasoline prices are up for the sixth consecutive session. Due to the correlation between the two, the spike in gasoline prices is expected to encourage a recovery in oil prices. WTI crude was better bid in Asia, European traders preferred selling sub-$47/barrel (50-day moving average).


Euro tops

The EURUSD pulled out the 1.20 resistance, rallied on stops and hit 1.2033 as European traders stepped in.

The daily relative strength index (30-day RSI) stepped into the overbought territory (71.60%).

Some profit taking is expected to temper the positive momentum above the 1.20 level. Meanwhile, the price pullbacks should rapidly meet dip-buyers and limit the downside.

The euro market has a solid positive bias. Call options are supportive above 1.19 at today’s expiry. Decent call options trail above the 1.1825-strike for the rest of the week.

The EURGBP’s positive momentum is solid and stabilizing above 0.9260, the highest levels since October 7 flash crash on the pound. Trading volumes have risen recently. The EURGBP traders may realize profits before the European Central Bank's (ECB) September 7 meeting. It is important to keep an eye on toppish signals.


Australia’s financials fell with weak homes sales data

Financials (-1.21%) lead losses in Australia amid the weak home sales data. According to the HIA release(Australia’s Housing Industry Association), new home sales showed 3.7% fall in July, versus -6.9% a month earlier. This is a sign that the recovery in the Australian housing market may not suffice to justify a rate hike in the foreseeable future (along with the high household debt worries). The probability of an interest rate hike within a year from now is given less than 50%.

As a result, the Aussie couldn’t put a leg on the softer US dollar and the falling US yields. The AUDUSD stagnates below the 0.80 level. Iron ore futures are down for the second consecutive day. The Aussie may continue to be torn between the dovish Reserve Bank of Australia (RBA) expectations and a rising carry opportunity. The 10-year AU-US yield spread is at the highest since November 2016 (the US election), as the US 10-year yield plunged to 2.12%. The widening rate spread should bring the carry traders back in the frame. Mid-term support is eyed at 0.7860 (50-day moving average).


Turkey printed $8.84 billion trade deficit

Turkish trade deficit was $8.84 billion in July, slightly higher than $ -8.80 billion expected by analysts. The deterioration in Turkey’s trade terms was mostly priced in by traders and triggered limited sell-off as the market remained focused on global geopolitical tensions and the US dollar weakness. Improvement in August economic confidence helped keeping the lira's head above the water.

The USDTRY eased below 3.45 posterior to data release. The US dollar trades at its lowest levels since December. The widening rate differential should feed into improved lira appetite and could keep the negative USDTRY trend firm below the 50-week moving average (3.5040).

In the long-term, the deterioration in trade and current account deficit should limit the lira's appreciation against the US dollar.