Financial market research and analysis

The pound depreciated as the UK inflation fell by 0.1% on month to July versus 0.0% expected by analysts. Apparently, the soft pound didn’t cause a positive readjustment in British consumer prices. The headline inflation remained unchanged at 2.6% year-on-year.

The second month of softening in the UK’s inflationary pressures confirmed the Bank of England (BoE) Governor Mark Carney’s expectation that lower wages would translate into softer price inflation.

The kneejerk pound sell-off pushed the daily MACD (Moving Average Convergence Divergence (26,13,9,0) on LCG Trader) into the negative territory, suggesting an increased possibility for a deeper bearish momentum as the GBPUSD broke the 1.2927/1.2925 support (50% retrace on June – August rise / 100-dma). Losses could extend toward 1.2847 (major 61.8% retrace).

With the easing inflationary pressures, the BoE doves are set to remain on top of the game. The BoE is decided to maintain its dovish tone regarding the foreseeable future of its monetary policy under the Brexit circumstances and the downturn in inflationary pressures would allow the BoE to keep its policy loose for an extended period of time. Moving forward, Cable could encounter a reinforced resistance at the $1.30.

The FTSE 100 stocks opened on a positive note on Tuesday. Mining and energy stocks remain resilient as oil consolidates losses after having tanked by more than 5% in less than a week. Weaker pound could encourage a further rise toward the 7400p level along with the globally improved risk appetite.


German GDP revived pessimism on future growth

Despite a slight slowdown in the second quarter from 0.7% to 0.6%, the German GDP growth hit the strongest level since 2012 on yearly basis. German economy expanded by 2.1% year-on-year (adjusted for working days), up from 1.7% printed previously and beating 1.9% expected by analysts.

Yet, the twelfth consecutive quarter growth in Germany failed to revive the euro-bulls in Europe. The EURUSD traded down to 1.1721, as traders mainly reacted to the softer quarterly read which belonged to a period of top manufacturing PMI data releases.

As a consequence, the recent downturn in the PMI figures somewhat hint that the third quarter growth could show further slowdown, hence could compromise the pace of economic growth later this year. The latter reasoning is believed to explain the euro’s knee-jerk reaction to a softer-than-expected quarterly read, rather than enthusiasm on a five-year-high year-on-year performance.

Bloomberg analysts expect the 3Q GDP to ease to 0.5%, the 4Q GDP to 0.4%.


Stocks gain, safe haven assets retreat on better risk sentiment before US retail sales data

Easing tensions between the US and North Korea encouraged inventors to move out from the safe haven assets. The Dow Jones (+0.62%), the S&P500 (+1.00%) and the NASDAQ (+1.34%) gained in New York, the US equity futures remained well bid in Asia.

The US President Donald Trump is preparing to sign an executive order on infrastructure projects today, which could give another boost to the US stocks, as he has promised to spend up to 1 trillion dollar to reinforce the US infrastructure.

The Dow is called 40 points firmer at $22’033 points at the US open.

Gold (-0.56%) and silver (-1.14%) edged lower. The pullback in gold prices extended to $1’272, the 23.6% retracement on July – August rise, which has given a minor support to gold in Asia. Key support to the positive trend stands at $1’260 (major 38.2% retrace).

The yen (-0.70%) erased gains versus the greenback. The USDJPY reconquered the 110.00 level. The Nikkei (+1.11%) and Topix (+1.07%) surfed on the softer yen.

The improved risk sentiment has been profitable across the Asian equity markets. Hang Seng and Shanghai’s Composite are set to close the session on a positive note, as Australia’s ASX 200 closed 0.47% firmer despite the sell-off in energy stocks (-0.87%).

The US 10-year yield recovered to 2.24% on easing North Korean tensions. Hawkish comments from the New York Federal Reserve’s (Fed) Dudley helped. In his latest speech, Dudley hinted at the possibility of another Fed rate hike in 2017 and said that the Fed could announce its balance sheet normalisation plans by next month. Still, the probability of a December rate hike stands at 40.6%.

The US July retail sales data is due later in the US session. The US printed two consecutive months of contraction in its retail activity. Analysts expect 0.3% recovery on month to July. A third straight negative surprise could halt the improvement in sentiment towards the US dollar and the yields.


Aussie reversed gains on iron ore futures sell-off, dovish RBA

The Reserve Bank of Australia’s (RBA) August meeting minutes revealed continued concern on the high household debt, which may prevent the RBA from raising the interest rates any time soon, despite improved labour market conditions and wages recovery.

The AUDUSD gained in Sydney as improved risk sentiment drove cash into the higher yielding currencies. As a result, the Aussie and the Kiwi were, at some point, the leading performers against the greenback in Asia.

However, the aggressive sell-off in iron ore futures (-3.40%) in Dalian Commodity Exchange reversed the early inflows into the Aussie and facilitated fresh bets in short AUDUSD positions into the European open, justified by the dovish RBA statement. The 0.79-resistance is in play.