Financial market research and analysis

The Bank of England (BoE) policy decision and the Quarterly Inflation Report (QIR) will be in traders’ focus in the UK. Investors are looking forward to hearing what the BoE Governor Mark Carney has to say after the inflation hit the 3% threshold in September, following the BoE’s decision to lower the bank rate to the historical low of 0.25% after the Brexit referendum and keep it at this level despite the rising inflation caused by the significant pound depreciation. Presently, the macroeconomic data no longer justifies the BoE’s ultra-loose rate policy. Therefore, the BoE is expected to raise the interest rate by 25 basis points with 90% probability at today’s meeting.

For its quarterly economic assessment, the BoE is expected to maintain the GDP outlook unchanged for this year and could opt for a positive revision for 2018. The inflation forecasts will likely be raised for this year and revised lower for 2018.

The GBPUSD fluctuates near its 50-day moving average (1.3275). Given that the rate hike is widely priced in, the accompanying statement will be the major highlight for the pound traders, who will likely be pricing in what the BoE is ready to do in the coming months if the inflation doesn’t slow down. Governor Carney has already warned that the inflation may have not peaked in September (3%), stipulating that the consumer prices could continue increasing at a faster speed in the coming months. Provided the high inflation expectations, an uptight policy statement could bring the BoE hawks down a notch and increase the shorts’ endeavor for the 1.30 mark. On the other hand, a sufficiently committed BoE could trigger a rally past 1.3243 (October resistance), toward 1.3416 (major 61.8% retrace on September – October pullback) and the 1.35 mark.


Powell fuels Fed continuity trades

Jerome Powell will likely be the next Federal Reserve (Fed) Chair, according to Bloomberg news based on the opinion of 'four people familiar with the decision'. The Wall Street Journal reported that President Trump had already selected him. Powell is known to be a dovish FOMC member, as dovish as the actual Fed head Janet Yellen who hiked rates four times, by a total of one percent since she took office in February 2014. The Fed is expected to continue gradual interest rate hikes under Powell’s reign, along with the balance sheet normalisation.

In the meantime, the Fed kept the possibility of a December rate hike on the table, as expected. The market assesses 92.3% chances for an additional 25-basis-point hike before the end of this year. the ADP report showed that the US economy added 235K new private jobs in October, versus 200K expected by analysts. Friday's nonfarm payrolls (NFP) are expected to have surged by 312K versus -33K printed a month earlier. Yet, the USD softens on profit taking in an environment of encouraging news and data; dip-buyers could find interesting opportunities before Friday's jobs figures.


Euro struggles with discouraging low rates

The softer US dollar gave a positive kick to the EURUSD in Asia, but the euro itself remains under the pressure of declining Eurozone yields and there is not a single reason for investors to move away from the Eurozone bonds, after the European Central Bank (ECB) committed to carry on with the monthly bond purchases until September 2018 and longer if needed. The half-speed purchases appear to be disregarded by the bond traders. The better yielding Italian, Portuguese and Greek 10-year yields are down to their lowest range in three months; Spanish 10-year yield is also heading toward its three-month low as Catalan tensions ease.

The EURUSD's upside attempt remained capped at 1.1672 in Asia. The sell-side dominates. The key support to April – September positive trend stands at 1.1509 (major 38.2% retracement).


Aussie gains on solid trade data, softer USD

The AUDUSD traded above the 200-day moving average (0.7710) on the back of a better-than-expected trade surplus in September and helped by a broadly softer US dollar. The pair could meet a minor resistance at 0.7742 (23.6% retracement on September – October decline) and a major resistance at 0.7815 (38.2% retrace) before reversing its two-month negative trend.

The EURAUD gains downside momentum on the back of a widening yield spread especially with the peripheral EZ yields. The daily MACD (Moving Average Convergence Divergence) indicator stepped into the bearish zone, increasing odds for a further slide toward the 1.50 mark.


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