Financial market research and analysis

The US dollar was binding up wounds posterior to the Federal Reserve’s (Fed) July meeting until the skinny repeal plan got rejected by the US senate.

The US dollar pared gains accumulated in Asia and opened softer against all of its G10 counterparts in Europe, except the franc.

The US will reveal the second quarter advance GDP data today. According to analysts, the 2Q GDP growth could be revised up to 2.5% (quarterly annualized) from 1.4% printed earlier.

Strong read could improve the USD appetite, yet gains are seen limited due to the dovish shift in Fed expectations and political instabilities. 

The Fed estimates the US GDP expansion at 1.8% this year. Although the second quarter performance may be satisfactory, the combination of the first and the second quarter growth figures is just below 2%, significantly weaker from the government’s 3% target.


Swiss franc suspicious move raises questions

Interestingly, the euro advanced to its highest level against the Swiss franc since the Swiss National Bank (SNB) abandoned the euro-franc floor on January 2015.

The past four trading sessions were marked by a significant rally in the EURCHF market. The move is rising suspicions that the SNB could have to do with the actual franc depreciation. At the beginning of this week, SNB President Thomas Jordan had warned against the ‘significantly overvalued’ franc.

The Swiss franc (-0.25%) has been the only loser against the US dollar in European open.


Gold set for a positive monthly close

Gold is on track for monthly gains. The Fed’s silence regarding its balance sheet normalisation plans keep the US yields subdued, hence maintains the opportunity cost of holding the non-interest-bearing gold at suitable levels.

The support to the July rebound is eyed at $1’250/1’249 (50, 100-day moving averages) and $1’243 (major 38.2% retracement on July rebound). Gains could extend to $1’275/1’280.


Euro resistance at 1.1780/1.1800

The EURUSD bounced back from 1.1775. The decline in French consumer spending and the 0.4% monthly deflation in July preliminary figures weighed on sentiment.

The short-term resistance is building at 1.1780/1.1800 area. The ball is in the US camp. The US data should determine the tone into the weekly closing bell. Trend and momentum indicators are comfortably positive on daily basis. Traders remain buyer at dips. Intra-day support is eyed at 200-hour moving average (1.1622 at the time of writing).


FTSE driven by corporate news

The FTSE 100 stocks opened downbeat. Corporate news have been the major driver of the stock prices throughout the week.

Barclay’s shares fell as much as 2.40% as the second quarter revenue missed estimates.

Tech stocks (-1.38%) are under pressure amid Amazon’s announcement of 77% drop in quarterly profits.

Royal Dutch Shell (+0.71%) diverged positively as the WTI crude oil advanced to $49.17 per barrel. Yet, gains across the energy sector (+0.07%) remained soft at the open.

The recovery in WTI crude could lose pace approaching the $50 level in the dirt of a fundamental conviction regarding the waning global excess supply, or the relatively low global demand. Intermediate resistance is seen at $49.45 / 49.60 (major 61.8% retrace on April – June decline / 200-day moving average).

Cable will likely blow with the US dollar’s wind into the weekly closing bell. The pound will return to business from next week, as the Bank of England (BoE) meeting will bring the idiosyncratic factors back in game. The MPC’s dove-to-hawk ratio should give an indication on the central bank’s future intentions. The pound recovery is encouraging for the BoE doves, given that stronger pound would ease the UK’s inflationary pressures and keep the doves on top of the game. The same reasoning also suggests a limited upside potential in the pound’s valuation against its major counterparts.


Japanese services inflation turns negative

In Japan, the jobless rate fell to the lowest levels since mid-1990s, yet the retail sales missed estimates in June and the inflation ex-fresh food (monitored by the Bank of Japan (BoJ)) steadied at 0.4% year-on-year. Services inflation turned negative for the first time since the beginning of the QQE (Quantitative and Qualitative Easing). The data is in line with analyst expectations, yet quite far from the BoJ’s 2% policy target.

The weak data revived the BoJ-doves in Tokyo. Combined to the broad-based USD recovery, the USDJPY edged higher to 111.33. The divergence between the Fed and the BoJ policy outlook is supportive for a further correction to 111.45 (100-day moving average) and 111.67 (50-day moving average). The key resistance to the two-week negative trend is seen at 112.10 (major 38.2% retracement on July decline).