Financial market research and analysis

The weakness in the US dollar throws a red-herring in the pound’s path. The Bank of England (BoE) hawks have been discouraged this week, after the BoE Deputy Governor Ben Broadbent said that he is not ready to support a rate hike for the moment. The slowdown in the British wages growth also tempered the worries regarding the UK’s rising inflation until next week. However, a directional move in the pound is risky before next week’s inflation data and the BoE’s inflation report hearings. No matter what has been said so far, a June inflation exceeding the 3% level will be a game changer for the BoE watchers.

The majority of FTSE 100 sectors opened upbeat in London, except the healthcare stocks (-0.68%). The daily MACD turned positive, suggesting that the momentum turns in favour of the bulls. Yet, firmer pound and softer energy prices could limit the upside potential before the weekly closing bell. Traders may consider reasonable upside targets. Offers are eyed at 7438/7450p (50-day moving average / end of June resistance).


Eurozone yields provide support to the euro pre-ECB

The sell-off in the Eurozon (EZ)e sovereign market deepened throughout the week. The higher EZ yields continue providing a decent support to the single currency.

Inflows into the European stock markets remain limited.

The EURUSD is rangebound between 1.1367/1.1500 (major 38.2% retracement on June – July rise / psychological resistance). The bias remains positive on speculations that the European Central Bank (ECB) could announce a form of tapering of its Quantitative Easing (QE) program, which is due to end in September, at next week’s meeting.


US inflation, retail sales and bank results on the agenda

The US 10-year yield improved to 2.35% as the US producer price inflation slowed to 2.0% year-on-year in June, down from 2.4% printed a month earlier, but less than 1.9% expected by analysts. The US consumer inflation and retail sales data are due today. Better-than-expected figures could give a minor boost to the US dollar, yet should not damage any important technical levels, as the USD-bulls are left halfhearted based on the Federal Reserve (Fed) Chair Janet Yellen’s worries regarding the Trump administration’s ability to reach 3% growth.

The stagnation in the US fiscal policy and an eventual growth target miss would prevent the Fed from moving too fast with its monetary policy normalisation. Janet Yellen also said that she will take the steepening of the yield curve into account for the rate normalisation policy. Steeper yield curve would entail less frequent rate hikes. The probability of a December rate hike stands at 50% in the aftermath of Janet Yellen’s semiannual testimony.

The US banks are under the spotlight. J.P. Morgan, Citigroup and Wells Fargo will report their second quarter numbers today. The five big US banks’ revenues may have dipped by 11% due to de-reflation on yields given the Trump administration’s inefficiency to bring fiscal projects to life. Soft financial results could dent the appetite and pull the US stocks down from their all-time high levels.


Carry traders are long the Antipodeans, short the yen

Carry traders are shorting the yen against the better yielding antipodeans (AUD, NZD). This trend is giving support to the USDJPY regardless of a confused US dollar. Trend and momentum indicators remain comfortably positive. The USDJPY is still in a position to challenge the 114.00/114.50 offers. Decent call options trail from 114.00 to 115.00 at today’s expiry. The 200-day moving average (112.84) should continue providing support.

The AUDUSD cleared offers at the mid-term resistance of 0.7750, as carry traders continued taking advantage of the widening rate differential. The rise in AUDJPY is supportive of the positive trend as well. Solid resistance is eyed at 0.7780/0.7800.