Financial market research and analysis

The risk sentiment is improved, although the geopolitical jitters caused by Tuesday’s North Korean missile launch continues keeping the global political agenda busy.

The yen, gold and the US Treasuries retreated. Asian stock markets gained. Nikkei (+0.74%) and Topix (+0.62%) closed the session on a positive note, the Hang Seng (+1.17%) advanced as energy companies (+2.70%) lead gains in Hong Kong.

The WTI crude continues falling as disruptions and refinery shutdowns caused by Hurricane Harvey weigh on the crude demand in the short-run. The price gap between the WTI and Brent crude widens. Gasoline is up for the seventh session. Correction in WTI is expected, however the timing is unsure. For the moment, the WTI crude is pressured toward the $45/barrel level.

The EIA will release the weekly oil inventories in the US and analysts expect 1.8 million barrel contraction last week. Higher contraction in the US stockpiles could halt the slide in oil prices.

The FTSE 100 (+0.52%) opened upbeat and advanced to 7380p after a renewed downside attempt on the 7300p level on Tuesday. All sectors advance in London, while gold miners are giving back a part of yesterday’s gains.

Cable is offered below the 50-day moving average (1.2980). Brexit-related concerns occupy the headlines. The BRC (British Retail Consortium) lately expressed worries on possible food shortages and delays posterior to the Brexit. Nationwide house price index eased by 0.1% in August from 0.3% printed a month earlier. Overall, there are enough reasons to keep the pound sellers on track.

The DAX (+0.63%) and the CAC (+0.55%) take a breather on the back of a more cheerful market mood and the downside correction in euro. The recovery is underway; however, gains could be fragile given that the negative momentum prevails on a relatively stronger euro year-to-date.

The DAX cleared the 200-day moving average (€12’043) support on Tuesday and extended losses to €11’866. The key support to the November – June rally is eyed at €11’800.

The EURUSD retraced post-1.20 gains and closed Tuesday session flat after rallying to 1.2070. This time, concerns that the euro may be front-running the European Central Bank (ECB), and/or the strong euro could keep the ECB back from announcing a satisfactory Quantitative Easing (QE) tapering plan could encourage some more profit taking. Still, the euro bias is positive and traders will certainly be seeking dip-buying opportunities as the prices pull back. Intra-day support is eyed at 1.1920/1.1900 (area including major 38.2% retracement on August 17 - 29 positive wave and the 100-hour moving average) and 1.1870 (50% retrace). Call options trail above 1.1825 today.


US dollar, stocks recover, ADP data in focus

The US dollar is better bid as the US consumer confidence hit a five-month high in August. The US stocks rapidly reversed the early losses in New York and closed Tuesday's session in positive territory. The Dow Jones (+0.26%), the S&P500 (+0.08%) and NASDAQ (+0.30%) gained as geopolitical concerns underpinned bets that the Federal Reserve (Fed) would maintain the rates unchanged by the end of 2017. The probability of a rate hike by the end of 2018 is assessed less than 70%. It is worth noting that this probability could be negatively impacted by the recent rush to safe-haven assets, but the downside pressure on the financials is a distinct sign that the Fed rate hike expectations are fading.

The US equity futures benefit from a global recovery in risky assets. The Dow is called 75 points higher at $21’940 in New York.

On the other hand, the US President Donald Trump’s efforts to implement ‘phenomenal’ fiscal reforms are rather rising concerns on the US government’s ability to finance his plans. The rating agency S&P said the US could keep its AA+ rating if the government avoids default. The fiscal year ends on September 30 and uncertainties loom.

The ADP employment data is due today. The US economy may have added 185’000 private jobs in August versus 178’000 printed a month earlier. Weak data could weigh on the USD recovery, yet a better-than-expected read will perhaps not be sufficient to improve the Fed expectations.


Gold consolidates above $1’300

Gold is giving back gains after hitting $1’325 on Tuesday’s safe-haven rush. A deeper correction could be expected to pull the price of an ounce back toward $1’298 (minor 23.6% retrace on July – August rise). However, buyers are touted at this level and the opportunity cost of holding gold is reasonably low due to soft US yields at a period of rising economic and geopolitical uncertainties.


AUD jumps on surprise housing data

The Aussie was the leading gainer against the US dollar in Sydney. The AUDUSD tested the 0.80 resistance, as the second quarter construction spending surged by a surprise 9.3% versus 0.9% expected by analysts. Earlier this week, the HIA revealed 3.7% contraction in new home prices during July, which certainly invited the macro traders to remain cautious on the health of the Australian home market, as households are struggling with high level of debt and the Reserve Bank of Australia (RBA) appears to be reluctant to raise rates in the foreseeable future.

Although the AU-US yield spread is appetizing for the carry traders, the global uncertainties and the RBA-doves could keep the appetite limited near the 0.80 barrier.


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