Financial market research and analysis

Asian traders started the week with deteriorated risk appetite amid tensions between the US and China rose on US naval drone drama.

The Swiss franc (+0.05%) and gold (+0.37%) gained, while the stock markets traded mostly in the red.

Nikkei (-0.06%), Topix (-0.11%), Hang Seng (-0.78%) and Shanghai’s Composite (-0.04%) were offered, while Australia’s ASX 200 (+0.53%) diverged positively. Energy stocks (+0.79%) lead the ASX higher, as the barrel of WTI (+0.81%) consolidated above $52/barrel.

As such, the FTSE futures (+0.52%) left its European peers behind. The Dow (+0.22%) and the S&P (+0.08%) futures remained marginally bid.

Oil rebounded on the back of news that Libyan oil-facility guards did not allow the supply from the country’s two biggest oil fields, known as EI Feel and Sharara. The price of a barrel of WTI recovered above the critical technical level of $52.75 (minor 23.6% retracement on OPEC agreement rally), bringing up the possibility of a re-test of $55 level. Though, solid offers are sheltered on the way to the north.

The EURUSD started the week rangebound below the 1.05. Light offers are touted at 1.0485 / 1.0500, before 1.0560 (major 38.2% retracement on the European Central Bank (ECB) announcement sell-off). This level should distinguish between a further upside correction in euro and renewed selling pressure within the actual negative trend. The growing gap between the US and the EU yields remains comfortably supportive of a further euro depreciation. Further settlement to 1.0300/1.0250 would be a reasonable year-end target.

According to the latest CFTC data, the net speculative short yen positions reached their highest level since December 2015. The yen made a solid start to the week on the back of an increased safe heaven flow. Nevertheless, solid call options between 105.00/108.00 should help the USDJPY defying the downside pressures before the Bank of Japan (BoJ) policy decision due on Tuesday. Also, solid US yields remain well supportive of a further rise toward the 120.00 handle. Downside corrections could open good opportunity windows for strengthening the USDJPY long positions.

In the absence of major macroeconomic data, traders could follow on the Asian momentum. As we enter the Christmas, year-end holiday season, volumes could decline and lead to choppy price actions. Traders should watch out for higher volatility due to holiday trading volumes.

The FTSE is called 16 points higher at 7027 pence at the open.