Financial market research and analysis

The UK’s Parliament gave Theresa May the permission to trigger the Brexit. The Brexit Bill is expected to receive the Royal Assent today, which means that in theory, May could trigger talks as soon as today. Nevertheless, she is expected to wait until the end of this month to kick off what is projected to be a two-year process.

Scottish First Minister Sturgeon said that Scotland would hold a second independence referendum by the time there is more clarity on the Britain’s future at the heart of the continent.

The FTSE 100 opened upbeat as the pound sold off aggressively against the US dollar and the euro. Yet, we observed a clear deterioration in the risk appetite right after the open.

Although the weak sterling is the main catalyzer of gains, the Brexit shenanigans could further dent the appetite and cause sudden trend reversals on the course of the FTSE stocks.

Traders should take necessary measures to limit reversal risks in the tense Brexit environment.

The mining stocks (-0.18%) started the day on a softer note.

Energy stocks displayed a mixed picture and are expected to remain under pressure as oil consolidates at three month lows before the weekly EIA data due on Wednesday.

We remind that last week’s data was the major catalyst of the sell-off in oil markets. Another week of strong rise in US oil inventories should consolidate the downtrend in WTI crude below the $49, the 200-day moving average, and pave the way for a further sell-off toward the $45 per barrel.

On the other hand, the Bank of England (BoE) is already sitting at the bottom range of its rate policy and is unlikely to further loosen the monetary conditions in the UK. The rising inflationary pressures due to the softer pound will certainly prevent the BoE-doves from taking additional action. The softer pound story could therefore get spoiled, if the uptrend in the US dollar is affected by any sense of balance from the Fed.


Euro-dollar resists pre-1.07 before Dutch election

Across the Channel, Netherlands prepares to hold a general election tomorrow, March 15th. According to the polls, the populist PVV could emerge as one of the largest parties. The recent tensions with Turkey may have consolidated Geert Wilder’s popularity.

Similar issues are on the headlines with Marine Le Pen’s Front National party, craving for the Frexit from both the European Union and the euro. France will hold the first round of the presidential election on April 23rd. The independent candidate Emmanuel Macron received Emmanuel Valls’ support, yet Le Pen is still leading the polls with 27% chances to win the first round according to the Bloomberg poll, versus 25% for Emmanuel Macron and 20% for Francois Fillon. Le Pen’s victory in the second and the final round is not priced in for the time being.

The EURUSD failed to clear the critical 1.0707 resistance, which is the major 38.2% retracement on the post-Trump decline. Technically, the pair remains in the bearish trend into Wednesday’s Federal Reserve (Fed) verdict and Dutch elections. Sellers are expected to remain in charge for a further downside momentum toward 1.0600 (100-day moving average).

Against the pound, the single currency holds the ground above the 0.8700 mark. Yesterday’s pullback attracted dip-buyers as the Brexit remains a major concern for the pound market. The cross started the day upbeat and could extend gains to challenge 0.8787 (Monday’s peak) before 0.8852 (January resistance).


Carry traders depart from the AUD

The AUD (-0.12%) has been the biggest loser against the greenback. Despite 3.7% rally in iron ore prices, the AUDUSD saw little demand in Sydney. The Australian 10-year yields bounced lower from 3%, pulling the AUDUSD down to 0.7550.

Carry traders are off the game; solid resistance is seen pre-0.7600. The pair should clear 0.7600 resistance to reverse losses. Otherwise, the bears could encourage a re-test of the 100-day moving average (0.7487), before 0.7450 (Fibonacci 50% level on December – February decline).


Yen bears resist to 115.50

The USDJPY remained capped below the 115.50, yen’s resistance to depreciate kept Japanese stock buyers sideways; Nikkei (-0.12%), Topix (-0.16%).

The Fed has the potential to trigger a rally past 115.50 weekly resistance, while a failure to hand the market to the USD bulls could encourage a temporary pullback toward the 112.00/111.50 area.