Financial market research and analysis

The US stocks and the dollar were pulled lower on news that Senate Republicans may delay the implementation of Donald Trump’s corporate tax cut plans. It is the same story, but a different day. The US stock futures are marginally lower, the VIX rebounded 5.21% from all-time lows. There is not much anxiety among investors for the moment.

Asian stocks consolidated at a decade high levels, Topix (+0.19%) closed at the highest level since 1991 in Tokyo.

Gold tested the $1’280 (mid-Bollinger band) on the upside. Surpassing this level could encourage a further positive correction, as the US 10-year yield is on its way to 2.30% down from 2.48% two weeks earlier. Though the Federal Reserve (Fed) expectations remain intact and the US yields could reach a bottom approaching the 200-day moving average (2.3037%). Gold sellers are seen at $1’295/1’298 (50-day moving average / upper Bollinger band).

The FTSE 100 stocks opened flat. Cable was pushed higher in Asia as the US dollar softened broadly, yet sellers rapidly joined the market on the back of a tense political environment in the UK. The GBPUSD continues seeing decent offers at 1.3180 (50% level on November 1-3 decline). We also remind that the GBP-bears have the market in the palm of their hands as the Bank of England (BoE) rate hike remained short of the bulls’ expectations last week.


Euro traders sell the rallies

The EURUSD eased to 1.1553 yesterday and pared a part of losses on the back of softer US dollar in the overnight trading session. Traders remain seller on rallies, as the declining Eurozone yields continue discouraging investors from sitting on their long euro positions, or entering fresh ones.

At his speech yesterday, the European Central Bank (ECB) President Mario Draghi said that he sees ‘no signs of credit-fueled housing bubbles at Euro area level', as an indication that the ECB has no reason to refrain from carrying on with its accommodative monetary policy. This means that investors continue seeing opportunity in Eurozone bonds and that the peripheral bonds could remain well bid with a certain ECB guarantee.

The low EZ rate environment will likely be the dominant theme by the year-end and could encourage a further slide in the EURUSD. The critical support is eyed at 1.1509 level (major 38.2% retrace on April – September rise), a slide below this level should signal a mid-term bearish reversal.


Oil pares gains, there is little room for a positive OPEC surprise

WTI crude came off the two-and-a-half year highs, as API data hinted at a slower weekly decline in the US crude inventories. More official EIA data due today. The consensus 2.5-million-barrel contraction last week compared with -2.4-million-barrel fall printed a week earlier. Slower decline in the stockpiles could encourage a further downside correction in oil prices, but the price pullbacks are expected to find support by the 100 and 200-hour moving average ($55.80 and $54.90).

In the launch of 2017 World Oil Outlook (WOO), OPEC raised its demand forecast in medium/long-run and said that the price of a barrel could reach $65/$70 as the oil industry outside the US has already reached a balance. Still, OPEC and allies are expected to extend production cuts beyond the March 2018 deadline, as the cartel's demand growth could be slowed by higher production from the rivals; the US shale production is in fact a threat.

The market is pricing in the extension of the production-cut agreement to late 2018 and even longer. Given the high level of expectations, there is little room for a positive surprise. Offers at $60 could cap the topside in the short-term. The 14-day RSI is in the overbought territory (77.44%), suggesting that the prices may have risen too rapidly in a too short period of time and a correction could be needed soon.


China-US trade relationship in focus as Trump arrives to Beijing

China printed 38.17-billion-dollar surplus in October, a touch lower than analysts’ 39.50 billion estimate, yet significantly better than 28.61 billion printed a month earlier. Imports rose by 17.2% in USD terms from 16.0% (vs. 18.6% last month), as exports expanded by 6.9% year-on-year, slower than 7.2% expected by analysts and 8.1% printed a month earlier.

US President Donald Trump is expected to call for a quick readjustment of the trade terms between the US and China, hoping toreduce the US’ trade deficit which stood at $347 billion in 2016.


AUD under the pressure of narrowing rate spread

The AUDUSD traded rangebound above its 50-week moving average (0.7638) as currency and metal markets gave little reaction to Chinese trade data. tighter AU/US rate differential should continue weighing on the pair. The divergence between the Reserve Bank of Australia (RBA) and the Fed policy outlooks could result in tighter mid-term rate spread and limit the Aussie's potential to appreciate against the greenback.


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