Financial market research and analysis

Energy stocks surged by 1.76% in London, led by a rally in BP stocks (+3.27%) after the company announced to buy back shares that have been issued to help covering a part of losses due to low oil prices. BP’s net earnings rose by 9.2% in the third quarter on the back of an efficient cost cutting program and higher production to fit the low-price environment.

Meanwhile, Brent crude consolidated above the $60/barrel level as WTI crude extended gains to $54.50. The sentiment in the oil markets is positive before the OPEC’s World Oil Outlook due on November 7 and the ordinary OPEC meeting due on November 30. The next resistance is eyed at $55.00/55.67 (January high). The WTI’s price increased by 5% since the formation of golden cross (50-day moving average above 200-day moving average) in September.

European stocks treaded water at the open. The DAX (+0.09%) and the CAC (0.00%) remained flat, the IBEX (+0.15%) gained marginally on improved investor sentiment after the Spanish government took control over Catalonia and faced no strike from Catalan workers as some feared. The Catalan independence crisis could well end in tears for the Catalan separatists and leave its place to a further recovery in the Spanish stock and bond markets. The 10-year Spanish yield slipped below 1.50% from 1.78% (November 4 peak).

The EURUSD consolidates losses before the Eurozone inflation and GDP data. The latest PMI figures hint at strong industrial and services output, which could be an upside risk to the downside revision in GDP growth from 0.6% to 0.5% in the third quarter. The core and headline inflation are seen steady at 1.1% and 1.5% respectively in October preliminary data. Offers are presumed at 1.1695 (minor 23.6% retrace on September – October pullback) and 1.1767/1.1771 (100-day moving average / major 38.2% retrace). The key support to the April – September rise stands at 1.1509 (major 38.2% retracement).


Pound needs more than 25 bp hike

The pound is pushing higher against the USD and the euro before Thursday’s Bank of England (BoE) meeting and Quarterly Inflation Report (QIR). Cable remains bid above its 100-day moving average (1.3120) and the EURGBP tests the 200-day moving average (0.8792) on the downside. A 25-basis-point rate hike is priced in with 85.9% probability and may not further motivate the GBP-bulls without a solid accompanying statement. Investors need to hear more commitment from the BoE to keep the GBPUSD above the 1.30 and the EURGBP below the 0.90 mark. The BoE should at least leave the door open for more action for the sake of a stronger pound, which in turn could have a cooling effect on inflation.


Fed in focus

The US dollar came off the three-month highs on increased political risks caused by investigations on Trump-Russia ties. The two-day Federal Reserve (Fed) meeting starts today. The Fed is expected to stay pat at this week’s meeting and keep the possibility of a December rate hike on the table. Solid 3Q earnings season and better-than-expected GDP are building a strong basis for an additional 25 basis points hike before the end of the year, and a December action is priced in with more than 80% probability in the US sovereign bond markets.

A more important Fed news will likely be the announcement of the new Chair Fed this week. Jerome Powell, who is known to be a dovish Fed member is the front-runner. Powell is in favour of low interest rates, hence well in line with President Trump’s low rate inclination. His appointment could temporarily weigh on the US dollar. But it is important to keep in mind that Janet Yellen is also a dove, therefore Powell’s appointment will certainly not change the Fed’s current strategy drastically. The Fed, as all central banks, has an inflation mandate and can simply not concentrate only on growth and disregard inflation. Therefore, the Fed policy under the new Chair’s rule will certainly be the continuation of Janet Yellen’s policy. In the same way, Janet Yellen’s reign has been the continuation of Ben Bernanke’s.


USDJPY loses momentum, BoJ stays pat

The Bank of Japan (BoJ) maintained the status quo at today’s meeting and lowered its inflation forecasts as a confirmation that Japan’s loose policy is here to stay after PM Shinzo Abe’s victory in this month’s snap election. Already priced in, the dovish BoJ statement didn't give a boost to the JPY-bears. The USDJPY is losing its positive momentum. The pair broke below its 200-hour moving average (113.53) and traded below the hourly Ichimoku cloud as the US yields pulled back support on Monday. Buyers were tempted to step in near the lower Bollinger band (112.86) on hourly basis, as the Fed/BoJ divergence remains comfortably in favor of a stronger USDJPY. More support is eyed at 112.75 (minor 23.6% retrace on September – October rise), though the two-month positive trend could take a stronger hit below this level. Put options are eyed at 112.75 and 112.00 at today’s expiry. Key support to the positive trend is eyed at 111.71 (major 38.2% retracement).


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