Financial market research and analysis

The Catalan crisis deepens as Spanish government prepares to trigger the Article 155 on Saturday. Catalan independence groups called their supporters to withdraw their money from major lenders such as CaixaBank (-0.23%) and Banco Sabadell (-0.85%) to protest their decision to leave Catalonia. Mining stocks (+1.84%) push the IBEX higher on Friday. Spanish financials (+0.25%) show no sign of anxiety on Catalan bank run threat.

The DAX (+0.46%) and the CAC (+0.31%) edge higher as well, although the Catalan tensions could curb the upside appetite into the weekend.

In addition to Catalonia, Northern Italy is now asking for autonomy, as richer north is frustrated to see its taxes feeding into the poorer south. Yet the euro traders can’t care less about the autonomy crisis that spreads over its major member states. The single currency is stable, slightly biased on the upside on expectation that the European Central Bank (ECB) could give further details on its Quantitative Easing (QE) exit plans and even move forward. The EURUSD has tested the 50-day moving average (1.1877) on the upside, defying the political uncertainty and lower euro yields. The weekly resistance is eyed at 1.1880 (Fibonacci 50% on September – October decline). The euro yields point higher on Friday, but this time, the strong US dollar seems to cap the topside in EURUSD. A positive breakout could encourage gains toward 1.1930 (major 61.8% retrace) before the 1.20 handle.

The pound’s slide accelerated after the UK retail sales contracted more than analysts expected in September. Soft data came after a solid inflation read and improved wages failed to push the pound higher against a broadly strengthening US dollar. Helped by a stronger intra-day bearish momentum, there is a rising likelihood that the pound will extend losses into the weekly closing bell. Cable traded below the 100-day moving average support (1.3100) in Asia, the sell-off could more likely than not extend toward the 1.3026 / 1.3000 area (October low/ psychological resistance). We still believe that hawkish Bank of England (BoE) rate expectations may not allow a slide below the 1.30 mark, but the one-month risk reversals tell us that most investors are still hedged against a further pound depreciation.

The FTSE 100 is upbeat, with mining stocks (+1.08%) leading gains in London. Buyers benefited from Thursday’s dip below the 7500p leve, firmer energy, commodity prices and a softer pound to jump on the back of a bull.


Yen extends slide before the election weekend

The USDJPY extended gains to 113.34 on broad-based USD appreciation. Resistance is eyed at 113.45 (October resistance) and 114.50 (July resistance). Japanese snap election is due on Sunday and PM Shinzo Abe’s victory could boost JPY-bears on Monday open and favour a further rise toward the 115.00 mark. Although Abe isn’t threatened by a solid competitor, he risks losing his two thirds majority, which in turn could temper his expansive fiscal and monetary plans. Provided that the markets have been pricing Abe’s victory since his major competitor Yuriko Koike pulled herself out from the race, any disappointment could weigh on the USDJPY appetite and pressure the pair in direction of 111.65/111.35, area including October low and the 200-day moving average. Put option hedges are seen at 112.00 and intensify below 111.10 before the weekly closing bell.


US equity futures point at positive open

US equity futures recovered quickly from Thursday’s Catalan sell-off, which has finally been more fear than casualty. The Dow Jones (+94 points) and the S&P500 futures (+6.75 points) hint at a solid open in New York. The US equities could renew record at Friday’s session.

General Electric and P&G are among companies releasing results today.


Gold sentiment mixed as risk events loom

Gold recovered past $1’290. Japan’s snap election, the Catalan crisis, the North Korean nuclear threat, the Brexit, and now the North Italian autonomy request convinced some investors to return to the precious metal. The sentiment is mixed between $1’275/1’305 (100-day moving average / October peak).


Could golden cross formation send WTI above $52.90?

The WTI crude prices stagnate between $51.23/52.92 (minor 23.6% retrace on Aug 30 – Sep 27 rise). The golden cross formation (50-day moving average crossing above 200-day moving average) could act as a bullish technical signal and enhance gains in WTI. Though we call for caution. The last time it happened in May 2016, the golden cross formation encouraged 23.38% rise within less than three months but the positive trend was rather unstable. Nearly a month after the golden cross signal, the price of a barrel tanked by 23% and traded nearly 9% below the level when the cross first happened.

Hopes that the OPEC would extend production cuts in November meeting and Iraqi crisis are favourable for a further positive consolidation in oil prices. Although the OPEC has little incentive to intervene verbally when prices consolidate near two-year top levels. On the other hand, Iraqi oil fields have been impacted less than feared during the recent tensions with the Kurds. Therefore, we do not rule out the possibility of a further short-term slide before a renewed upside attempt if any. A break below $51.23 (minor 23.6% retracement in August – September rise) could pave the way toward the critical $50.18 (major 38.2% retrace), which should distinguish between a consolidation within $50.50/$52.00 area and a further slide toward $49.52 (200-day moving average).


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