Financial market research and analysis

The European markets made a flat start to the trading session, as the US enthusiasm gradually faded in Asia and into the European open.

Discussions on US fiscal reforms are back on the table, besides news of sanctions against some Chinese and Russian companies related to North Korea and despite negative press around Donald Trump. According to the FT, the fiscal legislation is the only field where President could ‘secure a major legislative achievement and rebuild relations with his party’. Though it is clearly not a done deal yet.

The US dollar is better bid against the G10 currencies and the majority of the emerging market currencies, the US 10-year yield recovered past 2.20%.

Fiscal talks gave a boost to the US stocks on Tuesday. The Dow Jones and the S&P500 gained 0.99% and 0.90% respectively, NASDAQ surged 1.36%. Mining stocks lead gains on firming commodity markets, though the miners’ gains were compromised on Wednesday’s session, as commodities softened in Asia on stronger US dollar. Australian miners erased 0.21% in Sydney.

On a side note, traders keep an eye on the VIX index. The rising volatility in the VIX could be due to low-volume, choppy August trading, yet could also be an early signal of further anxiety in the US stock markets as investors will return to normal activity levels in September and the Trump administration failed to deliver concrete policy results so far in 2017.

The US stock futures paused in Asia. The Dow Jones is called 22 points softer at $21’877 at the US market open.

Gold is coming off its nine-month highs. The precious metal remained well supported above the 200-hour moving average ($1'282). Better global risk appetite could tilt the trading in favour of a deeper downside correction. The next support is seen at $1’278 (minor 23.6% retrace on Jul – Aug positive trend) and could encourage a deeper correction if broken. Uncertainties around the US dollar and the fragile recovery in the US yields could trigger some profit taking between $1’278 and 1’267 (August 14/15 low).


FTSE short of demand despite softer pound

Cable broke the 1.2847-support (major 61.8% retrace on June – August rise) on the broad-based USD rise. The negative breakout could encourage a further slide to 1.2748 (minor 76.4% retrace) and 1.2682 (200-day moving average).

On the political front, PM Theresa May would accept to compromise on the EU courts in order to let the EU lawmakers have a say on the UK laws after the Brexit, if both parties are planning to maintain a close relationship. Similar developments hint that the UK is softening its tone to facilitate the negotiations. The end result could only be positive for the businesses and the economy.

The pound depreciation is mouthwatering for the buy side in the FTSE, yet the softness in commodities curbed the intraday appetite.

WPP (-11.67%) recorded its biggest drop since 2000, after the company cut its full-year revenue forecast to 0 to 1%, from 2% previously.


Euro gains post-PMI data, Draghi’s Lindau speech

The euro was better bid following the flash PMI figures and the European Central Bank (ECB) President Mario Draghi’s speech in Lindau, Germany.

August preliminary data showed a better-than-expected performance in French manufacturing sector, while services may have expanded at a slower pace than predicted by analysts.

German manufacturing PMI unexpectedly rose to 59.4 from 58.1, the services PMI improved. The solid PMI data should ease worries about an eventual economic slowdown in Germany, which kept the euro bulls on the sidelines despite a multi-year high GDP figure printed a week earlier.

In Lindau, Mario Draghi said that the Quantitative Easing (QE) and forward guidance have been a success, yet refrained from revealing any crunchy details on the ECB’s QE exit plans.

Moving into the Jackson Hole meeting, the euro swings could amplify due to the high level of speculative positions and rising anxiety on what Draghi has to say on the future of the ECB’s bond purchases program. Draghi is due to speak on Friday and may not give any hint on the ECB’s monetary policy plans.

The EURUSD is undecided between profit taking and the hawkish ECB bets. Support to May – August rise stands at 1.1656 (minor 23.6% retrace), before the critical 1.1500 (major 38.2% retrace). Resistance is eyed at 1.1908 (August 1 high).


Yen bears are timid, carry traders stay quiet

Nikkei (+0.26%) and Topix (+0.25%) closed the session slightly higher in Tokyo, as the USDJPY advanced to 109.83 before giving away the intra-day gains.

Japan’s flash manufacturing PMI came in better-than-expected, as data showed the domestic and export orders may have improved in August. Improved US yields are supportive of a further rise in the USDJPY, yet the yen bears are still timid. The key resistance is presumed at 110.00 (minor 23.6% retrace on July – August decline).

Carry traders could temporarily take their hands off the high yielding New Zealand and Australian dollar. Likewise, the US dollar recovery could momentarily spoil the downside trend in the USDCAD. Solid resistance is still in play at 50-day moving average (1.2700).