Financial market research and analysis

The European Central Bank (ECB) is expected to maintain the status quo at today’s monetary policy meeting. The bank has already announced to reduce its monthly asset purchases from 80 billion to 60 billion euros starting from next month. The ECB will continue buying assets at least until the end of 2017.


At his press conference, President Mario Draghi could hint at improved growth dynamics and rising inflation in the Eurozone economy, yet will likely remain supportive of loose monetary conditions due to rising French, Dutch and German election risks.

On the other hand, the recent rise in the headline inflation is mostly due to higher oil and commodity prices. The rising oil inventories in the US, which caused a sharp drop in energy prices yesterday, suggests a slippery path for energy prices moving forward, especially given the US’ will to decrease its energy dependency on the rest of the world under Donald Trump’s rule.

On the currency markets, the euro extended losses to 1.0525 against the US dollar on the back of broad USD appreciation. Trend and momentum indicators are comfortably bearish and could encourage sellers to test the 1.0500/1.0495 support zone. On the upside, solid offers at 1.0605 (100-day moving average) could cap an eventual ECB-driven rally.

Against the pound, the 0.87 offers continue fighting back the euro bulls. A positive breakout could wet buyers’ appetite for a further rise toward 0.8850/0.8900 area. Failure to clear the 0.87 resistance should trigger a downside correction to 0.8590 (200-day moving average).

The DAX and the CAC stocks opened on a softer note. The cheaper euro could encourage investors to jump on the bullish stock markets. While the 5K resistance on the CAC could be dissuasive on the back of presidential election risks, the DAX could gather sufficient momentum to take out the 12K offers.


WTI tests $50 on rising US oil inventories

The barrel of WTI tanked to $50.19 after the weekly EIA report revealed that the US crude inventories rose by 8.2 million barrels last week, the highest since 1982. Traders now investigate how effective could the OPEC production cuts be, given the rise in US oil inventories.

From a technical perspective, the WTI slipped into the bearish consolidation zone after breaking the $50.72 (major 38.2% retracement on post-Trump rally) yesterady. The bearish reversal could weigh on the $50 level. The next critical support is eyed at $40.20 (Fibonacci 50% level).

The FTSE (-0.59%) slipped below the 7300p on the back of softer oil and commodity prices. The cheaper pound is not sufficient to attract buyers in the UK’s stock markets today.

On the currency leg, the sterling failed to reverse losses against the US dollar, although Chancellor of Exchequer Hammond delivered a positive outlook for Britain’s economy at his budget statement on Wednesday. The solid US dollar purchases continue weighing on Cable. Offers are touted at 1.2200.


US dollar remains in demand pre-NFP

The US dollar extended gains against the G10 majors on the back of a solid ADP read on Wednesday. 

The US economy added 289K new private jobs in February, versus 187K expected and 246K printed a month earlier.

The US 10-year yields advanced past 2.57% on hawkish Federal Reserve (Fed) expectations at next week’s FOMC meeting.

The consensus for Friday’s nonfarm payrolls is 200K versus 237K printed a month earlier. The average hourly earnings are expected to have improved by 0.3% month-on-month, meanwhile the unemployment rate is seen a touch lower at 4.7% compared to 4.8% a month earlier.

Except for a big surprise, the US jobs data will likely have no impact on the Fed’s March expectations. As of today, the markets assess 100% probability for the Fed to raise the interest rates by 25 basis points next week.


Chinese factory gate prices rose 7.8% in February

Chinese producer prices accelerated at the fastest pace since eight and half years due to the significant Yuan depreciation and higher oil and commodity prices. As such, higher Chinese PPI contributes to the global reflation in basic metals and commodity markets.

In opposition, consumer prices heavily dropped to 0.8% year-on-year in February, versus 1.7% expected by analysts and down from 2.5% printed a month earlier. The sharp deceleration in consumer prices is certainly due to a significantly lower economic activity during the Chinese Lunar Year holidays. Still, the fast deceleration in consumer prices could encourage the People’s Bank of China (PBoC) to tighten the monetary conditions in softer than previously anticipated fashion.

The USDCNY advanced to 6.9203 on dovish PBoC expectations.