Financial market research and analysis

Cable is better bid as a result of the broad based USD sell-off.

The UK’s July retail sales advanced by 0.3% on month to July, beating 0.2% expected by analysts and understandably lower than last month’s surprise rise of 0.6%.

The pound gave a muted reaction as traders expected the downside readjustment following the surprise surge in June retail activity. The USD weakness could encourage a further Cable advance to $1.2925 (100-day moving average). The key resistance to the recent bearish reversal is eyed at 1.3007 (major 38.2% retracement on June – August rise).

The FTSE 100 opened downbeat due to firmer pound and failed recovery in oil prices despite the biggest contraction in the US stockpiles since last September.

Energy stocks hesitate between gains and losses as oil prices failed to fight back the selling pressures, even though the US crude inventories contracted by 8.9 million barrels last week according to the EIA data. This has been the seventh straight week contraction.

The WTI futures traded below the $47.22/barrel (major 38.2% retrace on June – August recovery attempt), suggesting a short-term bearish reversal that could encourage a deeper sell-off to $46.50 (50-day moving average), $46.24 (50% retrace) and $45.25 (major 61.8% retrace).

Kingfisher slid as mush as 4.20% in London after announcing 1.9% fall in same-store sales at stable currency exchange rates.


ECB accounts to reveal no insightful details on the QE exit plans

The EURUSD advanced to 1.1790 before the Eurozone’s July inflation data and the European Central Bank (ECB) July meeting accounts release due today.

The Eurozone inflation may have fallen by 0.5% on month to July according to analysts. The core inflation will likely remain unchanged at 1.2% year-on-year. The ECB President Mario Draghi has already discussed about the low inflation environment, which is, according to him, due to external factors such as the collapse in global oil and commodity prices, the output gap, and the global slack. Therefore, a soft Eurozone inflation will certainly be insufficient to reverse speculations on an eventual tapering of the ECB’s 60 billion euro worth of monthly bond purchases.

Although traders are craving for hints regarding the ECB’s exit plans on the Quantitative Easing program, which will come to its end in September, the meeting accounts will unlikely deliver any insightful details regarding what’s next. It appears that Draghi will not let any details slip at the Jackson Hole meeting either.

The time is running out though. The ECB will be announcing its plans regarding the future of its monetary policy after summer, as promised by President Mario Draghi. The ECB could be reasonably expected to taper the size of its monthly purchases and keep the duration flexible. The market reaction will depend on the level of expectations.

The sentiment in the EURUSD remains comfortably positive. Traders remain buyer at dips amid the dovish shift in Fed expectations.


Alibaba reports earnings. Expectations are positive.

Earlier today, the Chinese tech giant Tencent announced 70% rise in net income. Alibaba will report its first quarter earnings before the US market open.

The company is expected to reveal a robust performance, mainly due to a vigorous growth in China’s e-commerce business.

In our view, the future of the Chinese e-commerce business is bright and there is an interesting upside potential for further expansion. The fact that the Chinese consumers are gradually adopting the digital payment methods, such as WeChat and Ali Pay, provide a favourable ground for futuristic and exponential business development possibilities.

Alibaba shares gained 73% since the company went public almost three years ago and traded at a fresh all-time high of $159.50 on Wednesday. According to the latest Bloomberg survey, 92% of analysts are buyers, 8% remain on hold with a twelve month target price of $176.18. None of them recommends shorting the stock.


Surprise split at the heart of the FOMC

The US dollar has been squeezed lower by an unexpected split at the heart of the FOMC. Released yesterday, the Federal Reserve (Fed) meeting minutes revealed an unanticipated opinion divergence among the policymakers on whether they should carry on with the interest rate hikes or no. The minutes revealed debates regarding the Fed’s inflation outlook, concerns about the unprecedented rise in stock prices and financial stability. Apparently, some Fed members favoured announcing the balance sheet normalisation plans at July meeting, hoping to kick off in September. Others highlighted risks of an excessively rapid policy normalisation and remained cautious on achieving the 2% inflation target.

In the aftermath of the FOMC minutes, the probability of a December rate hike plunged below 40%.


Gold, yen gain on dovish Fed expectations

The US 10-year yield softened slightly below the three month average. Gold rallied to $1’290, as the dovish Fed minutes removed a major barrier to last month’s positive trend. The conditions are conducive for a price breakout above the $1’295/1’300 resistance.

The USDJPY slipped below the 110 mark in Tokyo, although the Japanese exports rose by 13.4% in July from 9.7% printed a month earlier. Nikkei (-0.14%) and Topix (-0.07%) were offered on stronger yen.


AUD bid despite gloomy jobs data

The AUDUSD recovered to 0.7963, despite the discouraging 20.3K full-time Australian job losses in July, which have been compensated by 48.2K part-time jobs, considered as being less stable in term though.

The next natural stop for the carry traders is 0.8000, before considering the July peak of 0.8065. Large call option will expire at 0.7975 today and could give an extra push to the Aussie if exercised.