Financial market research and analysis

The FTSE 100 opened downbeat, as the stronger pound and selling pressures in energy (-0.85%) and mining stocks (-1.22%) continued weighing on investors’ mood in London.

The WTI crude hit a 10-month low of $42.05 on Wednesday. Even the 2.45 million barrel contraction in last week’s US stockpiles couldn’t give a break to the aggressive sell-off in the global oil markets. This is because analysts believe that the global supply glut will unlikely squeeze in an environment where Libya and Nigeria pump more oil and the total crude production in the US is at all-time high levels. In numbers, the US pumps 9.35 million barrels per day according to the latest data released by the Department of Energy (DOE) on June 16, compared to 8.5 million barrels last June. Under these circumstances, the next natural target for oil-bears stands at $40. Dip-buyers could step in at this level.

The pound is better bid after the Bank of England’s (BoE) chief economist Andy Haldane said he may vote for a rate hike in the second half of the year, given that a late policy action could require a steeper rate increase path in the future. His statement stands out against Governor Carney’s call to keep the rates at the historical low levels due to the slower wage pressure and the ‘Brexit reality’. For the BoE hawks, there are interesting dip-buying opportunities into 1.2577 (50% retrace on February – May rise) and the $1.30 level is assumed to be a comfortable mid-term target. Inevitably, there is a risk of higher volatility given the divergent opinions at the heart of the BoE. Intermediate resistance stands at 1.2824 (minor 23.6% retrace and June triple top).


Gold, yen recover on soft US yields

The US yield curve is flattening. The probability of another rate hike in December fell to 41.3%. as there are rising worries regarding the Federal Reserve (Fed) hawkish policy stance. Pimco voiced its concerns about a 'hawkish mistake', mentioning that a too fast policy normalisation could impact the economic recovery.

The first half of 2017 suggests that the Fed may have gone ahead of itself amid the Trump-reflation illusion.

Gold is back above $1’250, looking to grip $1’257 (50-day moving average) within the session. Gains could extend to $1’262 (38.2% retrace on June decline), if surpassed, should indicate a short-term bullish reversal and encourage a stronger momentum to $1’268 and $1’275 (50% and 61.8% retracement respectively).

The USDJPY is down for the third straight session. Soft US yields prevent the market from gaining moment despite a clear Fed-Bank of Japan (BoJ) divergence. Nikkei (-0.14%) and Topix (-0.07%) lack motivation.


Euro rangebound against the US dollar

The EURUSD trades rangebound between 1.1100 and 1.1300. A positive breakout should wet the euro-bulls’ appetite for a mid-term rise to 1.15 mark. A negative breakout will certainly see a solid support at 1.10, as markets are progressively increasing the pressure on the European Central Bank (ECB) to reveal its Quantitative Easing (QE) exit plans.

In addition, the ECB will reveal a list of corporate bond purchases amid criticism on its lack of transparency. Investors will be handed useful information on the purchased corporate bonds, such as their ISIN number, maturity and coupon. The revelation will likely trigger some volatility in involved bonds’ yields.


Loonie nears 200-dma into retail sales, inflation data

Due later in the session, the Canadian retail sales should determine whether the Loonie could consolidate gains above its 200-day moving average (0.7500) against the greenback. According to analyst expectations, April retail sales excluding auto may have grown by 0.7% month-on-month, versus -0.2% printed a month earlier. A solid read should give a positive spin to the Canadian dollar, but the upside potential in CAD remains limited due to plunging oil prices.

Therefore, any pullback in USDCAD could attract the oil-related trades. The USDCAD could extend to 1.3403 (major 38.2% retracement on May - June decline), if the WTI continues its journey to $40/barrel.

Canada's May inflation figures are due on Friday.


NZD gains post-RBNZ

The Reserve Bank of New Zealand maintained its official cash rate unchanged at 1.75%.

The NZDUSD rebounded from 0.7205 to 0.7277, as the RBNZ’s accompanying statement raised no concerns regarding the rising Kiwi. Therefore, we see a greater potential for a renewed bullish attempt toward 0.7375 (February high), 0.7402 (November 2016 high) and 0.7485 (June 2016 high).