Financial market research and analysis

The UK’s headline inflation remained unchanged at 3.0% year-on-year in October, versus 3.1% expected by analysts. The core inflation steadied at 2.7% compared with 2.8% predicted.

Cable eased to 1.3074 as softer-than-expected inflation data kept the Bank of England (BoE) hawks on the sidelines. The sharp depreciation in pound posterior to the Brexit referendum is a major cause of the rising inflation. Yet, the deterioration in the economic sentiment and stagnant wages encourage the BoE to stay as accommodative as possible when it comes to its monetary policy. The BoE is expected to raise rates by only 25 basis points in 2018 and by another 25 basis points in 2019. This is a relatively soft tightening plan. The pound-bears will likely keep the market in the palm of their hands as long as the inflation remains at acceptable levels.

Traders watch 1.3040 (November support), if broken, would place the 1.30-support under a decent pressure. Resistance is eyed at 1.3125/1.3132, area including 50, 100 and 200-hour moving averages. More offers are sheltered at 1.3180-1.3200 zone.

The EURGBP could be another option for trading the pound weakness. The upswing could extend to 0.8970 (100-day moving average) and 0.90 level.


Mixed sentiment in global equities

Asian equities traded mixed on Tuesday. Volatility in USDJPY rose to a three-week high due to uncertainties on US tax reforms. The USDJPY remained capped below the 114.00 mark. One-month risk reversals showed increased option hedges against a further slide in USDJPY. Support is eyed at 113.25 (lower Bollinger band on daily chart).

The AUDUSD extended losses to a four-month low. Lower-than-expected Chinese retail sales and slower Chinese industrial production growth in October weighed on the Aussie along with the declining AU/US rate differential. The AU/US two-year yield spread stands at the lowest in six months. Low rate differential curbs the carry appetite. The slide could extend to 0.7580 (lower Bollinger band on daily chart).

Energy stocks in Australia erased as much as 2.20% as oil traded at a week-low on Monday. The sell-off in Asia didn’t prevent the British oil companies from gaining past 1.30% in London. Investors found value in investing in British companies as the pound fluctuated traded below 1.31 against the US dollar.

US equity futures traded sideways. Controversies among Senate Republicans may delay the much-expected tax reforms. Investors appear less eager to extend gains to fresh all-time highs before hearing more clarity on the matter.


OPEC agreement to extend output cuts fully priced in

OPEC and its allies will unlikely postpone an agreement on oil cut extension this month, although OPEC’s 2018 forecasts point at larger deficit in global supply. An extension of cuts beyond the March 2018 deadline is already widely priced in. WTI crude consolidates below $58/barrel, Brent crude slipped below $63/barrel. Intra-day supports could be found at 200-hour moving averages at $56.30 and $62.58 respectively.


Euro gains momentum despite low rates

The EURUSD cleared 1.1680-offers, despite a further slide in Eurozone’s peripheral bond yields. The pair edged higher for the fifth consecutive session, its best run in two months. As mentioned earlier, if the single currency gains enough in value to compensate the opportunity cost of holding a low yielding currency, the EURUSD could add more momentum and target 1.1755/1.1790 (50/100-day moving average respectively). Failure to close above 1.1680-1.1700 could discourage investors from sitting on their long positions and convince some of them to unwind their trade. The key mid-term support stands at 1.1509 (major 38.2% retracement on April - September rise).


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