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Higher prices bite UK sales in January
UK stocks came off their mid-February highs on firmer pound. The FTSE 100 stocks traded mostly flat before the UK retail sales data hit the headlines. The weaker pound posterior to data gave a temporary boost to the FTSE, yet the daily trend remains negative.

The UK’s retail sales including fuel unexpectedly contracted by 0.3% in January, versus 1% month-on-month expected and -1.9%m/m printed a month earlier. The yearly sales came in significantly sluggish at 1.5%, versus 3.4% forecasted and 4.3% in December. Rise in food and fuel prices would be the major reasons for the second month of contraction in the UK’s retail sales. The Bank of England (BoE) doves came solidly back in charge of the market, given that the weakness in the retail activity suggest that the BoE should remain accommodative, although the inflationary pressures have started worrying some.

The energy stocks (-0.71%) were the leading losers in London, as the majority of sector stocks failed to charm investors, who had lost appetite due to a stronger pound and may eventually be back on track after the pound tanked to 1.2414 against the US dollar.

Cable tested our lower horizontal range limit of 1.2410 on weak retail sales data. A negative breakout would encourage a short-term bearish trend and could give a slight positive spin to the FTSE stocks.

US stocks retrace gains on profit taking

The G10 majors firmed against the US dollar, as the greenback partially gave back the post-Yellen gains. The pullback in the US dollar could be temporary as FOMC Chair Janet Yellen’s testimony before the Senate revived the Federal Reserve (Fed) rate hike expectations significantly this week.

The trading volume on the US shares hit a two-week high; $7 billion shares were traded in New York on Thursday.

The Dow Jones and the S&P500 retreated for the first time in seven sessions. Perhaps, after such strong rally, some traders found the timing appropriate for cashing in their profit.

Yet, with Donald Trump’s announcement on the ‘phenomenal’ fiscal plans looming, the appetite in the US shares remain tight. The drawback could be limited.

The US stocks are set for a softer US open. The Dow Jones is called 40 points lower, as the S&P500 could shred off 4 points at the start of the US session.

Asian stocks closed the week on a softer note

The reflation trade being repositioned, we have seen some downward pressures coming through the Asian trading session. The rally in the Chinese H-shares lost steam. Hang Seng (-0.31%) and Shanghai’s Composite (-0.85%) traded lower before the weekly closing bell.

It has been a Friday of selling in Tokyo as well. Nikkei (-0.58%) and Topix (-0.42%) retreated on a stronger yen against the US dollar. The USDJPY traded below the 114.00 mark on Friday, meanwhile the EURJPY held the ground above 120.00.

Euro tests resistance pre-100-day moving average

The euro is better bid on the back of a broad-based USD correction and rising hopes that a deal on the Greek debt may be reached in March.

On the other hand, the European Central Bank (ECB) meeting minutes revealed that the bank would buy more bonds from heavily indebted peripheral nations and less from less indebted core countries, such as Germany and France. The idea is to achieve a better harmonization across the Eurozone yields.

Although the ECB will reduce its monthly bond purchases from 80 to 60 billion euros from March onwards, the doves remain in charge of the ECB’s Governing Council. The ECB’s asset purchases will likely last at least until December 2017 and there is little probability for an eventual tapering announcement anytime before September. Good news is that investors eased both short and long-term Eurozone bond purchases, the three-month rolling average now stands at the negative territory for the first time in five years.

The EURUSD recovered to its 100-day moving average (1.0680), yet failed to fight back the selling pressure at this level. Clearing the 1.0680-resistance would bring the 1.0705 (major 38.2% retracement on post-Trump rally) in radar. Short-term support is presumed at 1.0612/1.0590 (50-day moving average / Feb 15th dip).

Gold rises on the back of hedging trades

Gold extended gains to $1240, as the US 10-year yields failed to cross above 2.50% this week. The yellow metal is increasingly attractive for hedging purposes against the rising inflationary pressures in the US and higher volatility in the US stock markets.

Gold is heading for its 7th weekly gain. Strengthening positive trend is set to target the $1245/1250 offers.