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Risk-off, oil buoyant as OPEC meets
Equity markets made a quiet start to the week. This week’s economic agenda is light. The Jackson Hole meeting (Thu-Sat) will be the major event of the week. Many leaders, including the Federal Reserve (Fed) Chair Janet Yellen and the European Central Bank (ECB) President Mario Draghi will speak about growth, inflation and changes in trade relations due to Trump policies. Yet, no significant policy messages are expected.

The sell-off in global stocks continue.

Nikkei (-0.40%) and the Topix (-0.14%) closed the session in the red, as the US dollar remained offered below the 110 mark against the yen.

The FTSE 100 opened downbeat. Real estate (-0.50%) and healthcare (-0.44%) stocks were among the least popular in London. The index rebounded from 7300p, as firmer oil and commodity prices gave a boost to the energy (+0.25%) and mining stocks (+0.85%). The risk-off sentiment dominates.

WTI crude traded at $48.75 before today’s OPEC meeting, where oil producer nations are expected to ensure compliance with output cuts to prevent prices from diving again. Satisfactory comments could encourage a further recovery in oil prices. The Brent crude has started showing signs of backwardation. The stronger market structure is believed to be due to various factors including higher global demand. This is a positive development given that the backwardation should encourage further decline in oil inventories and support the price recovery. This being said, oil producer nations need to carry on with reduced production in order to solidify the backwardation.

Pound is lethargic

Even a broad-based USD weakness couldn’t bring the appetite back in the pound markets. Cable continues pressuring 1.2847, the major 61.8% retracement on June – August rise, on the downside and the 1.2925/1.2927 (100-day moving average / Fibonacci 50% level) will likely offer resistance in the short-term.

The EURGBP extended gains to 0.9149. Trend and momentum indicators remain comfortably positive. The Relative Strength Index stands at 73%. The fact that the pair has been trading under light overbought conditions since more than a week didn’t discourage buyers. The key resistance is eyed at 0.9257 (October 7 flash crash peak).

Can Draghi avoid a euro rush at Jackson Hole speech?

The EURUSD finds buyers on the lows. Decent call options will expire at 1.17/1.18 today and could give a further support to the positive trend.

As mentioned above, President Mario Draghi is not expected to disclose any useful information regarding the ECB’s Quantitative Easing (QE) exit plans.

Traders will anyhow try to catch hints between the lines. Draghi knows that any positive comment regarding the Eurozone’s economy would boost the ECB hawks into the September 7 policy meeting and that he needs to contain the euro-bulls' enthusiasm if he wants to avoid the stronger euro's detrimental impact on inflation, which in turn, would hold him back from proceeding with the policy normalisation at the desired speed. Yet, his speech will certainly not reflect a fundamentally negative message for the euro either.

In the dirt of a significantly dovish rhetoric from Draghi, the speculations of QE tapering should keep the euro bulls on top of the game.

Yen, gold advance on flattening US yield curve

The USDJPY becomes heavy with the fading US yields. The US 10-year yield closed the week below 2.20% and the downside risks prevail, keeping the USDJPY buyers sideways for the moment. Japanese exporters are reported to be seller on the US dollar sub-110.00 level. Put option expiries stand at 109.00/108.90 today. Minor support is eyed at 118.60, key support is eyed 118.15/118.00 (April support).

Gold hit $1300 for the first time since the US presidential election. The flattening US yield curve is supportive for a sustained rise above this level.

Loonie gains momentum

In line with analyst forecasts, the Canadian inflation ticked higher to 1.2% year-on-year in July from 1.0% printed a month earlier. Loonie gained against the US dollar, the daily positive trend strengthened.

Due today, the June wholesale trade sales are expected to have contracted by 0.5% month-on-month. Soft data could generate top selling opportunities in USDCAD.

The USDCAD remains offered below the 50-day moving average (1.2725) aiming a fresh attempt below the 1.25 level. The uptick in oil prices is supportive.