Financial market research and analysis

The US dollar edged lower against all of its G10 counterparts amid the Trump-related tensions and the softer-than-expected industrial production in July (+0.2% month-on-month vs. +0.3% expected and 0.4% printed a month earlier). The US stocks were offered in New York.

A decent sell-off hit the Dow Jones (-1.24%), the S&P500 (-1.54%) and the NASDAQ (-1.94%) on Thursday. The IT stocks (-1.68%), financials (-1.54%), energy (-1.16%) and mining stocks (-1.40%) were offered aggressively in the Wall Street; money flew into the US sovereign markets. The US 10-year yields slipped below the 2.20% level shortly.

Asian equities traded on a negative note. Nikkei (-1.18%) and Topix (-1.08%) extended losses on stronger yen, Hang Seng (-0.790%) and Australia’s ASX 200 (-0.56%) joined the bear market as Asian investors also walked away from the IT, energy, mining stocks and financials.

The FTSE opened downbeat in London. UK financials kicked off the day 0.95% lower. The CAC 40 wrote off 1.0% in Paris, as German industrial (-0.99%) and mining stocks (1.16%) sold off aggressively in Frankfurt.

The GBPUSD consolidated losses above the 1.2847 level (major 61.8% Fibonacci retracement on June – August rise). The USD debasement is giving support to Cable above this level. Yet the sentiment in the pound remains heavy due to the Brexit risks, complex negotiations, business uncertainties and the Bank of England’s (BoE) dovish stance under the above-stated circumstances. Hence, the 1.2847 support is fragile and Cable is at the mercy of the USD valuations. Key resistance is eyed at 1.2925 (100-day moving average).


Risk-off, lower US yields benefit to gold

Risk-off trading and the softening US yield environment is conducive for gold lovers. The Federal Reserve’s (Fed) split removed a major barrier to the positive gold trend. A breakout above the mid-term $1’295/1’300-resistance is plausible.


Stronger euro is a challenge for the ECB hawks

The European Central Bank (ECB) meeting accounts revealed concerns about the euro appreciation, given that a stronger currency could jeopardise the ECB’s efforts to pull the inflation up to the 2% policy target. As expected, the ECB minutes gave no details regarding the Quantitative Easing (QE) exit plans on Thursday. President Mario Draghi is not expected to talk about the QE exit plans at next week’s Jackson Hole meeting either. He will likely keep the market in suspense until the ECB’s September policy meeting, which corresponds to the end of the current QE program. Traders are expected to remain buyer at dips on speculations of an eventual QE tapering. Decent call options stand at 1.1650 - 1.1800 at today’s expiry and should give support to the bulls before the weekly closing bell. Meanwhile, the probability of a significant QE taper is fading due to rising concerns on the Eurozone inflation. Rising doubts among the ECB-hawks could limit the euro's upside potential.

The ECB’s worries are well founded. The euro gained against all of its G10 counterparts since January. The single currency rallied up to 15% against the US dollar, surged by 6.62% versus the pound, gained 5.34% versus the Swiss franc and advanced by 4.43% and 3.09% against the yen and the Australian dollar respectively. The euro has room for a downside correction within the G10 complex, without compromising its bullish trend in most of the cases.

Under these circumstances, the ECB could opt for a softer tapering than otherwise and temper the undesired implications of the euro appreciation on the Euro area's inflation.

The mid-term support to the year-to-date rising trend against the US dollar stands at a distant 1.1538 (minor 23.6% retracement on January – August rise) and the critical 1.1309 (major 38.2% retrace). Above the 1.1309 level, the EURUSD will be considered in a positive mid-term trend against the greenback and could absorb a hawkish move from the ECB in September.


Canadian inflation data to back up BoC hawks

Canada will post the July inflation data before the closing bell. The Canadian inflation is expected to have advanced to 1.2% year-on-year in July from 1.0% printed a month earlier. Solid inflation data should give a further support the Bank of Canada (BoC) hawks, in charge of the market since Governor Stephen Poloz reviewed his view in favour of a significantly more optimistic economic recovery in Canada and the BoC raised the interest rate in July for the first time since almost seven years. Traders seek top selling opportunities in USD versus the Loonie approaching the 1.2737/ 1.2750 (minor 23.6% retrace on May – July decline / 50-day moving average) resistance area.