Financial market research and analysis

The risk sentiment has not fully recovered following the latest North Korean crisis and the Kurdish referendum. However, investors move away from the safe-haven holdings. Money doesn’t flow into riskier assets either; the US dollar is where investors are positioned at the moment.


No appetite in risky or risk-free assets

Gold slipped below the $1’300 mark as the knee-jerk reaction to the North Korean jitters waned. The decline could extend to $1’282 (Fib 50% on July – September rise). The MACD (Moving Average Convergence Divergence) index is about to turn negative, suggesting a stronger downside momentum. Geopolitical tensions are still the major upside risk. The price rallies could be interesting opportunities for top-sellers.

The USDJPY rebounded from its daily Ichimoku cloud top (111.55) and consolidated gains above 112.20 in Tokyo. Nikkei (-0.31%) and Topix (-0.50%) edged lower despite the softer yen. PM Shinzo Abe announced a snap election on October 22nd. He is expected to consolidate his power and to boost monetary and fiscal policies to foster growth and inflation. The combination of monetary and fiscal boost is fundamentally negative for the yen. Light risk-off inflows still irrigate the JPY-market during the times of crisis. However, the proximity of North Korean threat hardly justifies the yen’s popularity as a safe harbour. The EURJPY rebounded from 131.75 and found buyers above 132.30 in Tokyo.

The G10 high-yielders are also on the back foot. The AUDUSD sold-off to 0.7849. Improved US yields and lower risk appetite keeps carry traders on the sidelines. The MACD index turned negative, suggesting that the negative momentum is gaining strength and could encourage a further slide to 0.7820 (100-day moving average & major 38.2% retracement on April – September rise). Below this level, the Aussie will step in the mid-term bearish consolidation zone against the US dollar.


Soft euro, pound support the European equity markets

The EURUSD legged down to 1.1749. The downside correction could deepen to 1.1730 (minor 23.6% retracement on April – September rise), if broken, could pave the way toward 1.1625 (100-day moving average). The market is currently pricing in the hawkish Federal Reserve (Fed) expectations. The key Fibonacci support to the EURUSD’s April – September positive trend stands at a distant 1.1509 (major 38.2% retrace).

The DAX and the CAC hold the ground on softer euro, although two thirds of retail traders are positioned on the short-side of the trade.

Cable retreated to 1.3377 on the back of a broad-based USD rebound. The slide could extend to 1.3344 (major 61.8% retrace on rally following the latest Bank of England (BoE) meeting), where traders should decide whether the divergence between the Fed and the BoE could justify a bearish consolidation on Cable.

Softer pound translates into a better FTSE-appetite in London, although the overall lack of enthusiasm across the equity markets could limit gains prior to the 200-day moving average (7339p). The ratio of short-term long-to-short positions is nearly 50%.


Turkish lira is anxious due to Kurdish referendum

The Kurdish referendum has increased the geopolitical risks in the Iraqi region and the recent developments are all but pleasant for Turkey. The Turkish lira could suffer further losses due to the regional instability. Talks of economic and/or military sanctions will likely keep high-yield investors away from the lira holdings in the short-run. The USDTRY consolidates gains above the 100-day moving average (3.5211) and the upside move could easily extend toward 3.5925 (200-day moving average).


Brent - WTI spread narrows

The Brent crude retreated to $57.77 and the WTI crude extended gains to $52.43 as the US crude inventories unexpectedly fell by 761’000 barrels last week according to the API data. The more official EIA data is due today. Analysts expect a 2.9-million-barrel rise in the US inventories last week. A slower expansion in the US stockpiles, or a negative surprise, could give a hand to the WTI-longs. The next resistance is seen at $53.75/$54.00 level (April high).


USD rebounds on hawkish Fed, talks of Trump’s tax reform

The US dollar is better bid as the Federal Reserve (Fed) Chair Janet Yellen hinted at one more rate hike before the end of the year and President Donald Trump is expected to unveil details on his tax reforms today. Trump’s reforms will likely include a 20% corporate tax rate and maximum 35% personal tax rate. There are also talks that companies could write off at least five years of capital expenditure immediately according to Bloomberg news. News is positive for equity prices per se, yet the inability of Trump administration to push through reforms is still a risk. How would the drastic reforms be financed is another pending question.

The US equity futures trade marginally higher. The VIX index (10.17%) is relatively low. Investors seem confident; there is no apparent interest in hedging the long S&P500 positions.

The US sovereign yield curve is steepening on hawkish Fed rate expectations. The probability of a December rate hike stands at 68.6%. The DXY index traded at a month highs. The positive momentum is gaining pace.

The US durable goods orders data is due today. The preliminary figures are expected to show an improvement to 1.0% in August, versus 6.8% contraction printed a month earlier. A strong read could further boost the USD-appetite.


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