Financial market research and analysis

The Article 50 is triggered; the UK has officially sent its demand to leave the European Union.

PM Theresa May will speak at the Parliament by the mid-day in London and is expected to reveal the content and the tone of the letter. The completion is aimed for March 2019 and in the light of the pre-negotiations, the Brexit journey could well be hostile.

Sentiment in the pound is heavy, as investors wonder whether the UK will display a divorce-only approach, or include clauses for the future of the EU-UK relations.

Chancellor of Exchequer Hammond hinted at some sort of custom agreement, stating the UK understands they can’t ‘cherry-pick’. Although his comments leaned toward a positive tone, risks prevail.

Cable gave back more than two figures in two consecutive sessions as the broad-based demand in US dollar, combined to Brexit worries drove short-term swing traders out of the market.

 The cherry on top, Scotland announced to pursue a second independence vote from the UK. The vote is expected to take place after there is enough clarity on the UK’s Brexit adventure.

The sell-off in GBPUSD could extend to 1.2360-1.2300 (the 50% and the major 61.8% retracement on March rally) on growing uncertainties. Yet, the long-term impacts being already fully priced in, the Brexit-related headwinds are expected to remain short-lived in the absence of any shocker information regarding the EU negotiations.

Meanwhile, the sentiment in the FTSE is mixed. Firmer oil and commodity prices, combined to cheaper pound pushed the FTSE higher in London; nevertheless the Brexit worries could rapidly attract top-sellers and prevent the index from diverging positively from the 200-day moving average (7360p). Financials (+0.51%) made a solid start to the historical day, yet could eventually come under pressure on uncertainties regarding the UK’s place as one of the world’s leading financial centers.

Across the Channel, similar concerns occupy the headlines. The EURGBP took a euro-positive turn. The cross cleared offers by 0.8695 (23.6% retracement on February – March rise) and traded at 0.8735. The positive breakout could encourage further gains toward 0.8786 (March high) and 0.8850 (2017 resistance).


US’ energy stocks pick up as positive momentum on Trump’s executive order, yet the skeptics remain skeptic

On the other coast of the Atlantic, Donald Trump signed an executive order to wind down Obama’s clean climate policies in order to facilitate coal and oil production, create jobs and minimize the US dependency on external energy sources. He called his step the ‘New Energy Revolution’.

News wet investors’ appetite in the US mining (+1.56%) and energy stocks (+0.84%).

Financials (+1.20%) rallied as well, although the sentiment vis-à-vis the Trump’s reflation scenario took a hit after the globally monitored health-care replacement plan was left unapproved on Friday.

The Dow Jones and S&P500 indices gained 0.73%, yet the US equity futures saw little demand in Asia.

The risk-off could contaminate the US investors, depending on the nature of developments concerning the Brexit story.

The Dow Jones is set for a flat open in New York.


Gold softens on improved US yields

The Trump intervention boosted the US dollar yesterday. The US 10-year yields climbed back above the 2.40% level.

Gold gave back gains on the compulsive risk-on, as the capital flew into the stock markets, particularly into the energy related businesses. The yellow metal traded between $1247-1252. Further recovery in the US yields, combined to the gold’s recent failure to clear the 200-day moving average resistance ($1260) could encourage a deeper downside correction toward $1230 (minor 23.6% retracement on December – February rise). The key support to the current bullish development stands at $1210 (major 38.2% retracement).


‘New Energy Revolution’ may be a headache for the OPEC

The EIA will release the weekly US inventories data. Analysts expect the US inventories may have expanded by 1.2 million barrel during the last week, versus 5 million barrels printed a week earlier.

Higher inventories growth could revive the oil-bears, while a lower or ideally negative read could temporary ease the selling pressure in the oil markets.

In the medium-term, the US’ diverging interest from the rest of the world’s oil producers could hinder the efforts to reduce the global supply glut and keep the oil prices at the decade low levels. Traders seek top selling opportunities on temporary price rallies. From a technical point of view, there is a minor resistance at $48.95 (minor 23.6% retracement on the latest February – March drop & 200-day moving average) and a critical resistance $50.00/50.05 (major 38.2% retracement). Above the $50 threshold, mean-reversion offers are eyed at $51 (the 50% level) and $51.96 (major 61.8% retracement).

On the downside, the $47 level has acted as a solid support, if broken, could pave the way toward $45, the OPEC’s pre-November deal levels. It is then unlikely for the OPEC to let the markets drop below this level. Mean-reversion traders are highly likely to seek dip-buying opportunities, as the sensitivity to any verbal intervention would be intensified nearing the critical levels.