Financial market research and analysis

The rising tide floats all boats. Super Mario helped to underpin risk sentiment yesterday with some dovish jawboning. Expectations are now rampant that further stimulus will arrive in March so we’re witnessing some front running amongst risk assets the morning. Draghi may well go down in history as the central banker with the most influence and indeed credibility. Certainly, he has proven time and time again that a strong word from him has the capacity to save markets from themselves. The question now is if the current move will be sustained.

Broker upgrades amidst the past fortnight’s casualties and a bounce in oil prices is aiding the bullish proceedings this morning. Defensive stocks are on the back foot as capital flows to the basic resource sector.
Antofagasta (6.84%), Royal Dutch (+4.06%) and Rio Tinto (+3.98%) lead gains. BHP (+3.50%) and BG Group (3.11%) rank among top gainers.
The market volatility remains high and gains are fragile.

The UK retail sales contracted 1.0% in December. The festive month of December failed to encourage shoppers in the UK, adding to concerns that signs of recovery are fading at a visible speed.

The pound took a dive to 1.4080 against the US dollar as dovish ECB removed some weight off the Bank of England’s shoulder. The BoE is not expected to hike rates any time before 2017. The UK sovereigns even price in the possibility of a rate cut, although the probability given for a 25 basis points cut before June is 20%. While the UK sovereign market may have gone well beyond itself, it gives an idea on how dovish the expectations have become in the UK. A recovery in pound could therefore be healthy at the current levels.

Cable found buyers at 1.4080. The 1.40 mark is expected to lend some support as the Fed hawks start moving to the sidelines. Against the euro, the 0.7500/0.7550 is back on radar.


Euro demands to see more to give up on gains

The euro refused to give up gains before more details however. The single currency shortly legged down to 1.0778 against the US dollar but rapidly bounced above the 1.08 mark to stabilise within 1.0813/77 in Asia. EURGBP continued seeing support at 0.07590.

With improved risk appetite however, the bears could get ahead of the game soon and pull the pair to 1.0730/00 weekly level. On the upside, the key mid-term resistance is eyed at 1.1052 (200dma)

Euro bears’ failure to gain territory is somewhat worrisome. The euro-dollar rallied past 5% after the ECB cut the deposit rate to -0.30% in December and expanded the QE by six months. We may be facing a similar scenario in March should the ECB fall short of market expectations. In this respect, the euro depreciation could well be limited at 1.0710/1.0700, which has acted as good support in January.