Financial market research and analysis

Cable consolidates above the $1.30. The BoE-doves made an attempt to bring the pound lower as the inflation pulled away from the critical 3% level in June. Yet, the failure to remove the $1.30 support prevented the downside move from gaining traction. This could be an early indication that the bullish trend could develop further.

The weekly positive momentum is the strongest since the Brexit referendum and the next critical mid-term resistance is eyed at 1.3420, the 50% retracement on the post- Brexit decline. Large 1.30/1.31 call options are waiting to be exercised on Thursday.

On the downside, a break below the 1.30 support could encourage a drawback to 1.2884 / 1.2865 (minor 23.6% retracement on March – July rise / 50-day moving average).

The FTSE 100 opened downbeat. Strong pound, lack of direction in oil and metals are intimidating for buyers. Energy (-0.21%) and mining stocks (-0.23%) are on the back foot. Resistance is eyed at 7420p (May-July down-trending channel top) and 7445p (50-day moving average).

The WTI crude is flat before the weekly US data. The US crude stockpiles may have retreated by 3.6 million barrel last week, versus -7.6 million a week earlier. It is important to keep in mind that the oil-positive data failed to push the oil markets higher over the past two weeks. Selling pressures remain tight, suggesting that any rally could bump into resistance pre-$48.05 (Fib 50% retrace on April – June decline) and $49.55 (major 61.8% retrace).


Euro traders take profit & walk away

In Europe, the sovereign yield rally is cooling down. The French, Italian and Spanish 10-year yields are back to their three-month averages respectively, the German yields remain on the top of the three-month range.

The EURUSD is seeking a temporary top before the European Central Bank (ECB) meeting due on Thursday. Some traders prefer realising their profit and walking away before the ECB decision.

In fact, the euro’s upside potential has been sufficiently exploited since over the past weeks. The euro appreciated more than 3.5% since June 26, the Eurozone 10-year yield was multiplied by 1.45. The recent rally in the Euro sovereign yields and the single currency could bring the ECB to adopt a naturally defensive posture to avoid any misguidance on the ECB’s policy intentions for the future.

The 1.1580/1.1600 zone should provide resistance before a further advance to 1.1616, the 2016 peak.


US bank results reflect the reversal in Trumpflation

The 40% drop in Goldman Sachs’ fixed-income revenues and its worst quarter for commodities portrayed the picture of the waning Trump-reflation trend in the second quarter.

The Dow financials erased 1.25% on Tuesday, led by Goldman Sachs (-2.60%).

Morgan Stanley will release its 2Q results before the US market open. Although the second quarter EPS estimate is nearly 15% lower than the first quarter's, Morgan Stanley could outperform its competitors thanks to its stronger focus on equities, yet may not reverse the sector-wide anxiety.

The soft US data, discouraging bank results combined to Republicans’ failure to propose a suitable healthcare replacement plan weigh on the US market sentiment. The US yields further flattened, the 10-year yield slipped below 2.26% and is currently near its three-month average. The US dollar index eased below the 95 level for the first time since September 2016.


Aussie rallies before jobs data

The Aussie is extending rally versus the US dollar, the euro and the yen on the back of the widening rate differential. The AUDUSD surged to 0.7947. The daily relative strength index advanced to 79%, as a warning that the Aussie is in a clearly overbought market. A tactical correction could help the pair gathering a stronger momentum before confronting the 0.80 resistance.

On the data front, the June labour data is due on Thursday. The analyst expectations are rather soft; the Australian economy may have created 15K jobs in June versus 42K a month earlier and the unemployment rate may have deteriorated to 5.6% from 5.5%. Any disappointment could give a short-term squeeze to the Aussie. Yet, dip buyers are alert on price pullbacks. Support is eyed at 0.7800/0.7780 (including minor 23.6% retrace on April – July rally, former mid-term resistance).


Gold shining brighter

Gold advanced near 1’245 on Tuesday, then paused due to lower sovereign yields and better appetite in stocks. The short-term bias in gold remains positive above $1’230 (200-day moving average). The July rebound from the $1'200 support could extend to $1’247 (100-day moving average) and $1’250 (50% level on June – July decline).