Financial market research and analysis

Asian investors lacked appetite due to the North Korean nuclear crisis. South Korea warned that North Korea could be preparing for another ICBM launch. The overnight session saw early inflows into the safe haven assets. The US Ambassador Nikki Haley said North Korea is ‘begging for war’.

Nikkei (-0.63%) and Topix (-0.80%) extended losses in Tokyo. The USDJPY remained capped below the 110 mark. Kospi index (-0.13%) traded under pressure.

In China, Shanghai’s Composite outperformed its Asian peers. The index advanced to 3’390, the highest level since January 2016, as Chinese services PMI showed a faster expansion in August.

Provided that the North Korean risks have been broadly priced in, the risk sentiment improved as European traders took over the market.

European equity markets opened on a positive note. The majority of FTSE 100 sectors traded in the green. Energy (+0.54%) stocks lead gains on firmer oil, while mining stocks reversed gains even though the Bloomberg commodity index gained more than 2.30% since August 31. Randgold Ressources and Fresnillo wrote off 1.04% and 2.10% respectively.

The WTI crude consolidates gains above the 100-day moving average ($47.50) with the possibility of a further recovery to $48.00/$48.55 (Fib 50% and 61.8% retracement on August decline). The Brent crude sees support at $52/barrel.

Cable remains under the pressure of intense Brexit talks. According to the latest news, PM Theresa May could speak on September 21 and her intervention could eventually delay the EU talks.

The GBPUSD cleared the 100-day moving average support (1.2918) and is preparing to challenge the critical short-term support at 1.2910/1.2900 (major 38.2% retracement on August 24 – Sep a recovery / 200-hour moving average) after the August PMI services came slightly softer-than-expected. If the 1.2910/1.2900 support is cleared, the bearish move could gain momentum toward 1.2884 (Fibonacci 50% level) and 1.2858 (major 61.8% retrace).

A positive breakout above the 50-day moving average (1.2980) could trigger an attempt to the 1.30 mark. Buyers could be exhausted pre-1.3020 (50% on August decline).

The US stock futures remain under pressure and the early valuations hint at a softer US market open as US traders return from Labour day holiday. Early losses could be followed by a rebound.


Confusion reigns among euro traders

The EURUSD is lapsing into a vegetative state before the European Central Bank’s (ECB) Thursday meeting. The euro markets operate in an atmosphere of uncertainty due to the fading ECB expectations and speculations that the Quantitative Easing (QE) exit could be delayed to next month due to the strong euro.

Some analysts believe that the ECB President Mario Draghi will talk down the euro in Thursday’s press conference. Others think that the strong euro should not have a significant impact on the ECB’s inflation forecast. The ECB’s Council member Ewald Nowotny said that the euro appreciation should not be ‘over-dramatized’. Confusion reigns.

The Eurozone final services PMI came in slightly softer-than-expected and triggered knee-jerk sales sub-1.19.

Put options trail below 1.1875 at today’s expiry. Short-term support is building at 1.1850/1.1800. Resistance is eyed at 1.1950/1.2000. Stops are eyed above. Large 1.20-call will expire today.


Gold is interesting for risk diversification in low rate environment

Gold is giving back the earlier gains. The 30-day relative strength index (76.90%) warns that the precious metal is overbought and a deeper correction could be healthy at the current levels.

The low rate environment is favourable for gold allocations, as investors could diversify their portfolio risk at a relatively low opportunity cost. Therefore, price pullbacks should meet support at $1’328 (September 1 resistance turn into support), $1’318 (100-hour moving average) and $1’308 (minor 23.6% retrace on July – August rise).


Aussie gains on data, RBA

The AUDUSD advanced to 0.7985 on encouraging Chinese PMI, better-than-expected 2Q export data and the Reserve Bank of Australia’s (RBA) optimistic view on the economy.

Even though the Australian current account deficit widened to A$ 9.6 billion in the second quarter (from A$ -4.8 billion), the 2Q net exports will add 0.3 percentage points to the 2Q GDP due tomorrow.

The RBA maintained its cash rate unchanged at 1.50%. The accompanying statement sounded optimistic as Governor Lowe said the recent data was ‘consistent with the bank’s expectation that the growth on the Australian economy will gradually pick up over the coming year’. High household debt, weak wages and subdued inflation are major risks to the economic recovery. AUDUSD offers are touted at 0.80. Surpassing this level could encourage further rise to 0.8065/0.8080.


Lira tanks post-CPI

The lira tanked after the core and the headline inflation printed double digit figures in August. Combined to the widening current account and trade deficit, the lira’s appreciation versus the US dollar may pause and underpin US dollar purchases below the 3.45 level, aiming a further rise to 3.48-3.50 area. Solid support is presumed at 3.4200/3.4150 zone.


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