Financial market research and analysis

The pound strengthened after the Bank of England (BoE) revealed a surprise hawkish shift at yesterday’s monetary policy meeting. The MPC voted 8 to 1 to keep the bank rate unchanged at the historical low of 0.25%. This was quite a surprising move from Kristen Forbes, who voted in favour of a rate hike. More importantly, several members hinted that they may soon share her opinion. The rising inflation somewhat translated into the BoE’s temperament.-

Combined to Wednesday’s less hawkish than expected FOMC stance, Cable stepped in the mid-term bullish consolidation zone after clearing resistance at 1.2338 (major 38.2% retracement on February - March decline). The strong positive momentum on hourly basis could encourage traders to attempt to 1.2408/1.2410 (area including Fibonacci 50% level. 50 and 100-day moving average).

FTSE 100 stocks opened flat on Friday, after trading at the record high of 7444.62p on Thursday. Mixed appetite in commodities added to the stronger pound could keep the appetite limited and point at a weekly close below the 7400p.


Political risks could dent the EUR-bulls’ appetite

ECB’s Austrian member Nowotny joined the global tightening trend, citing that the European Central Bank (ECB) could raise the depo rate before the refinancing rate, according to Handelsblatt.

Then it was euro’s turn to rally. The EURUSD extended gains to 1.0775 in Asia. The pair could gather further momentum to reach 1.0820/1.0830 (Fibonacci’s 50% retracement on post-Trump decline / 2017 resistance). Above this level, the single currency should encounter solid offers.

The lack of concrete shift in ECB’s intentions to tighten policy and French populist worries could prevent a further euro appreciation against the greenback.

First, the ECB is not expected to discuss about any form of policy tightening, or tapering its asset purchases before September.

Second, the French presidential election could be an important test for the EU integrity and the Eurozone. The anti-European candidate Marine Le Pen is still leading the race. According to Bloomberg, Le Pen is given 27% probability to win the first round of the election due on April 23rd, versus the independent candidate Emmanuel Macron (25%) and Francois Fillon (19%).

Although Le Pen is not expected to make her way to the Elysée Palace, Citi analysts warned that an eventual Le Pen victory could shred 25% from French banking shares. We believe that the long-term implications could be even larger, as Le Pen wishes nothing but the Frexit and the return of the French franc.

The EURGBP eased to 0.8668. The divergence between the BoE and the ECB could encourage a deeper pullback to 0.8640 (major 38.2% retracement on February – March rise). Below 0.8640, the bearish trend reversal could entirely rub out the March gains and bring the 0.8600/0.8595 (200-day moving average / Fibonacci’s 50% level) back on the radar.


Gold gains on dovish Fed expectations

Although the Federal Reserve (Fed) is still expected to raise rates by another 50 basis points this year, the dovish shift in expectations eased the tensions on the US yields.

Gold extended gains to $1233 on the back of softer US Treasury yields and weaker US dollar. A second successful attempt above the $1230 (minor 23.6% retracement on December – February recovery) could encourage a further recovery to the $1250/$1260 (200-day moving average).


OPEC to extend supply-cut agreement

WTI traded just shy of $50 after Saudi Energy Minister hinted that the OPEC could extend its agreement to reduce output, if stockpiles remain above the five-year average. The OPEC will meet on May 25. In dirt of further reaction from the world’s biggest oil cartel, investors could be reluctant to bet on a price recovery above the $50 level. The barrel is expected to float at about the 200-day moving average, $49.