Financial market research and analysis

Equity traders kicked off the week on a positive note. Hang Seng index gained 1.24% and Australian ASX 200 advanced by 0.45% on Monday.

The FTSE 100 opened upbeat after having lost 2.75% over the two previous sessions due to the sharp appreciation in the pound. Minor upside correction is underway. However, the upside potential could be curbed by the strong currency. Resistance is eyed at 7285p (August support could turn resistance) before 7327p (200-day moving average).

Energy stocks opened 0.64% firmer in London, although the downside risks prevail as the new tropical storm Maria, which could have a similar trajectory to Hurricane Irma, is gaining strength in the Caribbean Sea.

The WTI crude traded higher for the 6th consecutive session. Yet, gains past $50 were not stable last week. Price above the 50-week moving average ($49.50) could seem relatively high for opening fresh positions for many traders who are waiting for a concrete commitment to limit production from the OPEC and its allies. On the other hand, the EIA (Energy Information Administration) head Neil Atkinson warned that the lack of new investment in crude production could shrink the global glut and fall short of rising demand. This could raise ‘at least a possibility’ of returning to a ‘very, very high’ prices similar to a decade ago.

The GBPUSD consolidates gains on the back of a significant hawkish shift following the Bank of England (BoE) meeting last Thursday. Friday’s London tube attack did not trigger a significant action in the currency markets. The pound bias is positive and a large call option will expire at 1.3575 today. Support to the post-BoE rally stands at 1.3505 (minor 23.6% retrace) and 1.3438 (major 38.2% retrace).

The EURGBP is preparing to challenge the 200-day moving average (0.8732) on the downside. BoE Governor Mark Carney will speak at the Central Banking Lecture hosted by IMF in Washington DC. The audience is expected to ask questions. Mark Carney will certainly keep his policy stance unchanged, although the Brexit risks could be mentioned.

The EURUSD trades rangebound around its 200-hour moving average (1.1955). The Eurozone’s final August inflation data is due today. The headline inflation is expected to have accelerated to 1.5% year-on-year in August from 1.3% printed a month earlier; the core inflation is seen stable at 1.2%. The gap between the headline and the core inflation could be explained by higher transportation costs due to firmer fuel prices and may not have a significant impact on the European Central Bank (ECB) expectations.

German election is due on September 24. Many traders may be willing to avoid an event risk before the election; therefore, the directional moves could fail to gather momentum.


S&P500 to open above $2’500

The US stocks renewed record on Friday. The S&P500 traded at $2’500 for the first time, as the Dow Jones hit record at $22’275. The Federal Reserve (Fed) meeting is the main highlight of the week. Markets give no probability for a September rate hike, yet the Fed balance sheet normalisation may be on the table. While some Fed members readjusted their inflation expectations lower and seem tempted to stay pat, some may think that another rate hike before the end of the year could not harm the US economic recovery.

The latest Bloomberg survey suggests that economists expect the Fed to stay on track for a December interest rate hike. However, the activity in the US sovereign market tells a different story. Although the probability of a December rate hike improved to 46.7%, it stays too low to create a panic in the stock markets.

The Dow Jones rolling index traded at a fresh high of 22’340 on Monday; the S&P500 is called 5 points firmer at $2’505 at the US market open. Insurers could trade under pressure due to strengtening Hurricane Maria.

The US dollar softened against the majority of its G10 peers except the yen. However, the market remains comfortably short the US dollar due to a severe deterioration in Fed expectations throughout the year.

According to the latest CFTC data, net short speculative positions declined on the week to September 12. Dovish Fed could curb the interest in long positions and keep the bias in favour of the sell side.


Yen & gold retrace gains, Aussie gains

The USDJPY extended gains to 111.25 on the back of improved risk taking. The US 10-year yield recovered to 2.20%. The next natural target for long-USDJPY positions stands at 111.50 (200-day moving average) and 111.75 (major 61.8% retrace on July – September fall). The daily MACD (Moving Average Convergence Divergence) turned positive, suggesting a stronger positive momentum above 110.90/110.80 support (Fibonacci 50% level / 100-day moving average). Japanese stock markets were closed due to bank holiday.

The Bank of Japan (BoJ) is expected to maintain the status quo at this week’s meeting. The divergence between then Fed and the BoJ policy outlook is supportive of a further USDJPY advance.

Gold retreated to $1’314 on improved sentiment. The downside correction could deepen. The key support to the July – August rise stands at $1’300 (major 38.2% retracement).

The antipodeans were the biggest gainers overnight. The AUDUSD is upbeat above 0.7995. Intermediate resistance is eyed at 0.8040 (50% retracement on September 8/14 retreat), 0.8060 (major 61.8% retrace) and 0.8085 (minor 76.4% retrace).


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