Financial market research and analysis

The United Kingdom is under the spotlight, as the country prepares to start the Brexit process on Wednesday, March 29th.

As such, the Brexit shenanigans keep the headlines busy, the latest being the bill the UK will need to pay for its EU divorce. The Brexit Secretary David Davis said that the Britain will not pay the 50 billion pound divorce bill as mentioned by the EU officials. The bill would be ‘nothing like’ the proposed amount. Indeed, the House of Lords would have reckoned that the cost would rather be zero. As it stands, the Brexit talks could turn into hostile negotiations, which could dent investors’ appetite in the UK businesses and their European partners.

In addition, the Scottish Parliament will vote today on whether or not to pursue a second independence referendum from the UK. It has been mentioned earlier that the eventual vote would take place by the end of the Brexit journey, once there is enough clarity on the new EU-UK configuration.Rising political uncertainties around the UK could shake up the pound over next trading sessions.

The GBPUSD retraced from 1.2615, after having traded above its 200-day moving average for the first time since June 23rd Brexit vote. Yet, the trend is positive above the distant 1.2420 (major 38.2% retracement on two-week rise). There is a minor support at 1.2495 (minor 23.6% retracement). Only a break below 1.2420 level would suggest a bearish reversal.

The FTSE started the day upbeat, yet failed to extend gains above 7313p. An eventual pound weakness due to Brexit concerns may remain insufficient to revive stock investors’ appetite.


US stock market volatility echoes back to growing anxiety

The US dollar pared losses after recording the largest pullback under the Trump rule.

The US stocks rebounded after slipping below their 50-day moving average for the first time since November 9th, the US presidential election.

The VIX index jumped as much as 17%. The increased volatility hints at rising stress across the US stock markets, suggesting that recent gains could be temporary in the dirt of concrete action within the context of the US fiscal policy.

The sentiment vis-à-vis the ‘reflation’ trade is weakened following Trump’s defeat on his health-care replacement plan, which has somehow been perceived as a warning that the ‘phenomenal’ fiscal reforms could bump into resistance as well.

The Chicago Federal Reserve (Fed) President Evans said he would expect one more US rate hike in 2017 and two if the data justifies, versus the general consensus of two more rate hikes. Dallas Fed’s Kaplan said he would support more rate hikes if the economic growth continues. The June Fed rate hike expectations dropped to 50%. The Fed hawks drawback could justify a further pullback in the US dollar against the majors.

The Dow is called 20 points firmer at the US open. Gains could be fragile as buyers currently swim against the reversed-Trump flow.


Euro trades above the 200-dma against the greenback

The US reflation pullback has triggered a rush toward the euro, the European stocks and the Eurozone sovereign bonds.

The German bunds saw decent demand on Monday. Combined to Angela Merkel’s victory in Saarland State, the German 10-year bund yields retreated below 0.40% for the first time in March; the French 10-year yields fell to 0.97%.

The EURUSD advanced to 1.0905 after clearing the 200-day moving average resistance (1.0850). The pair consolidated gains above 1.0856 in Asia. The next critical resistance is eyed at 1.0932 (major 61.8% retracement on post-Trump rally) before the 1.10 mark.

EURGBP trades rangebound within the 23.6% and 50% retracement on February – March recovery. Breakout on both directions could gather further momentum, with positive target set at 0.8786 (March peak) and negative target at 0.8559 (major 61.8% retracement & 100-day moving average).


Asian stocks better bid, as China FDI surprised

The risk appetite improved in Asia, as the sell-off in US dollar halted. The foreign direct investment in China surprisingly expanded by 9.2% on year to February, versus 4.2% contraction expected and 9.2% retreat recorded a month earlier.

Hang Seng index gained 0.42% and Australia’s ASX 200 advanced by 1.30%. Shanghai’s Composite (-0.43%) traded on the back foot, as PetroChina lost 1.01%, China Petrol retreated 0.70% and Air China dropped 2.44%.

The Nikkei (+1.14%) and Topix (+1.34%) rose as the USDJPY held the ground above 110.00 level. The quarter-end and fiscal year-end inflows into the yen could limit the upside potential in the USDJPY.

Option barriers trail up from 111.00/112.00 at today’s expiry.