Financial market research and analysis

The US dollar is mixed at the start of the week. The deteriorating risk appetite due to political turmoil, the sliding US yields and the waning expectations for additional Federal Reserve (Fed) action before the end of this year keep the US dollar in no man’s land.
The US futures opened the week in the red. Negative headlines on President Trump could further dent the appetite, on fears that the fiscal reforms would hardly see the daylight if the tensions on his investigation escalate.

Traders are holding their breath into the Fed meeting. Although the rates are expected to remain unchanged at this week’s meeting, investors will be seeking hints, if any, regarding the FOMC’s balance sheet normalisation plans. September could be a reasonable date to start a gradual normalisation, by letting the bonds mature instead of rolling them over.

The Fed meeting may give a boost either to the hawks or the bulls in the second half of the week, yet the focus will likely remain on the political front until the monetary decision.


IMF cuts UK growth forecast

The IMF cut its forecast for the British growth to 1.7% from 2.0%. Cable fluctuates around the $1.30 mark. The play is between the Fed and the Bank of England (BoE) doves. This week’s Fed focus should allow the USD leg to determine the overall direction. At the moment, the mid-term trend remains comfortably positive and support is eyed at 1.2884 (minor 23.6% retracement), 1.2875 (50-day moving average) and 1.2820 (200-day moving average).


FTSE down on energy sell-off

The FTSE 100 opened downbeat as the energy stocks started the trading week under pressure.

The barrel of WTI crude traded at $45.58 in Asia. A significant break below the $45.60 (major 38.2% retracement on June – July correction) would suggest a short-term bearish reversal and could encourage a deeper slide below the $45 level.

OPEC General Secretary Mohammad Barkindo said that the demand picks up and that more Libyan and Nigerian oil would be needed to meet the rising global demand. The market re-balancing would accelerate in the second half of the year, according to him, yet his words may remain insufficient to reverse the current bearish trend in the oil markets.


Two thirds of analysts are long Ryanair

Ryanair (-4.59%) sold off aggressively at the open despite 55% rise in earnings due to solid summer activity. Investors focused on warnings regarding the falling bag revenues, the controversial currency impact and the Brexit worries.

Zooming out, Ryanair shares gained 24.41% on year-to-date. According to the Bloomberg survey, 76% of analysts are long with average 12-month price target at 19.63p (versus 18.10p presently), 20% remain on hold and 4% are short.


Euro net long futures positions at highest since 2011

The softness in the US dollar has been an opportunity for the euro-bulls to extend gains posterior to a little insightful European Central Bank (ECB) meeting last week. The EURUSD shortly retreated to 1.1638 amid the softer-than-expected flash PMI data from Germany and France.

Still, the single currency remains at the bulls’ hands. The net euro long futures positions surged to the highest levels since April 2011. The next bullish target stands at 1.1714 (August 2015 high).

It is worth noting that the EURUSD has stepped into the overbought territory, the daily relative strength index rose to 74%. The high volume of speculative positions suggest that a correction could gain traction toward the 1.1500 level, if broken, could pave the way down to 1.1422 (minor 23.6% retracement on April – July rise).


Gold to seek direction with Fed, Trump investigations

Gold recovered to $1’257 per ounce. Offers are intensifying into $1’260 (major 61.8% retracement on June – July decline). The Fed meeting could either trigger a positive breakout toward $1’275 (minor 76.4% retrace) or a profit taking with $1’240 / 1’230 (major 38.2% retrace / 200-day moving average) as target.

On the other hand, an eventual political jam due to Trump investigations could revive the safe haven demand and push the price of an ounce higher, regardless of the macroeconomic developments.


Yen strengthens on softer US dollar, lessening love for Abe

The yen extended gains versus the greenback. The USDJPY traded at 110.72 after the news that the Bank of Japan (BoJ) cut 5 to 10-year maturity JGB purchases hit the wires. The flash manufacturing PMI hinted at a potentially slower activity in July. The downside risks prevail as the developed market sovereign yields continue easing and the slide could prolong to 110.16/110.00 (minor 76.4% retracement on June – July rebound) area.

Nikkei (-0.62%) and Topix (-0.52%) started the week downbeat on stronger yen and the further decline in PM Shinzo Abe’s popularity.


Loonie extends gains despite cheap oil

The USDCAD extended weakness to 1.2522 as the core inflation in Canada advanced to 1.4% on year to June, from 1.3% printed earlier. Given that the fall in headline inflation (-0.1%m/m) was already priced in, the positive surprise in core inflation and the retail sales data encouraged further gains in Loonie. The broad-based USD dismantlement helped. The 1.25 level seems still appetizing.

Cheapening oil could encourage the CAD-shorts to join the markets at this level.