FTSE +6 points at 7419 DAX +2 points at 12643 CAC +9 points at 5244 Euro Stoxx +3 points at 3530
The sell-off in the Eurozone sovereign market deepens, higher EZ yields continue giving a decent support to the single currency. Yet, inflows into the European stock markets remain limited. The DAX and the CAC ended the Thursday’s session timidly higher by 0.12% and 0.25% respectively and are for flat open.
The EUR/USD remains rangebound between 1.1367/1.1500 (major 38.2% retracement on June- July rise / psychological resistance). The bias remains positive on speculations that the European Central Bank (ECB) could announce a form of tapering of its Quantitative Easing (QE) program, which is due to end on September.
The U.S. 10-Year yield improved to 2.35% as the US producer price inflation slowed by 2.0% year-on-year in June, down from 2.4% printed a month earlier, but less than 1.9% expected by analysts. The US consumer inflation and retail sales data are due today. Better-than-expected figures could give a minor boost to the US dollar, yet should not damage any important technical levels, as the USD-bulls are left halfhearted based on the Federal Reserve (Fed) Chair Janet Yellen’s worries regarding the Trump’s administration ability to reach 3% growth.
The stagnation in the fiscal policy and a growth target miss would prevent the Fed from moving too fast with the monetary policy normalisation. Janet Yellen also said that she will take the steepening of the yield curve into account for the rate normalisation policy. Steeper yield curve would entail less frequent rate hikes. The probability of a December rate hike stands at 50% in the aftermath of Janet Yellen’s semiannual testimony.
The US banks are under the spotlight. The five big US banks’ revenues may have dipped by 11% due to de-reflation on yields based on Trump administration’s inefficiency to bring their project into life. Soft results could dent the appetite and pull the US stocks down from the all-time high levels.
Gold gives back gains on improved global yields. Money markets offer a better pay-off to traders than the precious metals and cap the upside potential in gold. Offers are touted at $1,226/1,230 (minor 23.6% retracement on June-July sell-off / 200-day moving average). Solid support is presumed at $1,200/1,195 given that Janet Yellen gave no reliable basis for a significant lift in the US yield curve.
Carry traders are shorting the yen against the antipodeans (AUD, NZD), giving support to the USD/JPY regardless of a confused US dollar. Trend and momentum indicators remain comfortably positive. The USD/JPY is to challenge the 114.00/114.50 offers. Decent call options trail from 114.00 to 115.00 at today’s expiry. The 200-day moving average (112.84) should continue providing support.
The AUD/USD is testing the mid-term 0.7750 offers, as carry traders are taking advantage of the widening rate differential. The rise in AUD/JPY is a giving a hand to the positive trend. Solid resistance is eyed at 0.7780/0.7800.
The weakness in the US dollar throws a red-herring in the pound’s path. The Bank of England (BoE) hawks have been discouraged after the BoE Deputy Governor Ben Broadbent said that he is not ready to support a rate hike for the moment. The slowdown in the British wages growth also tempered the worries regarding the UK’s rising inflation until next week. A directional move is risky before next week’s inflation data and the BoE’s inflation report hearings. No matter what has been said so far, a June inflation exceeding the 3% level will be a game changer for the BoE watchers.
The FTSE 100 closed Thursday’s session 0.5% lower as the sell-off in healthcare (-1.75%) and energy stocks (-0.76%) brushed off the gains in telecommunication stocks (+1.29%) and financials (+0.60%). The FTSE is set for a positive start in London, the daily MACD turned positive, suggesting that the momentum turns in favour of the upside. Yet, firmer pound and softer energy prices could limit the upside potential before the weekly closing bell. Traders may consider reasonable upside targets. Offers are eyed at 7438/7450p (50-day moving average / end of June resistance).