FTSE -10 points at 7442
DAX -12 points at 12228
CAC +15 points at 5132
Euro Stoxx +2 points at 3453
The US dollar was mixed at the start of the week. The waning 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. Traders are holding their breath into the Fed meeting. Although the rates are expected to remain unchanged, investors will be seeking hints, if any, regarding the balance sheet normalisation plans. The Fed meeting should give a boost either to the hawks or the bulls in the second half of the week. The sentiment is mixed into the Fed decision.
Gold recovered to $1,257 per ounce. Offers could be 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.
The yen extended gains versus the greenback. The USD/JPY traded at 110.77 in Tokyo, after 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 (-0.69%) and Topix (-0.57%) started the week downbeat on stronger yen and the further decline in PM Shinzo Abe’s popularity.
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. Still, the single currency remains at the bulls’ hands. The net euro long 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 EUR/USD 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 pull the pair down to 1.1422 (minor 23.6% retracement on April-July rise). Due today, the flash PMI data across the Eurozone is expected to gather a minor reaction.
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).
In line with our expectations, the FTSE 100 slid below the 50-day moving average (7450p) on Friday. The fall in IT (-1.95%), industrial (-1.31%) and energy stocks (-1.57%) pulled the index lower. The FTSE futures (-0.13%) lacked demand in Asia and the index is set for a softer weekly open.
From an individual stock perspective, Ryanair (NASDAQ:RYAAY) earnings were up by 55% on solid summer activity. 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.
The WTI crude oil suffered another day of sell-off. The barrel 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.
The USD/CAD 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.