FTSE -17 points at 7435
DAX -33 points at 12272
CAC -7 points at 5183
Euro Stoxx -8 points at 3483
The Federal Reserve’s (Fed) July meeting has been a big disappointment for the US dollar bulls. The Fed maintained the interest rates unchanged as expected, yet refrained from giving out more details regarding its balance sheet normalisation plans. The Fed only said that the normalisation will come ‘relatively soon’. The US 10-year yields slipped below 2.30%. The probability of a December rate hike eased to 42.9% from 45% prior to the announcement.
The Dow Jones (+0.45%) traded at a fresh all-time high ($21’742) and the S&P 500 (+0.03%) consolidated gains at the record high levels, as investors readjusted their plans according to a softer rise in the US borrowing costs.
The US dollar was aggressively offered across the currency markets. The US dollar index, DXY, tanked to the lowest levels in more than two years. The EUR/USD advanced to 1.1777, the GBP/USD rebounded to 1.3158 and the USD/CAD extended the bearish trend to 1.2414.
Gold climbed to $1,265. The positive breakout above the $1,260 level hints at further recovery toward $1,275 (minor 76.4% retracement on June – July fall). The $1,250/1,248 (area including the 50% retracement, 50 and 100-day moving averages) should lend support to a macro-supported bullish development.
The antipodeans benefited from high carry inflows. The NZD/USD hit 0.7542, the AUD/USD traded above its 200-week moving average (0.8005) for the first time in more than four years. News that the Chinese industrial profits surged 19.1% in June to 727.78 billion yuan helped. The pair is strongly overbought on daily basis (daily RSI 78.60%) and knocked on the door of the overbought market on weekly basis (weekly RSI at 69.30%). Trend and momentum indicators remain comfortably positive and despite the overbought market conditions, traders can hardly refuse to take advantage of the profitable AU-US rate differential. The dovish shift in Fed expectations is supportive of a further bullish development until next week’s central bank meeting. The Reserve Bank of Australia (RBA) will meet on Tuesday. Under the current circumstances, Governor Philip Lowe is expected to talk down the Australian dollar, as he has already stated that a softer Aussie ‘would be a bit better’ for the economy in a speech given earlier this week. The next resistance is eyed at 0.8163, May 2015 peak.
The USD/JPY retreated to 110.78 on the back of the broad-based USD sell-off. Put options trail from 111.50 to 110.00 and could enhance the downside pressures at today’s expiry. Intermediate support is eyed at 110.62 (July low) before the 110.00 mark.
Cable is thrown on the back of a bull. The pair could pursue its June rebound. Large 1.30 call expiry should give support to the GBP-bulls at today’s session. It is certainly too early for the Bank of England (BoE) doves to counterbid. In contrary, a stronger pound should ease the UK’s inflationary pressures and allow the BoE doves to stay on top of the game. Therefore a USD-triggered move will certainly meet sellers, yet there is no rush to spoil the current beneficial trend. The next technical level is eyed at a distant 1.3422, the 50% retracement on post-Brexit sell-off.
The stronger pound is unpleasant for the FTSE 100 companies, which generate more than half of their revenues in foreign currencies. Therefore, the pound appreciation is mechanically negative for the FTSE 100 stock values. On the other hand, the dovish Fed expectations hint at an extended period of softer yields across the global markets and should theoretically be supportive of businesses. Hesitant about which train to take, the FTSE is set for a flat-to-negative open.
The WTI crude oil almost ignored the 7.7 million barrel contraction in the US oil inventories last week. The global supply/demand imbalance still plays in favour of the short-side. Top sellers are touted at $49.45/49.60 (major 61.8% retracement on April – July decline / 200-day moving average) before the $50 level.