FTSE -21 points at 7289 DAX -32 points at 12560 CAC -11 points at 5270 Euro Stoxx -11 points at 3530
The German election resulted with a disappointing win for Chancellor Angela Merkel’s grand coalition; her victory was spoiled by the rise of the far-right AfD (13%), which made its way to the government for the first time since the World War II. Though the presence of the AfD should not significantly impact German intentions regarding the EU in the immediate future, the rising populism dampened the mood in the euro markets. The EUR/USD retreated to 1.1897 and recovered past 1.1900 as traders digested news. The pair could have hard time finding buyers above the 1.20 mark. The post-election decline could extend toward the 50-day moving average (1.1866).
The kiwi has been the worst G10 performer against the US dollar, as the New Zealand’s ruling party failed to gain majority at Saturday’s election. The coalition talks should keep the political uncertainty high over the coming weeks and curb the NZD-appetite. The NZD/USD could retreat toward its 200-day moving average (0.7160). Offers are eyed at 0.7290/0.7300 (including 50 and 100-day moving averages).
The USD kicked off the week mostly stronger against its G10 counterparts, except the pound. The GBP/USD is well bid above the critical 1.3448 level (major 38.2% retracement on post-Bank of England (BoE) rally). Though the upside potential could be limited after Moody’s cut the UK's credit rating by one notch to Aa2 due to the Brexit.
The UK-EU divorce bill is still a major caveat to the smooth continuation of the Brexit negotiations. According to the latest news, PM Theresa May could accept to pay up to 40 billion pounds ($54 billion) to leave the union and start negotiating new trade partnership, whereas the EU demands 60 billion euros ($72 billion). The 25% gap will likely keep the tensions tight between the British and the European officials. On the other hand, UK's David Davis rejected the news that the UK would pay 40 billion pounds to exit the EU.
The FTSE rolling index buyers were rare above the 7300p in the overnight trading session and the FTSE could see more resistance into its 200-day moving average (7337p) due to the strong pound.
The USD/JPY is on track to re-test the 112.70/113.00 area. The divergence between the Federal Reserve (Fed) and Bank of Japan (BoJ) policy outlooks and talks of a snap election in Japan play in favour of a further rise in USD/JPY. Japanese PM Shinzo Abe could call a snap election on October 22nd as early as today (expected time is 10pm UK time). As a result, the yen will likely remain under pressure against the greenback. The key support is eyed at the daily Ichimoku cloud top (111.55).
Gold consolidates losses below the $1,300 mark. The precious metal is testing 50-day moving average ($1,290) on the downside, if broken could encourage a further slide to $1,282 (Fibonacci 50% retracement on July-September rise).
Oil is down on comments from Goldman Sachs (NYSE:GS) and BP (LON:BP). Goldman Sachs said that the ‘oil backwardation is likely to remain in place in the coming months’ suggesting that the short-term futures prices are higher than longer term prices due to the ‘combination of stronger demand, potential greater cohesion among OPEC and growing pains for shale’. In this configuration, the short-term positions benefit from lower prices in duration.
Meanwhile BP cited that the OPEC production cuts need to be ‘extended beyond the first quarter of 2018 for rebalancing’ and that the oil price above $60 is ‘unsustainable over 2018’. WTI crude sees resistance pre-$51/barrel. We remind that the OPEC’s production cut agreement must address the issue of rising production in Libya and Nigeria and recovery in Iranian production. Suspicion that Russia could not be in favour of an extension is also a concern and could encourage a mean reversion toward the 200-day moving average ($49.75). In the absence of significant positive development, sellers should gradually creep in pre-$55/barrel.