FTSE -4 points at 7297 DAX -37 points at 12557 CAC -4 points at 5263 Euro Stoxx -6 points at 3531
Risk-off trades dominate, capital flows into safe-haven assets as tensions between North Korea and the US continue occupying the headlines.
Gold jumped above the $1,300 mark. The technical indicators give bearish signals;1 however the geopolitical tensions take priority over the technicals now. Sellers are expected to return once the geopolitical tensions ease. Trading above $1,300 could remain short-lived.
The spread between the Brent and Crude WTI widened to $7 due to tensions over Kurdistan. The widening spread could encourage short Brent / long WTI trades, hence traders are attentive to signs of reversal. The Brent will likely encounter resistance past $60/barrel, while the WTI crude could pursue the positive trend after having cleared the $52-offers. Solid resistance is eyed pre-$55.
The situation in JPY-crosses is puzzling. The yen benefits from risk-off inflows even though the political uncertainties in Japan and the proximity of the North Korean threat do not fully justify the Japanese currency’s safe-haven status presently.
On Monday, Japanese PM Shinzo Abe announced his plans to dissolve the government to clear the way for a snap general election on October 22nd. He aims to consolidate his power and the recent opinion polls hint that he could come out stronger after the election. His plans to boost the economic recovery involve a 2 trillion yen economic package including education and child care, in expense of the fiscal consolidation. He will also push for higher long-term JGB rates, which should encourage the Bank of Japan (BoJ) to maintain its bond purchases program in place for longer, and eventually to further boost it. The combination of simultaneously looser monetary and fiscal policies should clearly increase the selling pressure in JPY. Therefore, the price pullbacks in USD/JPY could attract the dip-buyers.
The USD/JPY sees support near the daily Ichimoku cloud top (111.55). Decent call options trail from 110.50 to 113.00 at today’s expiry, hinting at the upside potential in this market. The 115.00 could be a plausible medium-term target.
The kiwi (-0.28%) was the biggest G10 loser against the greenback, as the ANZ business confidence index fell sharply in September. Soft data, combined to the post-election uncertainty, sent the NZD/USD to 0.7278. The 0.72-support is at risk.
The EUR/USD slipped below its 50-day moving average (1.1865) for the first time since April. German election results dampened the mood and the Catalan referendum is a downside risk to the euro markets. The positive outcome in the recent Brexit and Grexit referendums hint that the risks should be considered seriously. The EUR/USD could see resistance at 1.1895/1.1915 (option barriers), the 200-hour moving average (1.1933). Minor support is eyed at 1.1825 (optionality) and 1.1800 (psychological level) and critical support stands at 1.1730 (minor 23.6% retracement on April – September rise).
Cable finds buyers below 1.3450, yet the weakening positive momentum suggests that the post-Bank of England (BoE) rally may need a break before further expansion. Support is eyed at 1.3400 (Fib 50% retrace on post-BoE rally) and 1.3345 (major 61.8% retrace).
The EUR/GBP sees support at 0.8775. The next natural target for the EUR/GBP-shorts is the 200-day moving average (0.8740).
Softening pound could help the FTSE extending gains toward the 200-day moving average (7338p). Energy stocks (+0.98%) lead gains on Monday and could further strengthen on the oil rebound.