LCG Market Analysis

EURGBP: golden cross

The EURGBP saw its 50-day moving average crossing above the 100 and 200-day moving averages. The formation of golden cross could limit the euro’s downside against the pound this week, revive buyers for a recovery to 0.8868 (June high), before 0.8897 (major 61.8% retrace on September – April decline). Solid resistance is eyed at this level, due to the surprise hawkish shift from the Bank of England (BoE) at the June monetary policy meeting.


US stocks set to renew record

The US stock futures are solidly bid at the start of the week. The Dow Jones futures were up by 55 points, NASDAQ and S&P500 futures traded 29.25 and 6.75 points higher into the European open.

The VIX index remains comfortably relaxed, 10.38%. There are no signs of anxiety in the US stock markets despite trading at frequently renewed record high levels since nearly eight months.

The Wall Street daily rolling index traded at a fresh record of $21’424.60.



Click here to read the full article on LCG.com

MSCI decides on China, Dow at record
By Ipek Ozkardeskaya

The US dollar and the US yields improved on Federal Reserve (Fed) member Dudley’s optimistic view of the US economy. William Dudley, who is known as a dovish Fed member, said that the strength in the US labour market should translate into higher wages and prices, and that the financial conditions in the US remain loose despite the interest rate hikes. Three other Fed members, Fisher (hawkish), Rosengren (non-voting member) and Kaplan (balanced) are due to speak today.

The Dow Jones closed the Monday’s session at a fresh all-time high of $21’528.99, as NASDAQ 100 advanced by 90.74 points. The US stock futures extended their advance in Asia, hinting that the US stocks could resume gains through the unchartered territories later in the session.

[...]

Will Chinese A-share stocks be included in MSCI global indices?

It is an important day for the Chinese stocks. The Morgan Stanley Capital International (MSCI), will decide whether or not the Chinese A-shares will finally be included in its international stock indices, MSCI China and MSCI EM.
The MSCI has refused to include the Chinese stocks in its international benchmarks due to strict capital controls by the Chinese government, trading restriction and long interruptions in times of bearish market.

A fourth rebuff is possible and highly probable as Morgan Stanley analysts estimate the probability of inclusion slightly above 50%. Golden Sachs analysts revised this probability to 60% from 70% a year earlier.


Click here to read the full article on LCG.com

John Qatarley charged, FTSE loses charge

FTSE loses charge on oil slide
The FTSE 100 erased early forex-induced gains by the afternoon when energy sector shares slumped alongside the price of oil. Investors were also weighing up the implications of fraud charges against former Barclays executives. Broader stock markets have been weathering the three-week slide in the oil price on the assumption prices will stay within the price range seen over the past 12 months. The further we move below $50 per barrel, the more worrisome the bruising taken by oil prices gets for stocks.

John Qatarley charged
Shares of Barclays edged lower after former chief executive John Varley and three other Barclays executives were charged with fraud. The charges relate to fundraising from Qatar in 2008 which helped Barclays avoid a government bailout. Barclays would face a fine if there are criminal convictions and the individuals could serve up to 10 years in prison. These were some head honchos at Barclays so the SFO’s charges represent a significant reputational threat to Barclays. The negative reaction in Barclays shares would likely have been stronger if the charges involved current employees. Since the financial crisis only the public and shareholders have felt the consequences of fraud at the big banks. To see some individuals shoulder some of the blame could actually be a relief to investors.

US stocks open lower
Stocks in the US turned lower in early trading. Another day of record highs might be scuppered by concern around the persistent downtrend in oil and other commodity prices. Apart from sending Amazon shares to new stratospheric levels, the deal to buy Whole Foods has been a negative force on the US stock market. The SPDR S&P Retail ETF showed retailer shares falling another 1% in early trading on Tuesday.

British pound hits new post-election low
The British pound fell to a fresh post-election low after Bank of England boss Mark Carney said now is not the time to raise interest rates. The drop has seen Sterling unravel gains made last week after three members of the Bank of England voted to lift interest rates. One of the dissenters Kristin Forbes will be replaced by London School of Economics professor Silvana Tenreyro. The question for the direction of Uk interest rates is whether other MPC members are emboldened by the three dissenters or fall in line behind the dovish governor. We think GBPUSD at sub 1.30 levels assumes a rate cut or more QE, and slowing consumption notwithstanding, that doesn’t look very likely.

Russia rubbishes emergency OPEC meeting
The price of oil extended its worst run of declines this year on Tuesday after Russian oil minister Novak rubbished talk of an emergency OPEC / non-OPEC meeting. Brent crude is down $10 per barrel in less than a month so if they really aren’t planning an emergency meeting, perhaps they should. Data from the CFTC showed speculators cut their bullish bets substantially last week after having risen for the prior four weeks. The assumption that extended OPEC supply cuts would underpin the oil price is unravelling by the day. We would expect US crude to test $40 per barrel before any hopes of a sustainable recovery in oil prices. There’s a good chance that the summer driving season draws down US oil inventories and eases some of the supply glut concerns.


The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

LCG Market Analysis Webinar (June 19, 2017)

Cable struggles near 1.26 before Queen's speech, FTSE down on oil

The FTSE opened downbeat, energy stocks (-0.48%) and financials (-0.50%) weighed on the sentiment in London.

The GBPUSD traded below the 1.26 mark for the first time since April.

The pound depreciation started yesterday, as the Bank of England (BoE) Governor Mark Carney said that the bank is not ready to increase the interest rates anytime soon. Weak wages growth and the Brexit uncertainties require a loose monetary policy according to Carney, as he is willing to see the reaction of the economy to the 'Brexit reality’. However, the rising inflationary pressures revived the hawks at the heart of the MPC at the June meeting. Three members voted in favour of a rate hike versus five.

The consolidation of the hawkish view should keep the BoE-hawks alert for dip-buying opportunities approaching 1.2577 (50% retrace on March – May rise) and 1.2540 (200-day moving average).

On the political front, there are different opinions on whether PM Theresa May’s Conservatives could conclude a deal with the Northern Ireland DUP.

Queen Elisabeth II will reveal the government’s legislative program at 11:30am in London. The focal point of the speech will be the Brexit, yet we do not expect a significant level of granularity in the content of this speech to move the UK markets and the pound meaningfully.


Click here to read the full article on LCG.com

Gold, yen recover on soft US yields

The US 10-year sovereign yields are surprisingly quiet. The probability of another rate hike in December fell to 41.3%. The US dollar is mixed, the macro-specific factors drive the currency markets.

Gold is back above $1’250, looking to grip $1’257 (50-day moving average) within the session. Gains could extend to $1’262 (38.2% retrace on June decline), if surpassed, should indicate a short-term bullish reversal and encourage a stronger momentum to $1’268 and $1’275 (50% and 61.8% retracement respectively).
The USDJPY is down for the third straight session. Soft US yields prevent the market from gaining moment despite a clear Fed-Bank of Japan (BoJ) divergence. Nikkei (-0.01%) and Topix (-0.01%) lack motivation.


Euro rangebound against the US dollar

The EURUSD trades rangebound between 1.1100 and 1.1300. A positive breakout should wet the euro-bulls’ appetite for a mid-term rise to 1.15 mark. A negative breakout will certainly see a solid support at 1.10, as markets are progressively increasing the pressure on the European Central Bank (ECB) to reveal its Quantitative Easing (QE) exit plans. In addition, the ECB will reveal a list of corporate bond purchases amid criticism on its lack of transparency. Investors will be handed useful information on the purchased corporate bonds, such as their ISIN number, maturity and coupon. The revelation will likely trigger some volatility in involved bonds’ yields.


Click here to read the full article on LCG.com

Market Snapshot: Nasdaq and gold bounce together

The oil market sell-off has weighed on the energy sector of the Dow Jones Industrial index, creating some demand for havens like gold – but the Nasdaq, thanks to its concentration of tech (and not oil) stocks is also seeing some demand.

Carry traders seek opportunity in low US, EU rates

The US dollar is offered against all of its G10 counterparts. The antipodeans are the biggest gainers. The euro and the pound are well bid as the European traders step in.
The June flash PMI indicated that French and German manufacturers may have expanded faster than expected this month, while the activity in services may have retreated to five-month lows.
The EURUSD is better bid today, essentially on the back of a broadly softer US dollar. But, the pair needs a stronger conviction to step out of the 1.11/1.13 range. The topside appears to be capped by a rising pressure due to decreasing euro yields. The German yield curve eased to new year-to-date lows.

On the downside, the minor 23.6% retracement on April - June rise, 1.1123 has been tested at the start of the week, yet not damaged on a daily closing basis. Breaking below the 1.1123/1.1100 support zone could compromise the April – June rising trend before long. The key support to the EURUSD’s positive trend stands at 1.1018 (major 38.2% retracement).


Click here to read the full article on LCG.com

Week Ahead video: Brexit anniversary & oil run

EUR flat on Italian bank rescue, Nestle bid

Italian government committed to rescue Banca Popolare di Vicenza and Veneto Banca for 17 billion euros, the biggest rescue of its history. News revived concerns regarding the health of the Italian banks and an eventual impact on the Eurozone’s banking sector, yet the European banks opened in the positive territory.

The EURUSD trades in a tight range near the 1.12 mark.

The pound has been the biggest G10 gainer against the US dollar in Asia. The GBP-traders’ focus is on the Bank of England (BoE) Financial Stability Report and Governor Mark Carney’s speech due on Tuesday. Mark Carney has a clear dovish view regarding the BoE’s monetary policy outlook and his speech will likely keep the GBP-bulls back from taking the reins of the market. The short-term resistance is eyed at 1.2824 (minor 23.6% retrace on March – June rise & June triple top).

In the medium-term, investors should keep in mind that three MPC members (versus five) voted to raise the BoE’s interest rates in the June policy meeting and the BoE-hawks are gaining more voice due to the UK's rising inflationary pressures. This situation, combined to a widely softer US dollar continue pointing to a further advance toward the 1.30 level against the US dollar.


Click here to read the full article on LCG.com

EUR gains on Draghi’s comments, GBP in focus

The EURUSD gained as the European Central Bank (ECB) President Mario Draghi delivered an optimistic speech regarding the Eurozone economy at his speech in Portugal.

Draghi said that the ECB’s current monetary policy is bearing fruits, as the Eurozone printed sixteen straight quarters of growth. Moving forward, he sees the economic growth above the trend across the Eurozone area, although the inflation remains moremuted than one would expect. The inflation is low due to external factors such as the collapse in global oil and commodity prices, besides the output gap.

The EURUSD is rangebound within the top range of the April – June rise, 1.1123 and 1.1294 (minor 23.6% retracement on April – June rise and the June high). A negative breakout should pave the way for a further decline toward the major 1.1018 support (38.2% retracement) before the 1.1000 mark. A positive breakout would wet the EUR-bulls’ appetite for a further rise toward the 1.15 mid-term target.


Mark Carney versus the BoE-hawks

The Bank of England’s (BoE) Financial Stability Report and Governor Mark Carney’s speech may cause volatility in the pound and the FTSE stocks today, yet may fail to give a convincing direction to the markets.

Mark Carney is openly dovish regarding the BoE’s policy outlook due to the Brexit uncertainties. His speech will likely weigh on the pound and could bring the buyers back to the FTSE.

Yet the pound bears are defied by an increasingly hawkish view at the heart of the Bank of England. Although Mr. Carney has a good reason to justify his unorthodox policy stance despite a perhaps temporarily high inflation, three out of the eight MPC members voted in favour of a BoE rate hike in the June meeting and this number is set to increase if the weakness in wages growth does not rapidly translate into a softer inflation in the UK.


Click here to read the full article on LCG.com

Market Snapshot: GBPUSD & USDCAD setups

Central bank chatter is moving FX markets. The British pound brushed off Bank of England deputy gov. Jon Cunliffe saying now is not the time to hike rates in a sign of strength. The Canadian dollar is breaking above key levels despite general oil weakness

Euro extends gains regardless of ‘misinterpreted’ Draghi

The euro swung up and down on ECB officials’ various comments. Some ECB officials said that President Draghi’s speech has been misinterpreted by the markets. Indeed, Mario Draghi has never mentioned any form of ECB stimulus unwind in his speech on Tuesday to trigger decent purchases in euro. Yet, Draghi’s refusal to comment kept the euro-bulls on the field. The truth is the euro’s positive momentum was also, and perhaps mainly due to the US dollar depreciation and the stop rally above the solid 1.13 resistance. For the moment, the softer Fed is enough to drive the euro higher against the US dollar. The 1.15 level is the next natural target for the EUR-longs.


Click here to read the full article on LCG.com

Cable trades past $1.30, USD offered

The UK’s first quarter final growth data marks the last trading day of a very busy week for the pound. As expected, the UK’s gross domestic product expanded by 0.2% quarter-on-quarter, corresponding to an acceptable growth rate of 2.0% growth on yearly basis.

The UK stocks remains under the pressure of a stronger pound. The FTSE 100 is preparing for the biggest weekly loss since April as the pound gained more than 320 pips throughout this week.

Numerous factors stood behind the move.

First, the Bank of England’s (BoE) Financial Stability Report revealed the bank’s intentions to use macro-prudential measures to temper the UK’s inflationary pressures. These measures include higher capital requirement for the UK lenders and a closer control on the consumer credit growth to temper the velocity of cash in the UK, hence to ease the inflationary pressures that threaten the BoE’s rate policy.

Second, Governor Mark Carney said that the MPC will discuss issues around ‘raising rates’ in the coming months and the ‘readiness to raise rates hinges on how much weaker consumption is offset by business investment’. The latter statement will inevitably increase the pound’s sensitivity on the economic data, especially on the supply side.

Finally, BoE’s chief economist Andy Haldane said that ‘interest rates policy should be set to prevent entrenched inflation’.

As a result, there has been a significant hawkish shift in the BoE rate expectations. Indeed, the probability of an interest rate hike before the end of 2017 rose to 57.5% from less than 10% two weeks earlier. Under these circumstances, pound traders have further room to price in the recent change in sentiment.

The GBPUSD traded above the 1.30 mark for the first time in more than a month. Cable extended gains to 1.3030 and gathered sufficient momentum to challenge the critical mid-term support at 1.3045, the major 38.2% retracement on post-Brexit sell-off. Surpassing this level should push the GBPUSD to the mid-term bullish consolidation zone for the first time since the Brexit referendum.


Click here to read the full article on LCG.com

Pound down on strong USD, weak PMI

The City of London kicked off the week full of hope on news that a delegation is on its way to Brussels to discuss a ‘secret plan’ which would give the UK financial services a free-trade access to the European market after the Brexit.

PM Theresa May and Chancellor Phillip Hammond seem to soften their tone, in an effort to show the UK business owners that they care about the Brexit worries after the dramatic results dampened the mood at the heart of the Tories posterior to June 8 election.

FTSE financials surged by 1.10% in London.

Mining (+1.03%) and energy stocks (+0.84%) reinforced gains.

The FTSE is well supported by the lack of appetite in pound and firmer oil, commodity prices. However, long positions could become rare approaching the 7373p (100-day moving average).

The GBPUSD eased to 1.2962 amid the UK’s manufacturing data printed an unexpectedly slow expansion in June (54.3 versus 56.3 expected). Last month’s figure has been revised lower to 56.3 from 56.7.

We note that Cable closed above $1.30 level for the first time in six weeks and the Bank of England (BoE) hawks are gradually conquering the market. The price pullbacks could be interesting opportunities for dip-buyers. Against the US dollar; the 1.3045 mid-term resistance (major 38.2% retracement on post-Brexit decline) is the next natural target for the GBP-bulls.


Click here to read the full article on LCG.com

Worldpay up 9%; EUR, GBP softer

The FTSE 100 opened downbeat. The majority of sectors opened in the red despite the softening pound.

Technology stocks gained past 2%, as Worldpay Group surged by 7% on news that the company has been approached for a takeover. World’s tech giants as Apple Inc and Paypal could be the potential bidders, as they have also approached the Scandinavian Nets recently.

Energy stocks erased 0.54% at the open, as news play against the oil-bulls today. According to Bloomberg, OPEC production rose by 260’000 barrels per day in June. Libya and Nigeria stood for the half of the increase; Saudi Arabia, the UAE and Angola extracted more as well. WTI crude (-0.55%) saw resistance at the 50-day moving average ($47.12). More offers are eyed pre-$48.05 (50% level on April – June decline).

The GBPUSD retreated to 1.2923. The softer-than-expected expansion in the UK’s manufacturing activity dampen the mood on Monday. Services PMI, due on Wednesday, could hint at a slower activity in the UK’s services sector as well, which represents 80% of the country’s economy. Although the figures are at the pre-Brexit levels, the deterioration in numbers increase anxiety due to the extraordinary Brexit conditions.

On the other hand, the Bank of England (BoE) hawks have taken the reins of the market last week. Therefore, a further pullback in Cable should meet support at 1.2860 (50-day moving average) before 1.2824 (June resistance turn support at minor 23.6% retracement on March – May rise).

BoE's Gertjan Vlieghe said that a premature hike would be a 'bigger mistake than a late one'.


Click here to read the full article on LCG.com

FTSE could have a bad pound day

FTSE 100 stocks opened flat. IT (-0.63%) and mining stocks (-0.33%) were among the leading losers at the open.

Energy stocks (-0.01%) stayed pat. The decline in energy prices could continue if the weekly EIA data misses the analysts’ expectations for the second consecutive week. According to the consensus, the US crude inventories may have contracted by 2.4 million barrels last week. Any disillusion could send the barrel of WTI crude below the $45 level and weigh on the energy stocks.

The pound could fail to give a hand to the FTSE stocks today. The GBPUSD extended gains to 1.2947, as the UK’s services PMI came in line with estimates, somewhat reassuring traders after the slower growth in June manufacturing activity caused worry on Monday. Nonetheless, the GBP-bulls will certainly lack conviction to challenge the critical mid-term resistance at 1.3045 (major 38.2% retracement on post-Brexit sell-off) before Friday’s manufacturing and industrial production data.

Intermediate resistance is eyed at 1.2980/1.3000. The key short-term Fibonacci support to June 20 – 29 rise is seen at 1.2860 (major 38.2% retrace).


ECB minutes could disenchant the hawks

The EURUSD extended the downside correction to 1.1312 on Wednesday.

The intra-day recovery attempts have been capped by the 50-hour moving average (1.1347 at the time of writing). The European Central Bank (ECB) meeting minutes will be released today and should help the EUR-bulls realizing that they may have gone well ahead of themselves following President Mario Draghi’s speech in Portugal last week. The ECB hawks could get disillusioned provided that the ECB’s meeting accounts will certainly maintain an emphasis on low inflation and provide little-to-no insight regarding the Quantitative Easing (QE) exit plans.


Click here to read the full article on LCG.com

GBP retreats on weak industrial data, NFP in focus

Cable sold off amid the UK’s industrial production unexpectedly contracted by 0.1% on month to May. The weak data further dampened the mood among the British manufacturers, already distressed by the deterioration in the PMI data earlier in the week.
The FTSE held ground above the 7300p.

Energy stocks (-0.90%) lead losses in London as the weakening oil prices, despite the solid 6.3 million barrel weekly decline in the US crude inventories, couldn’t prevent the WTI crude (-1.49%) from trading below the $45 level.


Sell-off in Eurozone bonds deepen

The European Central Bank (ECB) meeting accounts spurred another round of sovereign bond sales. The German and French 10-year yields rose more than 9 basis points, Italian and Spanish yields rallied more than 10 basis points on news that the ECB's committee discussed about the possibility of Quantitative Easing (QE) unwind.

The European policymakers maintained an emphasis on inflation ‘as the economic expansion had yet to translate into stronger inflation dynamics’. The statement remained under the shadow of the ECB-hawks’ excitement.

The EURUSD recovered to 1.1427. The first line of resistance is eyed at 1.1445 (June 29 – 30 double top) before the 1.15 hurdle. Call options could support the positive trend above the 1.14 level at today’s expiry.


Click here to read the full article on LCG.com

Yen leads losses, pound holds ground

The FTSE opened upbeat on the back of an improved demand in UK financials and firmer energy prices. The pound appetite and the energy prices will be decisive about the FTSE’s positive potential approaching the 7400p.

Deloitte’s survey revealed that 72% of the UK’s major companies may curb their investment in the UK due to the Brexit uncertainties. The sentiment has apparently dampened following last month’s dramatic snap election outcome. The latest survey’s result has been the worst since Deloitte started questioning the major UK businesses’ chief financial officers. The Deloitte’s survey backed up the Bank of England (BoE) Governor Mark Carney’s view of the ‘Brexit reality’, yet could not brush away concerns about the UK’s inflation reality.

The BoE’s chief economist Andy Haldane is due to speak on Tuesday. Haldane has recently voiced his preference for higher UK rates to cool down the inflationary pressures. His speech could give a boost to the pound-bulls, yet may not suffice to gain over the critical 1.3045 resistance (major 38.2% retracement on post-Brexit sell-off).

The GBPUSD reinforced support at 1.2860 (38.2% retrace on June 20 – 20 rise & 50-day moving average) following Friday's fall on solid US nonfarm payrolls print. The trend and momentum indicators are marginally positive, yet there is a clear lack of conviction prior to the $1.30 level.


Click here to read the full article on LCG.com

GBP, FTSE buoyant into MPC members' speeches

The EURUSD remains rangebound near the 1.14 level. The recent rally on yields failed to gather enough momentum to challenge the 1.15 hurdle. Call options should give support at 1.14 at today’s expiry.

Cable shortly slipped below 1.2860 (major 38.2% retracement on June 20 – 29th rise) on Monday. The Bank of England (BoE) hawks could see short-term dip-buying opportunities before the BoE Deputy Governor Broadbent and the bank’s chief economist Andy Haldane’s speeches due today. Haldane has recently expressed his preference for raising the interest rates to cool down the inflationary pressures in the UK. If Broadbent also gives the slightest hint of higher rates, the BoE hawks could come back in force and give a decent lift to the GBP-bulls, who have recently failed to fight back the resistance at 1.2980/1.3000 zone. There are no option barriers at 1.30 mark. In contrary, decent call options are waiting to be exercised at 1.30 at Tuesday and Wednesday expiries. The key resistance stands at 1.3045 (major 38.2% retracement on post-Brexit sell-off & 2017 resistance).


Click here to read the full article on LCG.com