FTSE +4 points at 7434
DAX +25 points at 12078
CAC +16 points at 5028
Euro Stoxx +13 points at 3450
Asian equities traded with limited risk appetite. Japanese stocks started the week on a negative note. The G20 communiqué weighed on Japanese stocks; Nikkei (-0.34%) and Topix (-0.16%) eased as the yen strengthened at the early trading hours. The USD/JPY extended losses to 112.27 in Tokyo. The solid negative momentum suggests a deeper move toward the 111.60 (February low), before eventually meeting the mid-term critical support of 110.55 (Fibonacci 50% level on post-Trump rally). Offers are touted at 113.00/113.50 (50-day moving average).
Gold failed to consolidate gains above $1235 and retreated to $1227 in Asia. The sell-off could be temporary and the price pullback could see support at $1220 (50-day moving average), as the US yields remain subdued. The US 10-year yields consolidate below the 2.50% level, while the risk-off due to the G20 conclusions need to be further digested by global investors, especially given that the US political pictures becomes somewhat muddy.
According to the latest news, FBI Director Comey confirmed that the agency has been probing Russia on its possible intrusion in the 2016 election campaign and on probable ties with President Donald Trump.
The US stocks traded on the back foot on Monday. The S&P 500 retreated by 0.20%, as the Dow Jones closed the day 0.04% softer. Financials (-0.76%) led losses in New York on the back of softer US yields. The US futures were marginally better bid in Asia, whereas the US dollar index (-0.12%) remained quiet.
The G10 currencies consolidated gains against the greenback at the beginning of the trading week, yet resisted to further gains.
The EUR/USD remained capped below the 1.0782 (post-FOMC peak), losing the initial Fed-triggered momentum for an attempt to 1.0820/1.0830 (Fibonacci 50% level on post-Trump rally / 2017 resistance). As it appears, Ignazio Visco, a member of European Central Bank’s (ECB) Governing Council, failed to turn the ECB hawks on by stating that the timing between the end of the Quantitative Easing (QE) and the rate tightening should be shorter than expected.
Euro markets remain focused on the upcoming French elections.
In France, the election worries eased after the pro-European candidate Emmanuel Macron convincingly fought back the far-right candidate Marine Le Pen in the presidential debate. Le Pen brought up a Trump-like, 35% tax suggestion on some imported products. It is possible that the similitude to broadly criticized Trump policies penalize Le Pen in her race to the presidential seat. The latter scenario would be euro supportive.
The bias on the EUR/USD remains positive, however with decreasing likelihood of successfully fighting the 1.0820/1.0830 offers.
The European stocks are set for a marginally positive open on hopes that Macron could make his way to the Elysée Palace.
In the UK, the GBP/USD shortly spiked above its 100-day moving average (1.2408) at this week’s open in London. Mean-reversion traders rapidly jumped in to reverse gains. Cable eased to 1.2335 on decent profit taking. Monday’s sharp rebound hints that the conviction in the pound remains limited before today’s inflation data.
The UK will release its February inflation figures at 9:30am London time. Analysts expect acceleration in the headline inflation to 2.1% year-on-year from 1.8% printed a month earlier. In a similar way, the core inflation may have accelerated to 1.7%y/y from 1.6% previously. A solid inflation report could confirm the MPC members’ worries regarding the rising inflationary pressures, boost the BoE hawks and push the GBP/USD to fresh three-week highs. In case of a softer read, the 100-dma should remain the major technical challenge. Technical indicators remain neutral before the data.
The FTSE tested the 7400p on the downside at Monday’s session. Further appreciation in the pound, combined to the global risk aversion and softer commodity prices, could pull the FTSE toward the 200, 100-day moving average range (7375/7280p). Mining stocks are expected to open under selling pressure in London, as copper cheapened 1.50% and nickel lost 0.88%.
Finally in Australia, the slightly hawkish comments in the Reserve Bank of Australia’s (RBA) meeting minutes did little to sustain the AUD-bulls in Sydney. The RBA warned about the heating in the housing market, perhaps caused by the reflation trend. Nevertheless, the structural shift from the mining to the construction sector has been less efficient than desired over the past years. Lately, the unemployment rate unexpectedly jumped to 5.9% from 5.7%; meanwhile the trading volumes with the US showed a significant decline.
All in all, the RBA adopted a wait-and-see mode, kept the cash rate unchanged and reiterated that the actual accommodative policy is convenient for ‘sustainable growth […] and achieving the inflation target over time’. The AUD/USD traded in the tight range of 0.7699/0.7737 in Sydney. We do not rule out the possibility of an extension toward the mid-term resistance zone of 0.7785/0.7800. The short-term support is seen at 0.7630/0.7609 (50-day moving average / minor 23.6% retracement on December – March rise).