FTSE -12 points at 7373
DAX -6 points at 12751
CAC +3 points at 5403
Euro Stoxx-2 points at 3643
As expected, the Reserve Bank of New Zealand (RBNZ) maintained its official cash rate unchanged at 1.75%. The kiwi (-1.67%) has been the biggest loser against the US dollar after the RBNZ Governor Wheeler said he doesn’t see a ‘burst of inflation’ and expects the cash rate to remain unchanged at 1.75% in the foreseeable future. The NZD/USD tanked to the lowest level since June 2016. The 0.68 level is the next natural target for the NZD-bears, especially as the US dollar is trading under a rising hawkish pressure.
Boston Federal Reserve’s (Fed) Rosengren called for three more interest rate hikes this year and suggested to start shrinking the balance sheet following the next rate hike. We remind that the market assesses 100% probability for a June rate hike. The US dollar is better bid across the board, although traders analyze Rosengren’s suggestions with caution. Rosengren appears to be very hawkish and will likely lack support for such an early portfolio shrinking. The U.S. 10-year yields stand just below the 2.40% level.
The JPY-bears benefit from higher US yields. The USD/JPY hit a two-month high (114.37). Short-term trend and momentum indicators hint at a further rise. Intermediate resistance is eyed at 114.60 (major 61.8% retracement on December – April decline), before the 115.00 mark. There is a large call option expiry at 114.00 for today. More call options are waiting to be exercised at 115.00/115.20, suggesting that the option positions do not represent a barrier at the 115.00 level.
The EUR/USD eased to 1.0853 on Wednesday, a touch higher that the critical short-term support, 1.0849 (major 38.2% retracement on April – May rise), as the European Central Bank President Mario Draghi said that it may be too early to declare victory, despite the solid Eurozone economic. Breaking below 1.0849 should suggest a short-term bearish reversal in EUR/USD and could encourage a deeper downside correction to 1.0795 (50% retrace) and 1.0760 (200-day moving average).
The Bank of England (BoE) policy decision and the Quarterly Inflation Report (QIR) are the major macro events of the day. The BoE is expected to maintain its monetary policy unchanged, to revise its inflation forecast higher due to the significant pound depreciation posterior to the Brexit, yet to remain cautious regarding growth due to looming Brexit risks. Traders will be watching the 1.30 level, which has acted like a solid resistance so far. It could be a make or break day for cable.
Will Cable appreciate past 1.30?
The pound appreciated by nearly 3.80% against the greenback since PM Theresa May announced early general election in April 18. The GBP-bulls continue betting that the early election could curb the extremes, such as UKIP, set aside a part of the hardest Brexiteers and allow the UK to negotiate a smoother Brexit.
On the flip side, the divergence between the Fed, seeking to raise rates and shrink balance sheet simultaneously, and the BoE, hoping to stay as accommodative as possible given the rising inflationary pressures, is in favour of a relatively stronger US dollar. The key resistance is eyed at 1.3044, the major 38.2% retracement on post-Brexit sell-off. A break above this level should suggest a mid-term bullish reversal in GBP/USD. It is of course possible for the pound to extend gains above this level, should traders are ready to start unwinding their negative view due to the Brexit.
Gains in FTSE remained capped pre-7400p level on Wednesday. The strong pound and the $1.30 taboo refrained buyers from pushing the index above this level. Energy stocks (+1.12%) were better bid, as oil prices surged on softer US inventories.
According to the EIA data, the US oil inventories dropped by 5.2 million barrels last week, more than -2 million expected. WTI hit the $48.78 target (major 38.2% retracement on April – May decline) and topped pre-$48. Trend and momentum indicators remain positive, and rising speculations that the OPEC would announce further measures to reduce the global supply glut in May 25 meeting keep buyers alert. Surpassing the $48 could encourage a further rise toward the $50 level
Snap (NYSE:SNAP) shares plunged more than 25% in the extended trading after the company reported 2.2 billion dollars loss in its first ever earning report.
Quick glance at technicals on LCG Trader:
AUD/USD intraday: Short positions below 0.7375 (pivot) with targets at 0.7330 & 0.7315 in extension. Above 0.7375, upside potential to 0.7395 & 0.7425.
GBP/JPY intraday: Long positions above 147.15 (pivot) with targets at 148.20 & 148.65 in extension. Below 147.15, downside potential to 146.80 & 146.35.
Crude oil intraday: Long positions above 46.65 (pivot) with targets at 48.00 & 48.50 in extension. Below 46.65, downside potential to 46.00 & 45.50.