FTSE -20 points at 7502
DAX -59 points at 12745
CAC -24 points at 5382
Euro Stoxx -15 points at 3626
The US dollar continues losing blood. The DXY index has now completed its post-Trump roundtrip and is back to the pre-election levels. Talks around the FBI and Russia keep the risk appetite limited and the US political agenda on the backstage. The US futures traded south. S&P futures weakened 0.56%.
The US 10-year yields have tested the 2.30% level on the downside as the US Senate leader Mitch McConnell warned that Trump’s major fiscal plans would be deficit-neutral, in opposition to the President’s earlier will to cut the deficit for a healthier long-term growth.
Expectations of massive infrastructure spending and major tax cut plans weigh on the US dollar, first, because the budget deficit is straightforwardly negative for the national currency and second, because Trump’s administration plans are so sharp that they have had, and should continue having a hard time to be brought to life. This takes some pressure off the Federal Reserve’s (Fed) shoulders. The government’s inability to expand the fiscal policy at the pace promised by Trump, automatically reduces the inflation expectations and gives the Fed more time for normalizing its rates and its balance sheet.
The expectations of a June rate hike remain high, 97.5%, but many investors are brought to think that they may have gone well beyond themselves.
Gold hit the $1,245 target, the major 38.2% retracement on April-May decline. Two popular technical indicators are in favour of a further rise in gold prices. First, a break above the $1,245 suggests a short-term bullish reversal. On top, the golden cross formation (50-day moving average crossing above the 200-day moving average) should enhance the positive momentum and fund a reasonable base for a further advance toward $1,255/1,260 (50% retrace / April support before sell-off acceleration).
The yen (+0.55%) is the biggest G10 gainer against the greenback for the second consecutive session. The USD/JPY is set to challenge the 100-day moving average (112.30) on the downside. Nikkei (-0.57%) and Topix (-0.53%) are discontent face to the USD-funded yen appreciation. Japanese industrial production retreated by -1.9% month-on-month in March and the machine orders grew at a slower pace than expected by analysts during the same month. Weak economic data is, in theory, negative for the yen, However, the FX markets are highly contaminated by the US dollar weakness.
Shanghai's Composite made a positive attack just before the session close on Tuesday, yet is still finding hard to find buyers. However, the iShares China Large-Cap (NYSE:FXI) tell another story. Up by 16.76% since December, the iShares China ETF has nearly recovered half of losses recorded from mid-June 2015 to the first quarter of 2016. President Xi’s positive stance for globalization, led by the Belt and Road project, generate both enthusiasm and skepticism.
The EUR/USD extended gains to 1.1117 in Asia. The positive breakout is a combination of a higher conviction regarding the Eurozone integrity and the broadly offered US dollar. The next eye-catching target stands at 1.1300, the US election high. Supports to the April-May positive trend stand at 1.0972 (minor 23.6% retrace on April – May rise) and 1.0895 (major 38.2% retrace).
The EUR/GBP hit the 200-day moving average for the first time in six weeks. Although the short-end of the European rate curve do not suggest any imminent change in the European Central Bank (ECB) monetary policy, stronger euro is on the menu of the euro-bulls.
The DAX consolidated gains after hitting a fresh all-time high, €12,841.66 and is expected to write-off some 50 points at the open on the back of a global risk aversion due to the shaky FBI news.
Likewise, the FTSE 100 hit 7533.70p for the first time in record, as gains in the pound remained under control following the solid inflation report in the UK. Downside correction is expected at the London open, before the British employment data. The earnings growth is the major focus. The British wages are expected to have improved by 2.4% in the three months to April, from 2.3% printed a month earlier. Solid wages growth could translate into higher consumer demand, rising inflationary pressures and increase the hawkish pressures on the Bank of England (BoE). The latter reasoning is GBP-positive. Yet, the 1.30 level against the US dollar remains a solid resistance and a major taboo. Stops are eyed above.
The WTI crude charms top sellers above the 200-day moving average ($49.60). The actual oil prices factor in a nine-month extension in OPEC/Russia production cuts. The market apparently demands more for a sustainable break above the $50 level.
The US oil inventories may have contracted by additional 2.5 million barrels last week. The weekly EIA data is due later in the session and a soft read could give a boost to the energy markets. Top sellers are eyed at $50 and above.
Quick glance at technicals on LCG Trader:
EUR/GBP intraday: further upside. Long positions above 0.8530 (pivot) with targets at 0.8605 and 0.8635 in extension. Below 0.8530, downside potential to 0.8490 and 0.8455.
GBP/USD intraday: further advance. Long positions above 1.2895 (pivot) with targets at 1.2960 and 1.2980 in extension. Below 1.2895, downside potential to 1.2880 and 1.2860.
Dow Jones intraday: under pressure. Short positions below 20865.00 (pivot) with targets at 20800.00 and 20780.00 in extension. Below 20865.00, downside potential to 20895.00 and 20915.00.