FTSE +13 points at 7390
DAX +20 points at 12228
CAC +8 points at 5135
Euro Stoxx +2 points at 3455
The US dollar was better bid amid the US flash manufacturing PMI beat estimates for July read. Still, the downside risks prevail with the ongoing Trump investigations and the Federal Reserve (Fed) meeting. The US stocks are stagnating near the all-time highs, undecided on whether they have reached a local top, or there is more to explore beyond.
The Fed starts its two-day meeting today and the verdict is due tomorrow. Investors are craving for more details regarding the balance sheet normalisation. September could be a reasonable date to start reducing the size of the Fed’s $4.47 billion worth portfolio. Lack of details could further dent the hawkish Fed expectations. The market assigns 42.3% chances for a December rate hike before the FOMC's July verdict.
Gold buyers are touted at $1,247/1,250, area including 50, 100-day moving averages and the 50% retracement on June-July decline. The upside prevails before the Fed meeting. The next positive target stands at $1,260 / 1,275 (major 61.8% / minor 76.4% retrace). Subdued US yields maintain the opportunity cost of holding the non-interest-yield-bearing gold at suitable levels. Yet, a hawkish Fed announcement could encourage a decent sell-off below the $1,240 level (major 38.2% retrace).
The USD/JPY traded down to 110.62 on Monday. The Bank of Japan (BoJ) meeting minutes showed that the policymakers refrained from making premature comments regarding the policy normalisation in order to avoid confusion in the market. The BoJ is still comfortably far from achieving its 2% inflation target. Japan will release the June inflation figures on Friday. The inflation excluding fresh food (monitored by the BoJ) is expected to have steadied at 0.4% year-on-year. A hawkish Fed statement could be an interesting window for dip-buyers in USD/JPY at the current, month-low levels. Light call option is seen at 111.50 at today’s expiry, put options dominate below the 110.50 level.
Another victim of the soft US dollar is the Swiss franc. The US dollar depreciated by 8.67% versus the franc since January. Losses accelerated over the past three months due to recurrent allegations against the President Trump, the rising demand in safe haven assets and the softening US yields. On Monday, the franc pared gains from the 15-month highs against the US dollar after the Swiss National Bank (SNB) President Thomas Jordan said that the franc was ‘significantly overvalued’. Still, the pricing on the three-month Euro-Swiss futures doesn’t hint at any imminent policy action. The lack of intervention from the SNB stipulates that the franc’s relative value is mostly determined by the valuation of other currencies.
The substantial volume of speculative long euro futures positions warn that a reversal could cause a sharp tactical sell-off across the euro crosses. The EUR/USD consolidates gains at two-year high levels. The topside is eyed at 1.1714 (Aug 2015 high).
Cable consolidates near the $1.30 level. The FTSE 100 erased 1.01% on Monday. All sectors traded in the red. Utilities (-1.84%) led losses, energy stocks (-1.17%) found no buyers despite the recovery in oil markets. The UK stocks are set for a firmer open in London.
The WTI crude advanced to $46.70 in Asia. The lack of conviction keeps the top-sellers alert on price rallies. Resistance is eyed at $48.05 (50% retracement on April – July decline & 100-day moving average).
The AUD/USD is firmer for the second consecutive session. The positive momentum could encourage a further rise toward the mid-term critical resistance of 0.8000/0.8005 (psychological resistance / 200-week moving average). Due on Wednesday, the 2Q inflation data and Reserve Bank of Australia (RBA) Governor Lowe’s speech should determine whether the current Aussie appreciation is warranted, or a downside correction is needed.