USD Starts The Week On A Positive Note
FTSE +18 points at 7330 DAX +85 points at 12410 CAC +43 points at 5163 Euro Stoxx +23 points at 3464
The US dollar started the week on a positive note as the US 10-year yields climbed past 2.30%. The surge in the US yields are put on the European Central Bank’s (ECB) account rather than the Federal Reserve’s (Fed). Although the ECB President Mario Draghi’s speech had given no hint regarding an eventual tapering in the ECB’s Quantitative Easing (QE) program, the Eurozone yields spiked in the course of last week and the sudden surge in the Eurozone yields squeezed the US sovereign market higher.
Carry currencies lead losses at the start of the week; the Aussie (-0.20%) and the Kiwi (-0.20%) retreated the most against the greenback.
The AUD/USD traded below the 0.77 mark in Sydney. The downside correction could extend to 0.7620 (minor 23.6% retracement on May – June rise) before 0.7565 (major 38.2% retrace).
Likewise, the broad-based strength in the US dollar prevented the NZD/USD from clearing the 0.7345-offers for the third time since last Monday and could encourage a temporary setback to 0.7221 (minor 23.6% retracement on April – June rise) in the coming sessions.
Gold extended losses to $1’237. The yellow metal is poised for a further slide to $1’235 (200-day moving average). Offers are touted at $1251 / 1’249 (minor 23.6% retrace on June – July decline / 100-day moving average) and $1’260 (major 38.2% retrace).
Yet, it is noteworthy to remind that the USD appetite could remain short-lived, if the Fed meeting minutes jog the Fed-hawks memory on Wednesday and remind them how disappointed they were following the Fed’s June meeting.
The GBP/USD closed the week above the $1.30 for the first time in six weeks. The price pullbacks are expected to attract dip-buyers in pound, as the Bank of England (BoE) hawks are conquering the market gradually. The 1.3045 mid-term resistance (major 38.2% retracement on post-Brexit decline) is the next natural target against the greenback
On the political front, the UK is seemingly after a ‘secret plan’ which would provide a free-trade access to the UK’s financial services after the Brexit. Chancellor Hammond is preparing to show that the government cares about business owners’ concerns.
The FTSE is expected to open on a positive note. From a technical point of view, the 50-day moving average is about to cross the 200-day moving average on the upside. The golden cross formation could encourage a recovery to 7373p (100-day moving average) before 7400/7425p (50,200-day moving averages).
The EUR/USD tested the 1.14 on the downside. The ECB-hawks will unlikely step down before the ECB’s monetary policy meeting accounts due on Thursday. The 1.15 remains on the radar. Light support is eyed at 1.1370 (100-hour moving average).
In Japan, PM Shinzo Abe’s LDP failed big in Tokyo elections. The party secured the fewest seats ever in the city assembly and the popularity of Mr. Abe is questioned before next year’s national election. The disheartening outcome of Tokyo elections could encourage Abe to reshuffle his cabinet and boost the fiscal stimulus. The latter action would be negative for the yen, at least in the short-term. Combined to the improvement in the US yields, the USDJPY could be catapulted toward the 115.00 level. The support to the June positive trend stands at 111.96 (minor 23.6% retrace) and 111.35 (major 38.2% retrace).
In the long-run, the latest political developments in Japan are disquieting. If Abe boosts the fiscal stimulus to save his skin, he would’ve reversed the second leg of the Abenomics, which consists of the fiscal consolidation. Boosting stimulus instead would further squeeze Abenomics, which was originally responsible for the major yen depreciation but failed to bear fruits in the aftermath of the five-year trial.
On the data front, Tankan survey showed that large industries in Japan performed better than expected in the second quarter. The large industries expanded their capital expenditure by 8% in 2Q, versus 7.2% expected by analysts and 0.6% printed a quarter earlier. The June manufacturing PMI came in at 52.4, versus 52.0 expected.
In China, the Caixin manufacturing PMI hinted at expansion in June (50.4). Bloomberg’s industrial metal subindex consolidated gains at two-and-a-half month highs.
Traders will stay focused on June final manufacturing PMI data in the UK, Eurozone and the US.
Finally, WTI crude is again under pressure on news that production in Libya exceeded 1 million barrels per day, as a result of the rebound in oil prices after the US shale producers paused their record drilling expansion. As such, Libya reached its highest production levels since 2013. Under these circumstances, there is little reason for fresh buyers to step in the market. Offers are seen at $46.65 (major 38.2% retrace on April – June decline) before $48.05 (50% retrace).