31 / 03 / 2017 | Market News

EUR/USD hits two-week lows

Our prop desk continues to run that long AUD/JPY position from earlier in the week, whilst support also remains in evidence for USD/CHF. Short gold is also profitable, but the short index positions are still proving frustrating.
 
Daily round up
 
We have a relatively quiet run into the weekend break ahead with limited high profile economic data on the table, although attention will once again be on the political agenda. Donald Trump is set to sign two further executive orders regarding trading relationships, but the scope of these is set to be far more limited than the picture we saw painted on the campaign trail. Whether the dollar can find much more upside off the back of this seems doubtful.
 
Fundamental Analysis – EUR/USD hits two-week lows
 
The Euro is having a rough ride of late with recent political-inspired gains unwinding as lacklustre inflation data weighs. Yesterday’s numbers from Germany fell short of expectations and we have the Eurozone-wide data due for release at 9am GMT, although given the slide we’ve already seen posted for the Euro against the greenback, even an in-line print here could create some buying opportunities, at least in the short term.
 
Oil is starting to back away from those recent highs although US front month contracts remain over $50 for now. Part of the reason we saw that draw in inventories mid-week is being attributed to a seasonal shift in refining capacity, so assuming we see another jump in the Baker Hughes rig count at 5pm GMT then crude’s foray above this psychological level is likely to be short lived.
 
Gold prices remain under pressure wit a strong dollar weighing here, although support has been seen at the $1240 level and with political risks in mind, scope on the downside could remain limited. Next week sees Donald Trump meet the Chinese president and this could be a tense meeting both in terms of trade and China’s growing military presence in Asia. The situation may be tempered on the basis that the country is a significant holder of US debt, but risk aversion could well drive more interest in the precious metal as next week progresses.
 
Data out of Japan overnight did little to prop up the Yen, despite inflation reaching its highest level in almost two years and the unemployment rate dropping to 2.8%. Household spending is struggling to gain traction with the year-on-year figures showing a 3.8% decline and the Yen’s recent of strength does seem to be at an end. The implications of the US executive orders being signed today will be worth watching, but this is the start of a consultation period rather than the trigger for any immediate change so in isolation this is unlikely to have much bearing on the currency. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
 
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31 / 03 / 2017 | Technical Analysis

AUD/USD finding support

AUD/USD is targeting yesterday’s highs of 0.7680 as the uptrend off recent lows continues apace. If this falls, look for a return to March highs of 0.7750
 

 
Cable is struggling to break higher, suggesting that a reversion could be imminent. Look for support at the 50 day moving average around 1.2430 then yesterday’s lows around 1.2410.



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
 
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31 / 03 / 2017 | Market News

How Article 50 will Affect Markets

The announcement of the UK’s intention to exit the single-currency Eurozone (and the EU at large), caused the pound to fluctuate but the most significant movement was seen the day following  the official referendum vote, that saw 51.9% of voters in favor of the leaving the EU. The GBD/USD plummeted from 1.49036 on June 23 (the day of the vote) to 1.36834 on June 24th and has not managed to rally above 1.35 (which could be considered a previous baseline or lowest price for the currency pair).

GBP/USD Continuing to Drop?

On the 29th of March we saw the UK move closer towards separating the European Union with the enacting of Article 50, which puts the country on a two year path towards independence – both financial and policy wise. On the day of Theresa May current UK Prime Minister launched Article 50 the GBP/USD closed at a historical low of 1.2133 (29th of March) and saw only a slight and conservative rise to 1.24763 when the pair closed the next day (30th of March).

GBP/EUR Still Connected?

Of course the image of the GBP/EUR wasn’t as stark considering that confidence in the Union’s single currency inevitably wavered also, due to the UK’s economic girth and perceived contribution to the EU’s economy. On June 21st the GBP/EUR held at 1.3030, rallied to 1.3065 on the day of the referendum and drop significantly to 1.2305 the day after (June 24th). Since then much like the GBP/USD the GBP/EUR pair has not managed to move above 1.25 mark.

The question though is what will happen until the UK’s complete exit?

GDP, Service Sector Growth and Business Investment

A more worrying trend is the service industry’s growth falling to 53.3 from its January level of 54.5. The reason this is worrisome, is largely due to the fact that the service industry accounts for a large part of the UK’s GDP (up to three quarters according to sources). In seeming contradiction though, the Office for National Statistics reported an increase of GDP from 0.6% to 0.7% in last three months of 2016.
The truth though is that the GPD growth is expected to not only halt but drop lower in the first part of 2017. Inflation - which is the highest it’s been in the past two years is expected to increase further which in turn will further weaken the GBP.
To add insult to monetary injury, business investment fell 1% in the last part of 2016, due again to wavering confidence in the UK’s ability to conduct business as normal during the transitional period post-Brexit.
There is yet more troubling news coming out of the aftermath of Article 50 – the potential hit to Consumer Purchasing Power as a result of increased tariffs imposed on EU imported goods and services, which is another factor which is closely tied to economy’s health and the value of its currency.
 

Ireland and Scotland

Another after-shock felt by the triggering of Article 50 is the possibility of Scotland and Northern Ireland remaining in the EU by declaring independence. Scotland has become an especially hot button item as there has been a forth-right denial by the three primary political parties in the UK’s Parliament, for Scotland to use the Sterling in the case they remain in the EU or alternatively claim independence and remain.
If Scotland leaves - and a poll performed on the 28th strongly indicated towards that being a high possibility - both UK stocks and the Sterling could be negatively affected.

Uncertainty Equals Low Prices

With the Scottish independence referendum approaching and the ‘no’ vote only having a six point lead over ‘yes’ to independence and the EU playing hard-ball with the UK regarding trade and financial sector agreements – the pound’s future seems volatile – and the markets are responding. This uncertainty will undoubtedly continue, at least for next two years, further pushing investors and traders away from UK tied stocks, bonds and currencies.
As negotiations are still going on between the EU and the UK and will continue to do so for the next two years, the outcome might be too early to call, but you can use one of STO’s accounts that includes access to the MT4 platform to stay informed about the movement of the pound, euro and dollar, from desktop or mobile.


This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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30 / 03 / 2017 | Market News

Fed claims US economy back to normal; dollar posts muted response.

Our prop desk is making good progress with some long Aussie dollar positions, whilst those long USD/CHF trades from earlier in the week also remain in play. There’s still some expectation that equity indices have further to fall with S&P shorts remaining open, but attempts to see further gains for EUR/USD have fallen short. 

Daily round up

We have a relatively subdued day ahead as the month and quarter ends both sweep into focus. The data we do have scheduled for release is mostly low-key so beyond seasonal position keeping, traders could be left struggling to find fresh direction in the short term. Gold prices have seen a little weakness off the back of the recent run of dollar strength, although US treasury yields haven’t perhaps reacted in quite as upbeat a way as would have been expected in light of the Fed’s rousing call over economic recovery.
 

Fundamental Analysis – Fed claims US economy back to normal; dollar posts muted response.

 
The dollar index may have nudged back above the 100 mark during yesterday’s session but given this comes against the backdrop of a bold claim by the Federal Reserve that the US economy is – after nine years – back to normal, a little more enthusiasm could have perhaps been expected. We have the final US Q4 GDP reading due at 1.30pm GMT this afternoon so the expectation would have to be that this will reflect the upbeat sentiments from the Fed with a 2% growth figure being forecast. Any shortfall here could stand to leave the dollar looking exposed however – with the market not looking all that excited over the Fed’s claims of normality, any excuse to book profits heading into the quarter end could well be jumped upon.
 
EUR/USD is now 150 points lower than the highs we saw hit at the start of the week and further downside pressure could be on the cards when German inflation data is released at 1pm GMT today. There’s an expectation that this figure will fall back below the 2% mark, playing to Mario Draghi’s idea that inflationary pressures would be short lived and with oil prices on the back foot this certainly makes sense. However it also backs the policy doves at the ECB and suggests that keeping interest rates lower for longer is still necessary to allow the Eurozone economy time to recover.
 
EUR/GBP reacted again yesterday to the Brexit process with support for the pound coming through off the conciliatory tone that was struck from both sides as the difficult process of negotiating the divorce gets underway. Neither Donald Tusk nor Jean-Claude Juncker saw yesterday as anything more than a failure of the Union to accommodate the changing landscape of member nations – the time for finger pointing is over and it’s now about shaping how the two entities will work together from 2019 onwards.
 
US equity indices have recovered from the sell-off in the wake of Donald Trump’s failure to reform healthcare, with the market throwing its faith behind tax breaks, but the clock is certainly ticking here with lawmakers needing to agree on US budget plans by the end of next month. Valuations remain inflated and there’s plenty of profits to be taken, so any hint that either the tax reform won’t be passed or that the government will run into a deadlock over the budget has the potential again to lead a reversion here. It just seems that repeatedly these markets are bouncing straight back.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
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30 / 03 / 2017 | Market News

GBP/USD ready to rally?

Cable is holding around the 50 day MA and also the 38.2% retracement of the post-Brexit sell-off. Support here suggests next move could be higher with 1.26, 1.2660 and 1.2720 potential targets.
 

 
US Crude Oil has broken back above the 200 day moving average and is sitting just above the 61.8% retracement of the post-Opec cut rally.  Look for resistance at the 50% retracement of $50.70.



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
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29 / 03 / 2017 | Market News

Pound bloodied as May signs Brexit letter

Our prop desk is holding some long UK oil positions in the wake of the recent charge higher and there’s also a rather profitable AUD/JPY trade in play. Support for long USD/CHF is evident, whilst that short S&P trade is still open – although rather less on side than we saw earlier in the week.
 
Daily round up
 
A raft of comments from Federal Reserve members offered up some pace yesterday, whilst the landmark event for today is the UK’s official triggering of the Brexit process. This is all providing some meaningful direction for the relevant currencies, although it’s difficult not to think that despite the weight of direction being picked up, in both instances this only tells part of the story. There are some slightly more dovish tones creeping in from the Fed so this remains one worth watching, but it certainly justifies that tepid outlook for rate hikes into 2018.
 

Fundamental Analysis – Pound bloodied as May signs Brexit letter

 
We postured yesterday that with the triggering of Article 50 so widely expected, sterling would have little reason to retreat off the back of today’s formalities, but currency markets have been unwilling to hold this line. The pound has been under sustained pressure with gains of recent days being eroded in the last few hours although it’s worth noting that there has been a relative absence of UK economic data on hand to provide direction. This could change shortly as we have a flurry of lending data due from the Bank of England at 9.30am GMT. Anything that suggests borrowing is running too hot points towards a need for tighter monetary policy and may help provide at least some temporary support to the pound’s tumble.
 
The greenback posted gains through the latter part of yesterday’s session, supported by a flurry of comments from FOMC members, which generally supported the idea that we would see a further two interest rate hikes this year. Critically with US inflation having been on the up even before the presidential elections, the thinking is that Trump’s failures to enact reform so far, whilst potentially damaging for inflated equity valuations, shouldn’t have any real bearing on the direction of monetary policy. Obviously the caveat here is that a big equity market sell-off can pave the way for recession, but for now the backdrop is dollar positive.
 
Oil prices have been finding some much needed support in the last few hours with supply disruption out of Libya and a draw in US gasoline reserves helping lend a little support here. Obviously this needs to be put in context of the expanding output we’re seeing from the US and with Opec seemingly committed to keeping those quotas in check, any support here could be short lived. We have the weekly oil inventory data out at 3.30pm GMT so this could provide some fresh direction but with US storage facilities getting ever closer to capacity, this metric - in addition to the size of any build - will be attracting interest. Critically, running out of capacity is likely to widen the spread between US and UK crude prices. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
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29 / 03 / 2017 | Technical Analysis

AUD/USD rally looks difficult to sustain

AUD/USD has bounced off the 23.6% retracement of the rally that started just before Christmas, however struggling to break higher. If 0.7615 falls, look for support around the 200 day moving average of 0.7525.
 

 
The brief run higher for EUR/JPY on the daily chart is stalling and this is paving the way for a sell off down to the 118.25-118.50 range of year to date lows and the 38.2% retracement of the post Brexit run higher.
 


This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
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28 / 03 / 2017 | Market News

Eve of Article 50 sees Sterling with a stiff upper lip

Our prop desk is still holding those short S&P positions from last month, but more recently we’ve seen some short interest in USDJPY, some buying of EURUSD and also some support for the DAX.
 
Daily Round Up
 
We have a relatively quiet day ahead in terms of economic data, although many investors will have the quarter end in sight with this potentially driving some position keeping. US equities and the dollar have both come in for a rough ride of late so comments from various Fed members will be under scrutiny to see if there’s room for support here, but the questions over sentiment in the US seem to be as much about the political landscape as they are the economics.
 
Fundamental Analyst – Eve of Article 50 sees Sterling with a stiff upper lip
 
Tomorrow, Theresa May will formally trigger Article 50, the process by which the United Kingdom will begin withdrawing from the European Union. This has been widely announced to the market, but with the Brexit honeymoon period for UK economic data already seemingly over, could there be some resulting downside pressure for the pound? As it stands for now, GBP remains resilient, but with a relatively quiet economic calendar in the next 24 hours and nothing of note due out of the UK, the excuse to take money off the table ahead of any potential uncertainty could well see the stiff upper lip move to a bloodied nose. The uncertainty of the Brexit process means there’s little confidence as to where the UK economy – and indeed sterling – will go next.
 
EUR/USD continues its march higher with the pair bouncing off highs of 1.09 shortly after the European close last night. We may be light on data, but any comments on monetary policy from ECB member Benoit Couere when he speaks at 11.45am GMT this morning could provide some fresh direction for the common currency. The market is looking for hawkish tones that would underline the idea Eurozone interest rates may start to rise ahead of the end of the current QE package – although the weekend’s win for the CDU in German elections is certainly taking some of the pressure off here. Again, with EUR/USD having been suitably inflated of late, any dovish sentiment could easily see these positions reversed.
 
Although economic data is generally thin in the ground today, we do have the March US consumer confidence reading slated for 3pm GMT. This has the potential to provide some fresh support for the greenback – USD/JPY’s slide stalled just above the psychologically significant 110 level, so a bumper reading here could help play down the slightly more dovish tones we’ve see emerging from the Federal Reserve of late. We also have a number of Fed members speaking through the session including Ms Yellen at 1pm GMT – the potential for a snap back of recent greenback losses shouldn’t be overlooked.
 
The run off for US equity indices appears to be coming to an end, with the S&P rallying hard off yesterday’s session lows. Opinions are divided as to what last week’s failure to implement healthcare reform means for the next steps in Trump’s agenda – although current market reaction seems to be betting on the fact this will make progress in changes to tax policy even more important to push through. Given the cross-party rejection we saw over healthcare, this could be too optimistic a view and ultimately equity valuations remain inflated. Medium term, the risk here remains on the downside. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
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28 / 03 / 2017 | Technical Analysis

USD/JPY hits key support

110 marks a 50% retracement of the post-election rally seen by USD/JPY. If this falls look for a slide down to the 61.8% retracement around 108.00
 

 
EUR/USD failed to make a sustained break above 1.09, suggesting a period of consolidation will now be seen with a dip back to 1.08 – the 50 retracement of the post-election slide – in target. Longer term could post further gains.
 


This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

 
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28 / 03 / 2017 | General

Will Trump Deliver on His Promises? Or will this be the end of the Bull Market

President Trump’s promises for tax reform, infrastructure spending and repatriation of heavy industry that was previously outsourced, bolstered both consumer confidence and market confidence. Yesterday though the Trump administration’s inability to pass legislation restructuring health-care, caused this confidence to wane. The effect saw not only U.S. markets drops but even the STOXX Europe 600. Does this spell the end of the bull market of the past 3000 days?

Tax Reform

On speculation, analysts have mentioned that tax reforms would be much more difficult to rally support for compared to health care. The effect of these speculations resulted not only in the drop of U.S. index S&P 500 futures by 1% but a reflection or mirroring in the Stoxx Europe 600 futures with a smaller but still significant 0.7% drop. Even so, European stocks are coined to outpace U.S. stocks in the coming days

Dollar slips too but Euro Rises

Although an obvious correlation, the drop seen in the market indices futures was also observed in the dollar’s value. Would this indicate further volatility in currency pairs involving the dollar? There is a high possibility. On the other hand this wide felt slump saw the rise of the value of haven currencies such as the Yen and Gold/USD pair.  The value in Gold in fact saw a increase of 1% on the 27th of March (reaching its November value of $1258.48) – concurrent with the voting down of the health-care reformation bill. The Euro rose in light of Angela Merkel’s party victory in the Saarland state, giving indications of the outcome of the Chancellors’ election.

More Volatility Ahead

Although volatility is expected in currency pairs involving closely tied base currencies such as the USD, GBP and EUR, the coming months might prove to be even more volatile due to important upcoming economic and political events. Some of these events include:
  • The beginning of the two-year process of negotiations for Brexit. Although PM Theresa May wants the split and trade agreement negotiations to be simultaneous, the EU is wants to negotiate the split first and then start talks regarding trade agreements.
  • On the same day as the beginning of the end of the UK’s part of the one currency club of the EU, proposals for the wall between Mexico and the U.S. are due.
  • Interest rates will be set by Thailand, South Africa and Mexico
  • Tumultuous Samsung will attempt to recover from the Note 7 exploding battery debacle with the introduction of their latest smartphone the Galaxy S8.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
 
 
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