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LCG: Into the European open

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Asian equities traded mixed on Tuesday. Volatility in USDJPY rose to a three-week high due to uncertainties on US tax reforms. The USDJPY remained capped at 113.73 in Tokyo. One-month risk reversals showed increased option hedges against a further slide in USDJPY. Support is eyed at 113.25 (lower Bollinger band on daily chart).

The AUDUSD extended losses to a four-month low. Lower-than-expected Chinese retail sales and slower Chinese industrial production growth in October weighed on the Aussie along with the declining AU/US rate differential. The AU/US two-year yield spread stands at the lowest in six months. Low rate differential curbs the carry appetite. The slide could extend to 0.7580 (lower Bollinger band on daily chart).

Energy stocks in Australia erased as much as 2% as oil traded at a week-low on Monday. OPEC and its allies will unlikely postpone an agreement on oil cut extension this month, although OPECs 2018 forecasts point at larger deficit in global supply. An extension of cuts beyond the March 2018 deadline is already widely priced in. WTI crude consolidates near $58/barrel, Brent crude slipped below $63/barrel. Intra-day supports could be found at 200-hour moving averages at $56.30 and $62.58 respectively. Australian miners lost 0.66%. Precious metals were marginally cheaper, copper futures gained more than 1.0% in Shanghai.

The risk-off vibe pushed the FTSE futures 12.5 points lower during the overnight session. FTSE rolling index tested the 7400p on the downside. Soft pound couldnt wet investors appetite as the attention has shifted to risks of higher political instability in the UK with declining support for PM Theresa May. Meanwhile, thin chances of a Brexit breakthrough by December continues weighing on the investor sentiment.

Cable fell to 1.3060 on Monday. Traders watch 1.3040 (November support). The UK inflation data is the major macro event today. The headline CPI may have advanced to 3.1% in October. Unless there is a larger positive surprise, the pound will unlikely revive the Bank of England (BoE) hawks and gain a strong positive trend because of the looming political and Brexit risks. The 1.3180-1.3200 region is where offers are sheltered. If surpassed, an upside move could be stretched to 1.3230/1.3254 (Nov 11 high /50-dma) but hardly above.

The EURGBP could be another option for trading the pound weakness. The upswing could extend to 0.8970 (100-day moving average) and 0.90 level.

The EURUSD is testing the 1.1680-offers, but the Eurozone yields remain too low to convince traders to stay on their long-EUR positions. If the single currency doesnt gain in value to compensate the opportunity cost of holding a low yielding currency, the EURUSD could cheapen more. Therefore, a failure to clear 1.1680-1.1700 offers should bring investors to unwind their long positions. The key mid-term support stands at 1.1509 (major 38.2% retracement on April - September rise). On the upside, surpassing 1.1680-1.1700 resistance could offer a better momentum to the pair and allow a further advance to 1.1755/1.1790 (50/100-day moving average respectively).

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

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About the author

Ipek Ozkardeskaya is a senior analyst at MBAex with a solid experience in the financial industry. She has strong technical background in economics and quantitative finance. Previously, she worked as a senior market analyst in London Capital Group, FX strategist in Swissquote Bank and as a client sales executive at HSBC Private Bank in Geneva. She also developed quantitative models in automatic trading as part of BCV’s Structured Products team. Ipek has a Master’s degree in Financial Engineering & Risk Management and a Bachelor degree in Economics from University of Lausanne.
Contributing  author since 11/09/2017

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