Abe wins, Spanish & Turkish banks dive

Japanese PM Shinzo Abe won his bet on October 22 snap election. The yen was the leading loser against the US dollar in Tokyo. The USDJPY hit 114.10, Nikkei (+1.11%) and Topix (+0.94%) gained as PM Abe managed to obtain a two-thirds majority on Sunday.

Abenomics 2.0 should pave the way for a longer period of ultra-loose monetary policy and decent government spending to boost growth and inflation in Japan. The 115.00 level is a reasonable target for the USDJPY-longs. Intermediate resistance is eyed at 114.48 (July high) and call options are ready to be exercised at 114.50/114.60 today.

Spanish banks tank on Catalan crisis

Spanish PM Rajoy announced to sack the Catalan government and take control of its police, regional TV and radio stations. There will likely be a new referendum to clarify the Catalan independence bid. The separatists said they will fight back and declare independence unilaterally, though they have lost credibility on the back of their hesitation to impose their rule over the past weeks.

The IBEX kicked off the week on a bad mood, real estate stocks wrote off 1.15% shortly after the weekly opening bell, as Spanish banks plunged. Santander (-3.14%), BBVA (-3.60%), Banco Sabadell (-6.38%) and CaixaBank (-10.00%) were aggressively sold on the eventuality of a bank run.

The euro traders payed little attention to the Catalan turmoil.

Euro traders continue trading on ECB expectations, ignore Catalan turmoil

Nothing seems strong enough to distract the euro traders before the European Central Bank (ECB) meeting due on Thursday. The ECB could eventually deliver more details on its Quantitative Easing (QE) exit plans on Thursday's policy meeting. Some analysts predict that the committee could even take action this week. According to the latest news, the ECB is preparing to cut its monthly bond purchases by half, to 30 billion euro, starting from next year. On the other hand, President Mario Draghi warned that the low rates will stay ‘well past’ the end of the QE program. Hence, the EUR-bulls will likely trade with moderation on the run up to Mario Draghi’s press conference.

The EURUSD saw support at 1.1748 (100-day moving average) despite the deepening crisis in Catalonia. Traders remain buyers at dips.

The EURGBP held the ground with the help of 0.8900-call options on Friday. The daily MACD (Moving Average Convergence Divergence) index turned positive and could give a hand to the EUR-bulls on the run up to Thursday’s ECB meeting. 

Has Cable hit a bottom?

The 100-day moving average (1.3108) may be the lowermost that Cable traders were looking for. The GBPUSD started the week on a positive note after having performed poorly following last week’s inflation data. With the inflation at 3%, the Bank of England (BoE) is left with no alternative but to raise rates. The market assesses 76.6% probability for a November hike, 80.8% probability for a December hike.

Meanwhile pound traders are pricing in a dovish rate hike, provided that soft wages growth and discouraging retail sales reminded investors that the Brexit situation will be a bottleneck on the UK's growth story over the coming quarters and that the BoE will not commit to a tighter rate policy under these circumstances. The BoE’s rate hike is factored in as a one-and-done action.

DB, Barclays, UBS release results this week

Deutsche Bank (Oct 26), Barclays (Oct 26) and UBS (Oct 27) will report earnings this week. DB and Barclays may have had a soft quarter due to the ECB’s new problem-loan provisioning and the strong euro according to Bloomberg Intelligence.

US stocks renew record on solid company earnings

The US stock markets renewed record on Friday; the Dow Jones extended gains to the fresh historical high of 23'328.84, as the S&P500 traded at 2'575.21 for the first time.

US earnings will remain in focus this week. Twitter, Alphabet, Google, Amazon, Microsoft are among companies releasing results this week.

Turkish lira, stocks under pressure as US tensions escalate

Turkish financials (-1.60%) opened under pressure in Istanbul on news that the US blacklisted six of the country’s banks.

The Turkish lira headed south following President Recep Tayyip Erdogan’s US critics over the weekend. The sell-off spread over the emerging market currencies, which were already under the pressure of a stronger US dollar on hawkish Fed expectations. The MSCI’s emerging market currencies index edged lower in four trading sessions over five.

Lira traders are alert before the Central Bank of Turkey (CBT) meets on Thursday. Analysts expect no change in interest rates, although President Erdogan is pushing for lower rates. Any unanticipated move of a dovish nature could be a direct hit to the central bank’s credibility on independence. Therefore, the status quo is the safest and the most likely scenario at this week’s meeting. The CBT will naturally benefit from a dovish divergence with the prospects of higher US, EU and UK rates. USDTRY offers are eyed pre-3.75, the 100-day moving average (3.60) should continue lending support.