FTSE -31 points at 7240
DAX -35 points at 12565
CAC -2 points at 5265
Euro Stoxx -6 points at 3533
The currency markets rectify the post-Federal Reserve (Fed) price action on the US dollar. The risk appetite is fading on speculations that North Korea could test a hydrogen bomb in Pacific following the new US sanctions.
The S&P500 closed 7.64 points lower at 2’500.60 on Thursday, the Dow Jones erased 53.36 points after trading at a new record high (22’419). Wall Street financials (+0.28%) outperformed on prospects of higher interest rates. Goldman Sachs (+0.65%) and JP Morgan (+0.45%) gained, as Procter & Gamble (-1.86%) and Apple (-1.72%) lost the most in the US session.
Gold retreated to $1’288-support (50-day moving average), before the risk-off trades kicked in on Friday morning. From a purely technical perspective, gold could extend its slide toward the $1’282 (Fib 50% retrace on July – September rise) in the continuation of the recent bearish reversal. Of course, it is important to keep an eye on the geopolitical risks. There is a back-and-forth threatening between the US and North Korea. If this leads to any nuclear/military action as suspected, gold could abruptly reverse losses and extend gains above the $1’300 level.
The Japanese yen (+0.57%) gained the most against the US dollar in Tokyo. Nikkei (-0.26%) and Topix (-0.27%) retreated. The USDJPY retraced to 111.65 after having traded at 112.71 on Wednesday. The actual price pullback could find support within the daily Ichimoku cloud cover (111.55 – 110.05). From a macroeconomic standpoint, the divergence between the Fed and the Bank of Japan (BoJ) policy outlook is supportive of a stronger USDJPY and the geopolitical risks may cause lower safe-haven inflows toward the yen, which is not the ideal harbour for investors willing to avoid the N. Korean tensions. Intermediate support is eyed at 111.45 (200-day moving average) and 110.80 (100-day moving average).
Hence, the Swiss franc could be an interesting safe-haven alternative to the yen. The USDCHF will likely abandon the idea of a consolidation above the 100-day moving average (0.9675) this Friday.
The antipodeans could be running out of steam due to improved prospects on the US interest rates. The AUDUSD slipped below the 50-day moving average (0.7949) and could extend losses toward the 0.7820 (major 38.2% retracement on April – September rise), which should distinguish between the continuation of the five-month positive trend and a mid-term bearish reversal.
The EURUSD recovered above its 200-hour moving average (1.1943), a short-term benchmark which provides a plausible consensus for both the bulls and the bears. September flash manufacturing and services PMI data are due today and should not trigger a directional move. The mean-reversion trading around the 200-hma should walk the EURUSD into the German election weekend. German election risks are two-sided. A relief rally could push the EURUSD above the 1.20 level on Monday open. Whether the pair could consolidate gains will depend on the prospects of new coalition and how long would it take Germany to form a new government.
This said, the euro could surrender to the stronger pound. The EURGBP could continue its downside move toward the 200-day moving average (0.8740).
The pound recovers well against the US dollar as well. Dip-buyers were alert above 1.3448 (major 38.2% retracement on post-Bank of England (BoE) rebound) this week. Trend and momentum indicators remain comfortably positive. As expected, the GBPUSD rebounded past its 100-hour moving average (1.3525) and should consolidate gains before the weekly closing bell. News that the UK could pat 20 billion euros Brexit fee to the EU should see a mixed reaction. Accepting to pay a fee is a diplomatic approach and could improve the quality of the communication in the Brexit negotiations. However, the amount may fell significantly short of the 60 billion euro discussed previously.
The strong pound should continue weighing on the FTSE stocks. FTSE 100 could challenge the 7200p support under the pressure of a rising upside potential in pound.
Oil demand softens. WTI crude oil encounters offers into $51 per barrel. Suspicions that Russia could be reluctant to extend its production cut agreement with the OPEC could weigh on the positive sentiment. Traders could be looking for toppish signs. The 200-day moving average ($49.72) could be an interesting test.
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