Global stocks decline, USD pare gains

Lack of appetite in mining and energy stocks combined to stronger pound weighed on the FTSE stocks (-0.89%) at the weekly open in London. The FTSE 100 broke the 50-day moving average (7275p) on the downside. The acceleration in the sell-off could encourage a deeper correction to 7225p (minor 23.6% retracement on Trump rally) before 7191p (February 23th dip).

PM Theresa May will trigger the Article 50 on Wednesday, which will officially start the Britain's exiting process from the European Union. Given that the Brexit is already fully priced in the pound's value, the GBP-crosses are expected to move on the back of domestically and internationally developing stories, such as the potential reversal of the US reflation trade, the retracement in the US dollar and the hawkish shift in the Bank of England's (BoE) policy expectations.

The GBPUSD is trending toward the 1.2565 (minor 76.4% retracement on February – March retreat), then 1.2600 (200-day moving average).

Bunds rally on Merkel victory, Le Pen's comments overlooked

German Chancellor Angela Merkel secured her biggest victory in thirteen years in Saarland regional vote. Merkel strengthened her position before the German federal election due on September 24th. German bund yields spiked down at the open in Frankfurt, as investors rushed into the German sovereign papers on Merkel hopes.

In France, the odds for Le Pen victory declined to 25% according to the latest Bloomberg survey. In her latest speech, the far-right Front National's leader Marine Le Pen claimed that the ‘EU will die'. In an attempt to reassure her voters, she said that an eventual euro exit would not be chaotic for France. The latter scenario is considered as a tail-risk by the global markets and is being priced to a very tight extent across the board.

The EURUSD tested the 200-day moving average (1.0850). Solid positive momentum hints at a further upside potential toward 1.0932 (major 61.8% retracement on post-Trump rally) before the 1.10 mark.

The euro strength encouraged a downside correction in the European stock markets. The DAX slipped below the €12'000 level in Frankfurt. The 50-day moving average, €11'835, will be the critical battle field between the mid-term longs and shorts.

US reflation rally reverses, US dollar, yields and stocks under pressure

The US dollar started the week weaker against all of its G10 counterparts. Donald Trump's defeat over the health-care replacement plan dented investors' appetite in the ‘reflation' trading theme. The US 10-year yields broke below 2.40%, as the DXY (the US dollar index) returned back to the pre-US election levels.

The US stock futures traded in the red in Asia. The Dow Jones (-0.53%), NASDAQ (-0.72%) and the S&P500 futures (-0.73%) hint at a melancholic open in the US on increasing worries regarding President Trump's ability to realize massive fiscal reforms as promised.

The Dow Jones Industrial index lost over the four out of the five past trading sessions last week. As it appears, the downside correction in the US stocks could intensify. The recent pullback raised several questions on whether the Trump reflation rally is over and what is the potential of a further drop.

The Dow Jones rolling index retreated below the 50-day moving average $20'490 for the first time under Trump's presidency. The Dow is expected to gap-open 124 points lower at $20472 in New York.

The next important technical level is eyed at $20'293, the minor 23.6% retracement on November 9th to February 28th rally. Breaking this level would pave the way for the critical psychological level of $20'000.

USDJPY's journey to 110

Among the G10 currencies, the yen (+0.92%) gained the most against the greenback. The USDJPY extended losses to 110.15, after taking out the 110.55 Fibonacci 50% support on post-Trump rally. As such, the US dollar gave back half of gains accumulated during the ‘reflation' rally against the yen. As we are moving toward the fiscal year end in Japan, it could be just a matter of time before the $110.00 is breached.

Gold traders focus on 200-dma

Gold extended gains to $1259, just shy of the closely monitored $1260 level, the 200-day moving average. The retracement in the US yield curve is supportive of a positive breakout above $1260 for a further rise to $1280/1300.

Oil unchanged on OPEC, Russia get-together

The unscheduled OPEC meeting over the weekend did little to cheer up the bulls in the oil market. Oil producer countries announced to stick to their plan to reduce production and highlighted that the recent price drop was due to the high inventory levels, not to a failure in compliance. It has been said that it may take longer than previous anticipated draining the global supply glut. The production cuts could be extended up to 6 months, according to some producer countries. Unfortunately, the issue is more complex given that all global players are not up to the same speed. We remind that the sell-off in the oil markets was triggered by record high levels of US oil inventories, which are not meant to fade under the Trump administration, which is longing for less energy dependency for the US.

The barrel of WTI traded between $47.75/48.28. Trend and momentum indicators point at a comfortably short market stabilizing within the $47/50 range. A negative breakout should bring the $45 in radar, while a positive getaway should suggest a short-term bullish reversal with solid resistance pre-$55.