The AUDUSD edged higher in Sydney on the back of a strong employment report

FTSE flat at 7380

DAX -23 points at 12530

CAC -11 points at 5206

Euro Stoxx -8 points at 3515

It has been yet another day of record highs for the US equities. The S&P500 closed the Wednesday's session at the fresh all-time high of $2’498.37; the Dow Jones and NASDAQ 100 traded near their historical high levels as well, as traders remained optimistic about Donald Trump’s tax reform, regardless of the US Treasury Secretary Steven Mnuchin’s warning a day earlier.  

The US dollar gained against the majority of its G10 peers, as the US producer prices accelerated faster than analyst expectations in August. The combination of encouraging economic data, improved risk appetite and political optimism pushed the US 10-year yield near 2.20% for the first time in almost three weeks. The US consumer inflation data is due today. A solid read could encourage a further USD recovery across the board.

Gold slipped below $1’322 (minor 23.6% retracement on July – August rally). Improved US yields and rising USD demand could encourage a deeper downside correction moving forward. The key support to the two-month rise stands at $1’300 (major 38.2% retracement).

Nikkei (-0.26%) and Topix (-0.30%) lacked appetite in Tokyo. The USDJPY extends gains in the bullish consolidation zone. The pair is preparing to test the 110.80/110.90, area including the 50-day moving average and the Fibonacci 50% level on July – September fall. Decent call options trail above 109.00 at today’s expiry and should give support to the positive trend.

The AUDUSD edged higher in Sydney on the back of a strong employment report. The Australian economy added 54’200 jobs in August, the 74% were full-time jobs. However, the mixed Chinese data and cheaper iron ore futures (-1.50%) could limit the upside potential by 0.8060 (weekly resistance).

Chinese industrial production expanded unexpectedly less, by 6.0% year-on-year in August versus 6.6% expected by analysts and 6.4% printed a month earlier. The retail sales growth slowed from 10.4% year-on-year to 10.1%. However, the foreign direct investment in China surged suddenly from 2.3% to 9.1% on year-to-August, confirming the hedge funds’ recent inclination to move away from their short China bets. The investor sentiment turns in favour of Chinese assets.  

Industrial metals traded lower on the back of a stronger US dollar and perhaps a slower Chinese industrial growth in the immediate term.

FTSE equity futures traded lower.

WTI crude oil rallied as the OPEC raised its demand forecast in 2018 due to higher consumption expected from Europe and China. The WTI encounters offers prior to its 200-day moving average ($49.80). More resistance could be in play approaching the $50 psychological level.

The EURUSD-longs got detached from the short-term benchmark of 200-hour moving average. The pair surrendered to the rising USD appetite and extended weakness to 1.1871. The next support is seen at 1.1815 (50-day moving average), if broken, could pave the way toward a mid-term support, 1.1730 (minor 23.6% retrace on April – September rise). Decent put options trail below 1.1950 at today’s expiry. At the current levels, traders are mostly hedged against a downside correction in euro, which could be an early sign of an eventual reversal in the euro’s year-to-date appreciation after its failure to consolidate gains above the 1.20 marl. Call options are due above 1.20 strike.

The EURGBP consolidates below the 0.90 level. The daily MACD (Moving Average Convergence Divergence) stepped in the negative territory, meaning that the downside correction could accelerate toward 0.8957 (major 61.8% retrace on July – September rise) and 0.8920 (200-day moving average). The Bank of England (BoE)’s policy verdict is an upside risk to the actual negative trend in EURGBP. A distinct BoE dovishness could prevent the EURGBP from developing below the 0.90 mark and trigger a U-turn toward 0.9076 (50-day moving average).

The BoE’s Monetary Policy Committee (MPC) will meet today and there is a mixed-bag of expectations regarding the MPC’s policy stance following the recent economic data. The GBPUSD fell hard after the UK wages growth stagnated at 2.1% on year-to-July versus 2.3% expected by analysts. The soft wages growth rose expectations that a faster deterioration in British households’ purchasing power could temper the inflation before it surpasses the 3% level. This would eventually prevent Governor Mark Carney from writing an open letter to the Chancellor explaining why the BoE didn't hike rates to avoid high inflation. The main highlight of today’s MPC meeting will be the hawk-to-dove ratio. At least two MPC members are expected to vote in favour of a rate hike at today’s meeting. If three or more members opt for higher rates to divert the inflation from the 3% level, the pound could rally significantly. In this scenario, the next important technical level stands at 1.3420 (50% retrace on post-Brexit decline). If however the policymakers agree to stay pat for a longer period despite the rising inflation, the pound could retrace gains against the US dollar and Cable-shorts could challenge the key technical support to the August – September rise, 1.3115 (major 38.2% retracement).