Daily Market Breakdown 17 March 2017

FTSE -8 points at 7408 DAX -38 points at 12045 CAC -6 points at 5007 Euro Stoxx -9 points at 3431

The pound strengthened after the Bank of England (BoE) revealed a surprise hawkish shift at yesterday’s monetary policy meeting. The MPC voted 8 to 1 to keep the bank rate unchanged at the historical low of 0.25%. This was quite a surprising move from Kristen Forbes, who voted in favour of a rate hike. More importantly, several members hinted that they may soon share her opinion. The rising inflation somewhat translated into the BoE’s temperament. Combined to Wednesday’s less hawkish than expected FOMC stance, Cable stepped in the mid-term bullish consolidation zone after clearing resistance at 1.2338 (major 38.2% retracement on February - March decline). The strong positive momentum on hourly basis could encourage traders to attempt to 1.2408/1.2410 (area including Fibonacci 50% level. 50 and 100-day moving average). The EURGBP eased to 0.8668. The divergence between the BoE and the European Central Bank (ECB) could encourage a deeper pullback to 0.8640 (major 38.2% retracement on February – March rise), if broken, could suggest a bearish reversal toward 0.8600/0.8595 (200-day moving average / Fibonacci’s 50% level). ECB’s Austrian member Nowotny joined the global tightening trend, citing that the ECB could raise the depo rate before the refinancing rate, according to Handelsblatt. Then it was euro’s turn to rally. The EURUSD extended gains to 1.0775 in Asia. The pair could gather further momentum to rise to 1.0820/1.0830 (Fibonacci’s 50% retracement on post-Trump decline / 2017 resistance). Above this level, the single currency should encounter solid offers. The lack of concrete shift in ECB’s intentions to tighten policy and French populist worries could prevent a further euro appreciation against the greenback. The ECB is not expected to discuss any form of policy tightening, or tapering its asset purchases any time before September. European stocks rallied on relief that Netherlands’ populist PVV was beaten by the Liberals. The optimism could rapidly fade as the focus will again shift to the French elections. The US dollar consolidated losses, while US 10-year yields climbed back above the 2.50%. Gold extended gains to $1233. A second successful attempt above the $1230 (minor 23.6% retracement on December – February recovery) could encourage a further recovery to the $1250/$1260 (200-day moving average). The USDJPY traded at 113.28/113.44 in Tokyo. Improved US yields failed to revive appetite in US dollar versus the yen. Nikkei (-0.35%) and Topix (-0.43%) closed the week on a slightly negative note following three consecutive weeks of gains. The weekly MoF (Minister of Finance) data showed that foreign investors already sold 722.7 billion yen worth of stocks a week earlier. Stronger yen could further dent the appetite in Japanese stocks. Meanwhile, the FTSE 100 stocks traded at the record high of 7444.62p on Thursday. Mining (+2.07%) and energy stocks (+1.60%) lead gains; financials gained 0.38% on the surprise hawkish note from the BoE. Mixed appetite in oil and commodities added to the stronger pound hint at a flat open in London. WTI traded just shy of $50 after Saudi Energy Minister hinted that the OPEC could extend its agreement to reduce output, if stockpiles remain above the five-year average. The OPEC will meet on May 25. In dirt of further reaction from the world’s biggest oil cartel, investors could be reluctant to bet on a price recovery above the $50 level. The barrel is expected to float at about the 200-day moving average, $49. G20 finance ministers meet in Germany; global trade, rising protectionism and perhaps some tensions are on the menu.