31 / 05 / 2017 | Market News

Sterling rattled by latest opinion polls

Our prop desk is looking relatively quiet although no surprise that some short GBP positions are yielding results. A short DOW trade is still being held open in the expectation that it will move back into the money soon.
           
Daily Round up
 
The last trading day of the month is coming with a slew of high profile economic prints, whilst the market is also digesting the latest shock polling ahead of the UK general election. In the wake of Brexit and the US Presidential elections, we’re all too aware of the risk of the pollsters getting it wrong, but the latest from London is doing nothing to help the pound perform a little less like a classic EM currency. 
 

Fundamental Analysis – Sterling rattled by latest opinion polls

 
The pound slumped again last night as the latest opinion polls over next week’s general election served up a shock for the markets. Current readings now have the Conservative party short of an absolute majority, a complete reversal over the numbers predicted when the election was called back in mid-April and something that is certainly giving the markets food for thought. A slim loss risks the potential of a coalition of all the other opposition parties being formed, leaving the various factions negotiating with one another when the priority should be negotiating with the European Union over Brexit. Currency traders are rightly concerned as to what this means for the pound’s fortunes.
 
Eurozone inflation is set to be released at 9am GMT this morning and this could provide further direction for the common currency. The expectation is that we’ll see a fall back from recent highs, taking some of the pressure off the ECB in terms of when it talks about unwinding QE but any surprises here would have the potential to deliver another jolt to the market.
 
US pending home sales data is set for release at 2pm GMT and again this will provide some clues over just how hawkish the Fed needs to be at the next FOMC meeting. The dollar index may have rebounded off recent lows but it remains very much on the back foot. Anything that looks too bullish in this print will lead to concern that the credit market could be overheating and this again will be cause for the central bank to look at interventions, in turn potentially lending further support to the dollar.
 
USD/CAD has spent the last five weeks working its way lower and the support we appear to have found around 1.3450 may be tested today when the Canada’s latest GDP readings are published. Due at 12.30pm, an annualised print of around 4% is expected which would certainly be considered eye-catching. If it wasn’t for the uncertainty that’s lingering over the prospect of NAFTA renegotiations then the idea of a quick rate hike would seem far more likely but regardless, rapid domestic growth will bring with it the threat of inflationary pressures that will need to be managed.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice
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31 / 05 / 2017 | Technical Analysis

AUD/USD Fibonacci retracement

AUD/USD is under a degree of pressure after an abortive rally overnight. Look for a breakdown to the 50% retracement of the May rally at 0.7425.
 

 
USD/JPY is still showing downside pressure with the 200 day SMA in focus around 110.20. Interim support may be seen at 110.50, the 61.8% reversion of the April/May rally.
 

 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice
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30 / 05 / 2017 | Market News

Mixed bag of Japanese data favours JPY

Our prop desk has closed out a long EUR/USD position from last week at a notable loss, but we are seeing some profits off those trades with long JPY exposure.
           
Daily Round up
 
Markets in the UK and US return from the long weekend with some key economic releases on the table, including the US PCE deflator which could offer some meaningful clues over how the Fed will act next month when they make that next call on interest rates. Donald Trump is also back in Washington, putting renewed focus on the domestic agenda and specifically that FBI investigation which could result in some risk aversion in the near term.
 

Fundamental Analysis – Mixed bag of Japanese data favours JPY

 
The overnight release of Japanese household spending data may not have posted quite the improvement the market had been looking for with the month-on-month print coming in at 0.5% versus expectations of 1.1%, but at least it was a return to positive territory. Cheer was also found in the bigger than expected build in retail sales, again suggesting that inflationary pressures may be building in the country. Assuming this can be sustained and it’s not just an erroneous reading, the extended period of ultra-lax monetary policy for the country may be coming to an end.
 
Having hit two-month highs at the end of last week, EUR/GBP is continuing to sell off although pat of this can be apportioned to profit taking off the back of a drift into overbought territory. The UK General Election still looks like an outright win for the incumbent Conservative party, but the wide margin of victory that was first predicted continues to be eroded and there’s a real risk that this ballot will leave Theresa May in a materially weaker position than was the case six weeks ago. We also have little on the economic calendar from London in the hours ahead, but with those fears of Greek debt and the outcome of the French national assembly elections, the marking back is of no real surprise.
 
The Aussie dollar floundered despite the release of some better than expected building approval data – at least on the monthly basis – with demand for the US dollar in the face of the falling Euro seen as skewing the equation here. As the European session has come on stream, there has been a degree of bargain hunting in play and given we have consumer credit readings due from Australia at 1.30am GMT tomorrow, there’s certainly just cause for not pushing the currency too low – this reading is a cause for concern at the RBA so anything too hot could lead to intervention.
 
EUR/USD has given up the gains of the last two weeks but today provides some interesting metrics. At 12pm GMT we have German inflation data which is expected to show a degree of cooling – something that would be seen as welcome from a political perspective in terms of possibly aligning growth across Eurozone member states. This is followed at 12.30pm GMT with the US PCE deflator, said to be the Fed’s preferred measure of inflation. With next month’s FOMC meeting still having the potential to deliver a rate hike, any notable variance from expectations here could provide some clarity over how this call will go – and an consequent shift in the value of the dollar.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice
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30 / 05 / 2017 | Technical Analysis

GBP/USD exposed on downside

Cable has broken below the 200 SMA on the 4hr chart and found resistance here overnight. Look for support at the late April lows around 1.2760.
 

 
USD/CHF is eyeing further gains as the pair continues to trade in the range it has been holding for the last 18 months. Expect resistance in the 0.9835-0.9870 area but a move beyond here opens the way to parity.
 

 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice
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29 / 05 / 2017 | General

Beyond Forex - Metals, Oils, Indices, Bonds, Equities May 29th

Keep up to date with metals, oils, indices, bonds, equities and agricultural commodities in our Beyond Forex analysis. With a lot of news coming out of the United States and the UK, there have been some observable trends developing; some more beneficial than others. Also visit our economic calendar to learn about this week’s latest and most significant economic events.
 

Treasuries

 
Tuesday 30th sees the release of the US Personal Core Expenditure Deflator, which is what the Federal Reserve uses as its preferred measure of inflation. We’ve seen a run of slightly softer that expected economic data coming out of the US in recent weeks so with the next FOCM meeting looming, another shortfall here could easily see that idea of another rate hike being side lined, leaving treasury yields to sell off as a result.
 

Oil

 
The Opec summit last week certainly rattled markets, despite the outcome being the best-case scenario that anyone had dared to envisage. This could mean that the resulting sell-off will be left looking a little overdone, although the longer term risk is likely to be storage limitations in the US, where rapid acceleration of shale oil production risks causing some issues. Watch for the Cushing crude oil inventory release, which is on Thursday next week owing to a US holiday on Monday. A big build here could heap further pressure on WTI Crude.
 

Equities

 
Italian banks are in trouble again and the government is trying to find a way to help them navigate out of the mess without breaching strict EU rules on state subsidies for lenders. One option is to try and encourage other domestic banks to invest in those that are struggling, although this sort of approach failed spectacularly in the UK amidst the credit crisis when Lloyds backed HBOS. Developments here could weigh further on the likes of UniCredit SpA if the government appears to be applying too much pressure.
 

Soft Commodities

 
Coffee prices may see some support in the short term off the back of USDA reports that the 2016/17 growing season will produce a smaller than expected harvest, but early indications are already painting a more upbeat picture for the next crop. Vietnam – the world’s largest producer of Robusta coffee – saw good rainfall in March, which should help when harvesting begins in September – so long as excessive rainfall later in the year doesn’t cause damage.
 

Indices

 
The UK general election takes place on June 8th and when this was called right after Easter by Prime Minister Theresa May, the expectation was that the incumbent Conservative party would win by a healthy margin. This doesn’t now seem to be the case – the lead in the polls is closing and bookmakers are offering odds of 18-1 that a majority of around 100 seats will be returned – something that was seen as good as guaranteed last month. Markets don’t like uncertainty so further narrowing of the poll lead can be expected to deliver more weakness to the FTSE-100.
 

Gold

 
We’re seeing a run of dollar weakness so this would have the potential to inflate gold prices given the usual correlation between the two. However, on top of this we have rising geopolitical uncertainty – the heat will still be on Donald Trump when he gets back to Washington next week over that FBI investigation into alleged Russian ties - so any move for safe haven assets will provide even more upside here.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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29 / 05 / 2017 | Market News

AUD uninspired by G7

Our prop desk is again relatively quiet in line with the absence of fundamental data. Long EUR/GBP trades are pulling some profits, but this is being overshadowed by a slew of short EUR/USD positions and a short DOW position, both of which could yet be reversed.
 
Daily Round up
 
There’s a very quiet day ahead in terms of fundamentals, a fact which has been exacerbated by many major markets including the UK and US being closed today. One key point worth watching will be Mario Draghi’s speech in Brussels as this could provide some clues over policy tightening at the ECB, although with the next rate setting meeting just a matter of days away, the messages are likely to be rather subtle.
 

Fundamental Analysis – AUD uninspired by G7

 
The Aussie dollar continues to unwind against the greenback, with the weekend’s conclusion of the G7 meeting in Sicily providing little in the way of cheer over clarity as to what the future holds for global trade. As a major exporter generally and a significant supplier of natural resources to China – often seen as the factory of the world – free trade is a critical point for the country. Although the G7 statement made a commitment to removing trade-distorting practices, the US President’s stance over protectionism – renegotiating NAFTA and levying import tariffs on Mexican and Chinese goods – doesn’t sit well with the idea of these world leaders committing to ‘fight all forms of protectionism’.
 
Mario Draghi addresses the European Parliament at 1pm GMT today and this speech may contain further clues over the timing of any unwinding of the ultra-lax monetary policy. The ECB is well aware that the release of this news will likely provide a significant shock to the market, but there appears to be little consensus as to how it will be managed. Next week’s ECB rate setting meeting may be a more likely forum for further clues, although with the overhanging uncertainty of events such as the Greek debt bail out and the French national assembly elections still in play, there’s certainly plenty of reasons why the bank will be unwilling to send out any real signals here.
 
11.30pm tonight sees the release of the latest Japanese household spending numbers and a break into positive territory on the monthly print for the first time in over a year is expected. This will add weight to the idea that the country’s economy is finally seeing sustainable improvements and although the Yen has made some progress of late, given the risk of inflationary pressures emerging, this might just be the start of a winning streak for the currency.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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29 / 05 / 2017 | Technical Analysis

EUR/USD consolidation complete?

We have seen EUR/USD consolidating around the 1.1200 level with a break higher likely to meet resistance around 1.1275 – recent highs and September ’16 highs. Beyond this look for 1.1375.
 
 

 
AUD/USD is looking for a break down to the 38.2% retracement of the sell-off form late last year at 0.7390, followed by a move to recent lows at 0.7340.
 

 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice
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29 / 05 / 2017 | General

Successful Signals May 19th-May 26th


May 19th, oil called higher from $50.25 to $52, hit on May 25th
 



 
May 22nd, EUR/USD called higher from 1.1200 to 1.1250, hit same day
 



 
May 23rd, EUR/GBP called higher from 0.8660 to 0.8720, hit on May 26th
 



 
May 26th, GBP/USD called lower from 1.2880 to 1.2780, hit same day
 



 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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29 / 05 / 2017 | General

World Cotton Consumption Exceeds Production; Prices Begin to Rise


The world is on the verge of being swamped with cotton as a result of farmers taking advantage of favourable pricing to plant more and China flooding the market with its surplus from its strategic inventory.

The US Department of Agriculture estimates that starting this season on Aug 1st, global cotton output will rise by 6.9%, pushing stockpiles to a record high. The biggest exporters of cotton, American farmers, are predicted to have the biggest harvest in over a decade while Australia and India are also forecast to have crop increases.

Farmers planted more after cotton futures climbed 12% last year while the majority of other crops were stalled. This excess supply means that prices will now be moving towards the biggest loss, since August.

Lara Magnusen, a California based portfolio manager for Altegris Advisors LLC said that “The supply side should be sufficient, and if we see production climbing, cotton will see additional losses,”. However, on the other side, there is a concern that the recent reduction in China’s debt will affect global demand negatively and won’t be sufficient to meet the surplus.

Net-Wagers

Cotton futures dropped by 7.7% this month whereas prices move towards the first loss since December.  Even though the USDA forecasts that the cotton market will have a deficit in this year’s season, Cotlook Ltd is in fact predicting a surplus.

Cotton Surplus Creates Higher Volatility

Nevertheless, farmers must take advantage of the growing season during summer in the US and be observant of adverse weather conditions which could divert production forecasts. China can still enter and surprise the market if they decide to increase their quotas due to the recent high demand.
No matter what happens with cotton prices, you can stay on top of the market with the MT4 platform that comes with all of STO’s accounts, with institutional spreads starting from 0.0 pips.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice
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26 / 05 / 2017 | Market News

Slowing UK economic growth rattles pound

A handful of trades have been closed in the last 24hrs with some modest profits off short GBP. Long Euro is also yielding results but a short US index trade continues to drag on performance.
 
Daily Round up
 
We have a relatively quiet end to the week with economic data centred very much around releases that are expected from the US. There may be a temptation to derisk some positions with a number of key markets closed on Monday too, whilst any policy developments from the G7 meeting which is convening in Sicily today could again cause a degree of volatility.
 

Fundamental Analysis – Slowing UK economic growth rattles pound

 
Sterling fell back across the board yesterday morning after UK Q1 GDP was revised lower, pushing cable back to levels not seen in 10 days whilst EUR/GBP found highs last tested almost two months ago. There’s very little of note due for release from the UK today so further direction is likely to be seen off the back of the mounting array of risk that’s facing the economy. The upcoming election is likely to be closer than had first been imagined as the incumbent Conservative party see their ratings fall, whilst the Brexit negotiations also provide another slug of uncertainty for the market.
 
There’s a run of high profile prints due from the US today including GDP revisions, durable goods orders and the Michigan consumer sentiment reading. With EUR/USD having given up some of its recent gains, any weakness here could be sufficient to drive the common currency back above the 1.1250 level and towards recent highs. There may be some questions over the timing of any tapering from the ECB but with the June meeting less than two weeks away, some posturing ahead of this is to be expected.
 
Opec released its verdict over production quota cuts yesterday and although this was essentially as expected, the market has given the news a rather cool reception, with the underlying price of WTI crude crashing straight back through the $50 level. This reflects the fact that the cut isn’t going to make much of an impression on the uplift in US shale oil production, although with storage space across the Atlantic running thin on the ground, this once again flags the idea of trading the Brent-WTI spread as being a potentially useful strategy in the coming months. 
 
Note that markets will be closed in the US, UK and China on Monday.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice
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