June 7, 2017 - Market Update

Short recap

Asia higher but risk off mood prevails while safe heavens in demand ahead of ECB, UK and Comey

Asia stocks up 2%, more than the rest of the region on consumers, value search and speculation about including China to ETFs

Europe opening mixed

Mnuchin on China – US to increase exports to address imbalance, splitting economic and strategic issues

US to watch FX to stay competitive, China used significant FX reserves

Trump pressing Congress over healthcare reform

Trump pleased by actions of Arab countries but US has the large air base in Qatar, so more relaxed talk will follow

US job openings skyrocketing, skilled workers in shortage

ECB bought a record amount of German bonds at negative yield last month (part of QE)

The step shows the shortage of positive yielding assets

Equities

Bayer exiting from Covestro

After Deutsche Borse-LSE deal went down, exchanges focusing on a low profile acquisitions/projects

Valeant to sell eye-surgery division to Carl Zeiss

Kaspersky taking on Microsoft

Wahed to offer robo-adviser services to Muslim investors

Banks warning on lower profits in Q2, blaming volatility

Bonds

10-yr Trys yield at 2.16%

10-yr Bund yield at 0.26%

China’s recent huge Trys buying likely aimed at keeping the yields low, thus supporting developed markets’ economies

What is in turn beneficial for China not only via internal deleveraging and possibility to attract foreign capital to its bonds

DXY

Support at 96.44 (38.2% Fibo) holding

EURUSD

Yesterday hitting 1.1283 before bids at 1.1284 mitigated the move

Question comes how long EUR can stay that high for?

Market keeps respecting 1.1300 despite lower US yields (bulls are definitely not happy about that)

Probably because of risk of ECB’s hawkish disappointment, very strong switch from EUR shorts to longs and huge China buying of US Trys, thus pushing the yields much lower (should be USD positive sign in longer term but correlation between USD and Trys purchases is weak)

Not expecting large moves today ahead of ECB tomorrow

But may see the cross heading lower on position squaring ahead of risk events

Resistance at 1.1284, then 1.1300

Support at 1.1227 (10 DMA), then 1.1180 (23.6% Fibo)

USDJPY

Quiet, waiting for tomorrow

May see some selling on spikes towards 110.00

Resistance at 109.60 (76.4% Fibo) with stops from 109.20, more below 109.00

Support at 108.12

Expiring options around 110.00 (USD 1.4 bln)

Gold

Gold reaching 2017 highs on low US yields, weak USD and risk off move ahead of events

Question is whether breaking the downtrend line is still a bullish confirmation

Resistance at 1300, then at 1307

Support at 1286 (76.4% Fibo)

Correlation with EURUSD is strong, so the 1300 level is also crucial for EURUSD while testing 1.1300

As gold may help EURUSD higher towards 1.1600 after clearly breaking 1300 line

If the 1300 is really strong enough to resist, we may have a look back at 1.1000 in EURUSD

But stay alert as risk events unfold

Upcoming Data/Events

G20 meeting

June 8 – ECB meeting – Draghi being alone but inflation data from US and JP suggesting ECB to carry on with ultra-loose stimulus

ECB likely to adjust the risk to economy wording but no change to asset purchases

June 8 - Former FBI director James Comey to testify before Senate (1400 GMT)

Unlikely, he would accuse Trump of interfering the investigation but will make him to suffer

Trump likely under investigation but no stopping of Flynn case request from Trump

If Comey doesn’t reveal anything new, markets should take it as a risk on and USD to benefit

June 8 – UK elections including Scotland, if SNP/Sturgeon wins the independence referendum likely to follow

Not the UK elections count but Brexit talks

June 11/18 – French Legislative (Parliamentary) elections (a big question mark for Macron to gain majority)

June 13/14 – FOMC meeting – Jun hike probability at 95%, Sep at 28% and Dec at 40%. After Friday’s NFPs Sep hike may be skipped if data doesn’t come strong.

June 15/16 – EcoFin meeting to discuss Greece

Should you have any questions feel free to contact me anytime.

Good luck Champs!

Mr Hawk

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