GBPUSD and UK100 Index

There was a clear risk off move yesterday as markets gave up some of their recent gains. US equities continued their pullback from the all time high formed at the end of last week. Gold on the other hand shone brightly and continued its advance above the 1500.00 level to reach a high of 1523.80. The seasonally bullish period for gold is in full flow at the moment with the 2019 high at 1557.00, marking the key resistance area for traders to watch. The move is aligned with the year end Santa Claus rally and this is despite news that Chinese trade negotiator Liu He is to visit Washington D.C. this week to sign Phase One of the US China trade deal. There is an element of a buy the rumour sell the fact trade here. The strong rally from earlier this year, when the market was drip fed news of the trade deal has reached new all time highs in equities. With the fact of the signing the market has sagged yesterday and this has sparked a potential emerging sell the fact trade. But this has yet to play out in the market and other factors may influence if it occurs or not. Chinese Manufacturing PMI matched the previous number of 50.2 but beat the forecast of 50.1. The key sub data here was that new export order rose for the first time in 18 months. This is a positive for the Chinese economy as the government takes more action to create growth and stimulate the economy. Chinese Non-Manufacturing PMI missed expectations with a reading of 53.5 from a previous read of 54.4 and a forecast of 54.2. Yesterday’s US Chicago PMI beat expectations of 48.2 with a read of 48.9 and a prior number of 46.3. The read shows an improvement but the data is still in contraction territory. However the risk off mood took hold in markets and prices were kept low during the session. The USD weakened further yesterday and continues to weaken this morning with USDJPY trading at 108.655. Japan and Germany are on holidays until Thursday and markets are suffering from a lack of participants in thin sessions.

The calendar for today has little in the way of data releases. In the afternoon the US House Price Index is expected to fall to 0.4% from a previous 0.6%. The S&P Composite HPI is expected to remain at 2.1%. US CB Consumer Confidence is expected to rise to 128.0 from 125.5 later in the afternoon.

GBPUSD

The GBPUSD pair is currently trading at the 1.3108 level as it continues to rebound following its selloff and finding of support at 1.2904. The pair had moved far above the 1.3000 level of resistance set in October and broke up to test the 1.3175 level ahead of the general election. A break of the 1.3250 level followed the result and sent price up to target the 1.3500 area, creating a gap on the chart in the process. Price has now closed the gap and tested support, and is now attempting to find resistance, initially at 1.3150. A bounce from support may seek to test 1.3300 followed by 1.3383 and the high at 1.3515.

Price action has taken price back to the 1.3100 area which may now act as support, but a failure of this level may see price move back under 1.3050 once again. At that level the support may be used in the short term to support price action but a move to 1.3000 may also take place. A loss of these levels may open the way to 1.2900 and the 1.2770 November low. Price consolidated below the 1.2770 area in June and this may produce an area of support in the event of a selloff as it did in November. The 1.2582 area was also used as support and resistance on the chart and a breakout below this level may find support around 1.2382.

UK 100 Index

The UK 100 Index broke back out of its channel in an upward move and found resistance at 7678.00 on Friday. Breaks outside the channel had produced deep rapid retracements once resistance is found, creating lower highs and lows in the process. The 7400.00/7445.00 area may provide support for the index as it tries to break higher and test 7600.00. Above that level 7630.00 has been used as resistance followed by the high at 7733.00. Beyond this level the 7800.00 area may become a target in the medium term.

Support may now be tested at 7500.00 in the short term and around the 7446.00 area followed by 7400.00. The 7446.00 level is a clear area of potential support with a strong bounce from this level potentially keeping the market on track to continue its rally. However a loss of these levels may open the way for a test on the Channel top at 7300.00, followed by 7200.00. The 7129.00 area marked the extent of the selloffs this month so far with a loss of this level, potentially resulting in a test of support at the 7100.00 level. The zone between 7100.00 and 7000.00 has been used by buyers to enter the market and there may be a considerable reaction if this zone is broken, opening the way for a move towards 6900.00.

Phillip Konchar

Core Spreads

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