Markets made the most of the risk on mood yesterday, with a gradual but sustained move higher through the day that has lasted into the overnight Asian session. There has been a minor move lower ahead of the European open as fears re-emerge of the growing economic impact from the virus. There has been a steady news flow of virus related lockdowns overnight. The Federal Reserve Chair Jerome Powell said yesterday that the path ahead is uncertain and hinges on the virus. He cryptically said that the, “US economy has entered an important new phase sooner than expected”. He added that recent economic data offer some positive signs, but output, employment far below pre-pandemic levels and the economic outlook was extraordinarily uncertain, and depends in large part on containing virus. As if to reinforce his points the news emerged that a surge in virus cases has triggered a local lockdown in the UK city of Leicester. Non-essential retail must close from today and schools must close from Thursday. This is despite a national reopening starting on 4 July in the UK. In the US the situation is also deteriorating, albeit on a grander scale. LA County has warned that conditions are deteriorating rapidly with the virus spreading swiftly in the community. County health officials said they are now faced with one of their biggest fears: that the reopening of L.A. County would coincide with sudden jumps in disease transmission that have the potential to overwhelm public and private hospitals. L.A. County has nearly 98,000 confirmed cases and more than 3,300 deaths. To this effect Los Angeles County will close beaches during the 4th of July holiday weekend in an effort to contain the spread. Elsewhere in the US, Arizona State has ordered bars, clubs and gyms to close again for 30 days, as the state of Kansas has announced the mandatory wearing of masks. Japanese Unemployment rose to 2.9% from 2.8% expected and a previous number of 2.6% while Japanese Preliminary Industrial Production fell to -8.4% against an expected read of -5.6% and a previous read of -9.8% which was revised down from -9.1%. UK final GDP fell to -2.2% against a forecast of -2.0% and a previous read of -2.0%. The weaker data and fears of new lockdowns have lead to a shift in mood towards risk off as the European open approaches. The Japanese 225 closed higher by 1.33% but off of its highs. The Shanghai Composite is trading up 0.8%, while the Hang Seng is trading up 0.4%. European Futures are pointing to a weaker open around -0.2%. Gold is trading at 1769.00 and USDJPY is trading at 107.765.
In the day ahead, Eurozone Flash Estimate CPI is expected to fall to -0.1% from 0.1% previously. In the afternoon, Canadian GDP is expected to fall to -12.5% from -7.5%. US Chicago PMI is expected to rise to 45.0 from 32.3. US CB Consumer Confidence is forecast to rise to 91.6 from 86.6. Fed Chair Powell is due to testify, along with Treasury Secretary Steven Mnuchin, before the House Financial Services Committee, in Washington DC.
The GBPUSD pair is currently trading at the 1.2280 level after it found support at the 1.2076 level in May. The pair then moved up through the 1.2647 level of resistance and pushed up to test towards the 1.2813 level where it turned lower. The pair has broken back down through the 1.2650 area as a minor double top from April and has fallen down after a minor test around 1.2500. Resistance may now be seen around the 1.2387 area followed by 1.2454 and 1.2500. There may also be resistance lingering at the 1.2560 and 1.2600 areas, followed by the 1.2700, 1.2750 and 1.2800 levels, which must be overcome in order to set up a test to target the 1.2900 area. A break higher may seek to use this area as support and may then seek to test the 1.2980 level, the 1.3000 level and the 1.3012 level. Beyond this area the March high at 1.3200 comes into play. From there 1.3280 may be used as resistance, ahead of 1.3300 and the December high at 1.3515.
Price action has taken the pair back down through the 1.2300 area with potential support now at 1.2250 and further support around 1.2230. The pair rallied from the 1.2335 area, after breaking support at 1.2387. The retest higher back to 1.2385 may mean that price is now looking to find support with the 1.2250 level being used so far. The 1.2200 area may be used as support in conjunction with 1.2160. Price may also use the 1.2150 area and a break under this area may potentially open the way to 1.2100, followed by 1.2050 and 1.2000. The 1.1970 area was also used as support and resistance previously and a breakout below this level may find support around 1.1750/1.1700. With Brexit headlines returning, volatility may continue to be higher than usual for the pair.
UK 100 Index
Deep selling in the UK 100 Index saw the market sell off with other global equities since late February. The Index sold off after it found resistance at 7481.00 but has located support in the 4800.00 area and moved back higher to test the 6500.00 area. The Index has now found support at the 6000.00/6056.00 area and is now focussing on testing the 6275.00 area, followed by former support at 6300.00. Above this level the 6400.00 and 6470.00 may act as resistance. The 6600.00 area has provided support for the index in the past and may be resistive going forward. A break above 6500.00 is required to retest 6620.00 and 6890.00/6900.00. The 7000.00 area has been used as resistance and support previously and is followed by 7136.00. The previous high at 7733.00 may also be a potential source of resistance to any advance. Beyond this level the 7800.00 area may become a target in the medium term.
Support at 4800.00 produced the bounce in the short term and with the move higher, the 5000.00 area may provide support in the event of a deep selloff. Price has managed to get back above the 6000.00 area and this move is supported by the rising trend line at 6070.00. The index has potential resistance ahead at 6300.00 and this area produced a false breakout last week sending price down to the trend line and creating a higher low at 6027.00. The 6160.00/6150.00 is being used as support, followed by 6100.00. The 6040.00 area may be used to lean against, and this is followed by 5888.00. The 5700.00 area has potentially become a key support zone, with a higher low at 5660.00. The index created a prior higher low at 5575.00 which may also be used as support. A breakdown of this level may open the possibility of a move down to 5350.00 followed by 5210.00 and the 5000.00 area. A loss of this support zone may open the way to the low around 4800.00. Price may selloff for a test on the zone between 4500.00 and 4250.00 and there may be a considerable reaction if this zone is broken, opening the way for a move towards 4000.00.