GBPUSD and UK100 Index

Markets have largely held their gains overnight after trading in a tight range yesterday that extended US equity markets to the upside. The markets are once again preparing for a big week with the FOMC on Wednesday and Thursday as the FOMC Rate decision will be released followed by the Reserve Bank of Australia and the Bank of England. The calendar for yesterday was extremely light but today there is more bulk on the agenda. The USD is weakening also creating moves in FX pairs that is extending into equities, commodities and bonds. This has fuelled some of the risk on move that is currently in play. In the UK, the Government has won the vote on the Internal Market Bill in the House of Commons. This means that the Commons supports the Prime Minister so that he can break the treaty that was signed with the EU on the withdrawal agreement. The bill must now be sent to the House of Lords who are expected to vote against it. However the bill in essence is in breach of International Law and there is serious concern that it will tarnish the reputational damage of the UK as it heads into a period where it must embark on a series of difficult trade deal negotiations. The future of the UK’s relationship with the EU is now very uncertain and it is unclear how businesses that have to operate across the borders will be impacted. The situation has now created huge uncertainty for both economies in an already strained time. The Astrazeneca vaccine trial has resumed in the UK following a halt after one of the participants became ill. The trial of the vaccine in the US remains on hold as regulators examine the case. Progress on development of a vaccine remains steady with the hope that wide distribution can take place next year in 2021. The Japanese 225 has closed lower by -0.5% today. The Hang Seng is trading higher by 0.38% and the Shanghai Composite is trading higher by 0.34%. European Futures are pointing to gains of around 0.3% after a strong rally yesterday. US Futures are also pointing to gains of around 0.2%. Gold is trading at 1969.00 with a push beyond near term resistance. AUDUSD is trading at 0.7327 while USDJPY is trading at 105.640.

This morning ZEW Economic Sentiment is expected to fall to 63.0 from 64.0. German ZEW is expected to fall to 69.7 from 71.5. In the afternoon, US Industrial Production is expected to fall to 1.2% from 3.0%.

GBPUSD

 

The GBPUSD pair is currently trading at the 1.2874 level after it found support at the 1.2076 level in May. The pair moved back up through the 1.3266 level of resistance, which was the high for 2020 and pushed higher to the resistance around 1.3480 before turning lower over the past two weeks. Resistance may now be seen around the 1.3000/1.2978 area with 1.3279 and the 1.3300 area beyond, followed by the, 1.3350 and 1.3400 areas. Price broke higher after consolidating in the 1.3200 region. A break higher may seek to use this area as support and may then seek to test the 1.3500 level, followed by the 1.3512 level and the 1.3550 level. From there 1.3580 may be used as resistance, ahead of 1.3600 and this is followed by potential resistances at 1.3650, 1.3700 and 1.3750.

Price may use support at 1.2800 and 1.2780, with a move back down through the 1.2730 area opening the way to potential support at 1.2500 followed by 1.2250 and with 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 in February and March. The Index sold off after it found resistance at 7481.00 but has located support in the 4800.00 area and then moved back higher to test the 6500.00 area. Since then the price remains range bound between 6330.00/6300.00 and 6000.00/5850.00. The Index has now found support at the 6000.00/5850.00 area and has rejected the 6300.00 area. Above this level the 6400.00 and 6470.00 levels 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. The index has potential resistance ahead in the 6165.00 area, followed by the 6300.00/6340.00 area and this area is continuing to attract sellers, but so far the higher lows are being maintained. The 6000.00 area is being used as support and may used to lean against, and this is followed by 5888.00/5850.00. 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.

Philip Konchar

Core Spreads

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