GBPUSD and UK100 Index

The equity markets rallied hard yesterday and reversed much of the selloff from Thursday and Friday of last week. The moves also created open gaps from the Friday close and this may sap confidence in the rally. However, the virus stats in the US show that the daily new case numbers have fallen by 80% since the January peak as vaccines are rolled out. The danger of course is that mutant strains of the virus are better able to evade the vaccines and there is a possibility with continued high numbers of cases that a vaccine resistant strain emerges. This is a particular risk in developing countries and regions of developed countries where vaccine take up and adherence to restrictions in lacking. In the UK vaccine rollout is quite advanced relative to other countries and the daily new case numbers have fallen by over 90% since the January peak. It is hoped that this will be sustained and lockdowns can be lifted sooner rather than later. However, governments have turned cautious after the easing of restrictions around Christmas led to a huge third wave spike in cases. The markets are also focussing on bond yields with the US 10-year remaining elevated above the 1.40% region. The yields spiked above 1.5% last week leading to a selloff in risk assets. Gold also suffered and is consolidating around the 1720.00 area. The markets remain concerned about a rise in inflation already seen in commodity prices and the theory is that this will only increase with the reopening of the lockdown economies and the proposed infrastructure upgrades in the US. Central Bankers came out yesterday to state than they will follow their mandates to tackle inflation rises but the FED speakers that appeared yesterday shied away from making similar statements. This morning ECB Vice-President Luis de Guindos has said that if the yield rise has a negative impact on financing conditions the ECB is open to recalibrating its programme. He added that the ECB’s priority is to maintain favourable financing conditions and they have the flexibility that is needed in order to react. He also said that the recent rise in yields is partly due to higher inflation expectations in the US. The Japanese 225 is down -0.86% today. The Hang Seng is trading down -1.5% while the Shanghai Composite is trading down -1.8%. Gold is trading at 1716.00. USDJPY is trading at 106.810.

This morning Eurozone Flash Estimate CPI is expected to come in at 0.9% versus a previous 0.9%. Eurozone Core CPIFlash Estimate is expected to fall to 1.1% from 1.4%. This afternoon, US IBD/TIPP Economic Optimism is expected to rise to 52.1 from 51.9. Canadian GDP is expected to fall to 0.1% from 0.7%. US FED Members Brainard and Daly are due to speak in the evening.

GBPUSD chart

The GBPUSD pair is currently trading at the 1.3877 level after it testing yesterday’s high as resistance at 1.4000. The pair has been moving higher in an uptrend since it located support at the 1.2676 level in September. The pair had moved back up through the 1.3266 level of support, which was the high for 2020 and pushed higher to the resistance around 1.4240, which will now be a key level to watch. Support from the current level is potentially in play at 1.3862 and 1.3778/1.3760. The September high at 1.3480 may be used as support. A break higher above the current level may seek to engage the 1.3900 level followed by 1.4000 and the 1.4100 area. From there the 1.4145 area may slow an advance on the 1.4200 round number area. A breakout above this level may see price attempt to test 1.4250 as the trend continues. 

The 1.3860 area may also be used as support followed by 1.3750 and 1.3660. Below this, the 1.3630 area may offer support ahead of 1.3600. The 1.3566 level was used as support and is now an important higher low. From there the 1.3540 and 1.3500 levels may be of interest while a loss of 1.3450 opens the way to 1.3400 followed by 1.3355. Below these levels, the 1.3300 area comes into play. A loss of this area may trigger selling into potential supports at 1.3270, 1.3200 and 1.3100. Price broke back up through the 1.3000 round number earlier this month and has found support at 1.3092 and 1.3118, straddling the key 1.3100 area. This zone along with the 1.3000 area may be crucial support going forward. A loss of this area may lead to tests on 1.2925 and 1.2900. The price may then test 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 1.2487, with further support around 1.2255/1.2230. The pair rallied from the 1.2335 area, after breaking support at 1.2387. 

UK 100 Index chart

The UK 100 Index is trading around the 6565.0 area at present after creating a lower high at 6800.00. The index broke out of a bullish falling wedge pattern in November. A move through the former resistance at 6000.00 and the falling trend line, confirmed the false breakdown and led to a breakout of the bullish pattern, leading to a test on the June highs. The market is now trading around the 6600.00 area after finding resistance so far at 6960.00. There may be resistance at 6700.00 followed by 6750.00 and 6800.00. The 6820.00/6850.00 area may provide resistance followed by 6900.00 and 6960.00 as last month’s high. 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. 

The index is using the 6315.00/6300.00 area as support and this created a bounce and short squeeze in price early this month. At the moment the 6466.00 area is acting as support in conjunction with the 6500.00 level. This is the major supporting area on the chart. In the short term, support may form at the 6520.00 level followed by 6480.00. Further support may be seen at 6470.00, 6430.00 and 6400.00. A move down through this support may unravel the current rally, breaking the sequence of higher lows. Support at 6370.00 is followed by the important 6315.00 level and the 6304.00/6300.00 area with further support at 6260.00/6250.00. There is also potential support forming at 6200.00, 6105.00 and 6000.00 which may be retested. The trend line is tracking below the 6000.00 area at present and for now at least bulls appear to be in control. Below this, the 5850.00 area may be used as support, along with 5770.00 which followed by 5700.00. The low of 5500.00 created a new lower low but price rallied from that support in what was a bullish move for risk assets. 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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