GBPUSD and UK100 Index

The Equity markets are continuing to consolidate close to their all-time highs. The consolidation is using time and is registering as a tight trading range as markets digest earnings reports. There are many analysts calling for a correction in equities in light of extended valuations from the historical norm. However, the reopening of the economy coupled with a set of technicals that suggest price can perform a blow-off top before it corrects is leading to a dichotomy in views on the future market direction. The bear camp is divided between those who see an immediate pullback taking place and those who are delaying the correction until later in the summer. Many bulls are predicting a correction before new highs are achieved. However, there are those who are looking at the current price action as a correction through time that will resolve to the upside and lead prices higher. With the economy heating up and prices rising it seems that the view that a blow-off top might occur seems to have some degree of traction even if there is a minor correction in the meantime. Yesterday’s trading session was marred by a lack of participation from Japan, China and the UK as they celebrated holidays. Japan and China will remain on holiday until their return on Thursday. Yesterday ECB Vice President Luis de Guindos said that the ECB may start thing to phase out stimulus if vaccinations and the economy speeded up. He added that the normalisation of monetary policy should go hand in hand with the normalisation of the economy. He also said that if vaccinations speed up and 70% of Europe's adult population is vaccinated by summer as economy gathers speed, can start to think about phasing out emergency mode on the monetary policy side of things. US FED Chair Powell said yesterday that the US Economic outlook has brightened but it is not out of the woods yet, but it is making real progress. He said that the economic reopening is bringing stronger economic activity and job creation. FED Member Williams said that data/conditions are not nearly enough for the FOMC to shift its policy stance. He said that real GDP could rise to 7% this year but inflation should come back down to 2% next year after the short run imbalances have played out. He said that the FED’s main goal is to anchor inflation around 2%.  Gold is trading at 1786.00. USDJPY is trading at 109.410.

Today the UK Final Manufacturing PMI is expected to remain unchanged at 60.7. US Factory Orders are expected to rise to 1.3% from -0.8%. Later today US FOMC Member Daly is due to speak.  

GBPUSD chart

The GBPUSD pair is currently trading at the 1.3864 level, after retesting its broken trend line as resistance last month. The pair had 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 the 1.3850 followed by the breakout area at 1.3810/1.3800. There may be further support at the 1.3730 area, followed by the 1.3715 area, the 1.3700 round number and the 1.3630 level. The September high at 1.3480 may be used as support. A break higher above the current level may seek to re-engage the 1.4000 area. From there the 1.4145 area may slow an advance on the 1.4200 round number area on a run higher. A breakout above this level may see price attempt to test 1.4250 as the trend continues. 

The 1.3800 area has been used as support since price rejected from the trend line. The 1.3750 area may also be used as support followed by the 1.3700 level and the 1.3660 level. 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 7022.00 area at present after breaking out above the lower highs at 6800.00/6815.00 earlier this month. 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 7000.00 area is providing resistance followed by last week’s high at 7040.00. Any pullback may set up a possibility of a double top. The 7060.00 area may be used as resistance and is followed by 7136.00. The 7200.00 may also be a potential source of resistance to any advance. Beyond this level, the 7255.00 area may become a target in the medium term. 

At the moment the 6900.00 level, the 6815.00/6800.00 area and the 6760.00 area are being used as support. The 6700.00 area and the 6645.00 area is also acting as support followed by 6616.00 and the 6600.00 levels. Under these levels, 6550.00 may act as support in conjunction with the 6500.00 level and 6466.00. 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. The index is using the 6315.00/6300.00 area as support and this created a bounce and short squeeze and is now a key area of sentiment support. 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. 

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. 

Philip Konchar

Core Spreads

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