28th January 2019
Friday overview
The pound enjoyed its best week on currency markets in 16 months ahead of another crucial vote in Westminster as the City upped its bets on MPs avoiding the no deal Brexit precipice. Sterling was buoyed by momentum gathering around an amendment taking no deal off the table from Labour MP Yvette Cooper and reports claiming that the DUP could be persuaded to back Theresa May’s deal to break the gridlock.
The City was bolstered by opposing MPs attempting to seize control of the Brexit deal and pushing the process away from no deal. Sterling extended its rally, climbing a further 0.7pc versus the euro to €1.1604, the highest level since its rival suffered a Christmas Day flash crash in 2017. The pound bursting through the $1.31 mark versus the dollar stopped the FTSE 100 joining in the global stocks rally. Markets shrugged off fading hopes of a trade deal after a report claimed that the US central bank could pause the reversal of quantitative easing sooner than expected.
Some investors fear that the volatility in late 2018 had been sparked by top central banks sucking liquidity out of the system by winding down their balance sheet of bonds. Eurozone blue-chip stocks jumped 1.2pc but the FTSE 100 slipped back 0.2pc. While sterling is the top G10 currency in 2019, the FTSE 100 has lagged far behind its blue-chip rival indices, climbing just 1.2pc.
Trade Talks
Vice ministers from Beijing arrive in the U.S. on Monday to pave the way ahead of trade talks in Washington, and investors will be watching for any hints of progress. Chinese President Xi Jinping’s top economic aide, Vice Premier Liu He, will meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday and Thursday. Without a pact by the March 1 deadline, the U.S. could boost its import-tariff surcharge on Chinese goods to 25 percent from 10 percent.
Shut Down
White House Chief of Staff Mick Mulvaney didn’t rule out another shutdown if President Donald Trump and congressional leaders can’t strike a budget deal by mid-February that includes funding for a border wall. One estimate indicated the 35-day partial government closure cost the U.S. $6 billion in lost productivity and economic activity.
Busy Week
Federal Reserve Chairman Jerome Powell gets a fresh chance to explain the U.S. central bank’s policy stance when he speaks after the Federal Open Market Committee rate decision. No change for now is expected in the Fed’s strategy of reducing its bond holdings, and rates are forecast to remain on hold. The U.K. Parliament votes on amendments to Theresa May’s Brexit deal with the EU, while the European parliament debates the matter. Asian equity futures pointed narrowly higher.
FTSE 100 Trading Signals, Forecast and Prediction
The Dow and S&P are both nearing their 2 hour supports first thing this morning, the Dow at 24620-24640 and the S&P500 at 2647. If those levels hold this morning then it may prevent the FTSE 100 dropping below the overnight low at 6763 and that would make sense as we also have a key fib just above this level. The bulls failed to break the 6860 level on Friday and we have dropped back from there, mainly held back by the pound rising to 132+. That has since dropped back which may well underpin a bit of FTSE bull to start with today.
However, there is 2 hour resistance on the FTSE100 now at 6804, and then a cluster of resistance levels at the 6845 level so both these levels look worthy of a short. At the same time the daily chart moving averages I watch are surrendering their bullish stance since the run to 7000, and are also showing resistance at 6842.
I have gone for an initial short at the 2hr resistance 6804ish, however, should the bulls manage the 6840ish area then this area looks decent for a decent run down from. Of course, with Brexit possibly avoiding a no deal on the cards, and then some big earnings reports out this week we may well see a bit more movement and possible overshoots of the key levels.
There is also daily support still down at 6536 ultimately, with 6659 above that, and levels that are looking quite likely if we continue on the “short the rallies” for the moment.
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