25th March 2019
The pressure mounting on the pound was alleviated by the UK and EU’s deal to delay Brexit, triggering the strongest sterling surge against the euro in more than a year. The pound swung back to soaring gains at the end of another turbulent week after EU leaders offered to delay Brexit until April 12 for MPs to plot a path forward if Theresa May’s deal is rejected for a third time. Speculation that the Government could offer Parliament a range of options to clear a path forward on Brexit fuelled further advances following a sharp two-day sell-off.
The FTSE 100 tumbled 2pc in its worst drop this year after the deepening global factory slump ignited growth worries and the delay to Brexit alleviated the pressure mounting on the pound. Sterling started to stage a recovery on currency markets after EU leaders offered to delay Brexit until April 12 for the UK to decide on its next steps if Theresa May’s deal is rejected for a third time next week. It leapt as much as 1.9pc versus the euro to €1.1718, sterling’s strongest intraday surge in more than a year.
The pound extended its early gains against the euro after another setback for Germany’s manufacturing sector. Growth in its factories unexpectedly plunged to its lowest level in more than six years amid a cocktail of worries, including Brexit uncertainty, US-China trade tensions, the car industry slowdown and weakening global demand.
European stock markets were rattled by signs of the global industrial downturn worsening. The FTSE 100 slid as growth worries resurfaced while the Euro Stoxx 50, the eurozone’s blue-chip stock index, slipped 1.8pc.
The global sell-off was a major setback to this year’s recovery on markets with world stocks being pulled off a five-month high. The plunge was accelerated by data suggesting that the factory malaise is spreading to the US.
No Trump Collusion
Special Counsel Robert Mueller found no evidence of collusion with Russia but failed to exonerate President Donald Trump on obstruction of justice even though Attorney General William Barr said he didn’t find enough evidence to pursue an obstruction charge. For his part, the President wasted no time in tweeting “complete and Total EXONERATION” after Barr’s letter, and called the probe an “illegal takedown that failed.”
Bond Market’s Warning
Investors are about to absorb $131 billion of Treasury note auctions at the lowest yields in months, after they piled into U.S. debt following a dovish Federal Reserve decision and fresh signs that global growth is weakening. The week kicks off with a closely watched segment of the U.S. yield curve foreshadowing a recession: The gap between 3-month and 10-year rates is now negative. In the lead-up to the economic downturn that began late in 2007, this part of the curve initially flipped to inverted in early 2006. The curve’s latest collapse came amid reports showing weakness in France and Germany, while an index of American manufacturing slowed.
FTSE 100 Trading Signals, Forecast and Prediction
Well this promises to be an interesting week. Political turmoil to the fore, against a backdrop of weakening fundamentals and economic malaise. The 7164 support level pencilled in from last week has been tested overnight and has seen a small bounce, but with the weakness from Friday continuing into Asia and Australia during Monday, we will probably dip below this level. The daily charts are showing support at the 7110 area, and then lower down around 7040 which looks like an area that we may well see soon. The bulls failed to break the 7370 level to test that 7400 area recently, so will be a bit annoyed about that. If we do regain some strength from the lower supports then we may well climb back up to this area in fairly short order.
I am going to watch to see if that 7165 is tested again this morning and if it holds. If it does then it might be worth hopping on a long but need to see it hold again first rather than set an order.
The 2 hour chart is bearish as you would expect after Fridays drop, and has resistance at the 7306 and 7331 levels now. If we were to get a strong rally (out of nowhere!) today then this area is the next area to short from above the 7220 initial resistance for today.
We are also nearing the boom of the 20 day Raff channel for today with support at 7154 so close to the daily support of 7164 and lends some weight to this area holding. That said Friday’s sell off will have knocked the wind out of the bulls sails for the moment and the news flow is fairly negative still, while the bond market indicated further deterioration in the local and global economy.
The bulls will be keen to keep the price above 7000 of course, so if we were to dip just below at some point this week, I wouldn’t be surprised to see us bounce back. Probably from around the 6980 area.
The levels are quite spread out for today following the large range on Friday, so moves may well be amplified today and we may see an attempt at a bull Monday, especially if the 7154/7164 level holds.
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