Good morning. Well that took what felt like all day to dip from 6636 down to 6605 and then it started to bounce from there at the close. I thought we might have seen yesterdays arrows to 6680 overnight and it certainly tried – hitting a high of 6656 overnight, as the Bank of pan kept asset purchases steady. Going in to ECB tomorrow, I think we will get a bit of buy the rumour, sell the fact going on, so long as the pivot at 6615 holds today we should see 6655 again, and probably the top of the 20 day Bianca at 6667. Below the pivot 6580 is the next support.
Asia Overnight from Bloomberg
The yen strengthened versus the dollar as the Bank of Japankept asset purchases steady, while Chinese stocks climbed a second day, leading a gauge of Asian shares higher. Gold advanced to a five-month high amid speculation the European Central Bank will expand stimulus.
The yen strengthened 0.8 percent to 117.86 versus the greenback by 2:49 p.m. in Tokyo, after weakening 1.1 percent yesterday. The Bloomberg Dollar Spot Index slipped 0.3 percent as the euro rose from near an 11-year low. The Hang Seng China Enterprises Index added 2.2 percent, helping the MSCI Asia Pacific Index to a 0.7 percent advance. Gold topped $1,300 an ounce and hit a 20-month high to the euro on concern that further central bank easing will undermine currencies. Oil in New York fetched $46.97 a barrel after falling 4.7 percent.
The Bank of Japan left its stimulus program little changed a day before its European counterpart is expected to expand its own bond buying program. Speculation that European Central Bank President Mario Draghi will broaden asset purchases increased after the Swiss National Bank dropped a cap on the franc last week and Denmark’s central bank cut its deposit rates to minus 0.2 percent.
“Given we’ve got the ECB tomorrow and expectations are pretty high there, and given the SNB, there has been at least some residual expectation that we would see some action” from the Bank of Japan, said Mitul Kotecha, head of Asia-Pacific currency strategy at Barclays Plc in Singapore. “There’s some dawning realization now that the Bank of Japan weren’t going to follow suit,” leading the yen to strengthen, he said.
Asian Stocks
The MSCI Asia Pacific Index traded at 139.3. The measure trades at 13.5 times estimated earnings compared with 14.8 times for the Stoxx Europe 600 Index and 16.6 for the U.S. Standard & Poor’s 500 Index. A gauge that excludes Japanese shares advanced 1.3 percent today.
Japan’s Topix index retreated 0.5 percent as plunging oil prices forced the BOJ to reduce its inflation forecast. The move highlights the challenge Governor Haruhiko Kuroda faces in reaching a 2 percent price goal after almost two years of record easing.
Hong Kong’s Hang Seng Index was 1.6 percent higher. The China Enterprises gauge is rebounding after plunging 5 percent on Jan. 19 as a clampdown on margin lending in mainland China sent the Shanghai Composite Index to its biggest loss in six years. The Shanghai gauge rose 4.1 percent today.
Australia’s S&P/ASX 200 Index climbed 1.6 percent as BHP Billiton Ltd. climbed 2.1 percent after saying it will slash U.S. shale rig numbers and announcing a jump in iron-ore production.
Euro-Yen
Japan’s currency strengthened 0.6 percent to 136.38 per euro, snapping a three-day slide. The BOJ cut its inflation projection to 1 percent for the fiscal year starting in April and raised its growth estimate for the period to 2.1 percent.
New Zealand’s dollar was at 76.61 U.S. cents after a surprise drop in consumer prices saw it plunge 1.9 percent in the final minutes of trade yesterday.
West Texas Intermediate oil rose as much as 1.1 percent in New York, partly retracing Tuesday’s slide. The CBOE Crude Oil Volatility Index climbed to 60.16, the highest level since October 2011.
Crude stockpiles in the U.S., the world’s biggest oil consumer, probably expanded by 2.4 million barrels last week, a Bloomberg News survey shows before data from the Energy Information Administration on Jan. 22. Brent crude in London climbed 1 percent to $48.35.
Gold rallied as the metal priced in euros reached the highest level since 2013 and assets in the largest exchange-traded product expanded a third day. It climbed to 1,126.61 euros an ounce, the highest price since May 6, 2013.
Assets in the SPDR Gold Trust expanded for a third day to 742.24 metric tons on Jan. 20 in the longest such run since Dec. 11. Holdings fell to 704.83 tons on Jan. 7, the lowest level since 2008. [Ref]
FTSE Outlook
Initial resistance is at the overnight high around the 6651/6655 area so I think we may get a move lower initially from here. It failed to break that overnight despite Asian bullishness, and a dip down to the pivot at 6615 is distinctly possible. It took a while yesterday for the bulls to perform from 6605, so they are there, but weak at the moment – most keeping their powder dry and waiting till after the ECB. I have put in the arrows based on that pivot level, and mid point of the 10 minute channel holding, however if the bears break below 6610 then we will likely see 6585. On the upside, if the bulls do manage to break 6651 then the top of the Bianca channels are at 6667 (20 day) and 6696 (10 and 50 day) – thus 6696 could be a good shorting area if seen today, though going into ECB might not get a massive dip from there. My initial plan is a short from the 6667 Bianca 20 day area. If it closes above 6635 today then there is a good chance that we will stay bullish for a little while longer as the daily EMAs have now crossed over to bull – the top of the 20 day Raff at 6760 looking possible.