UK Parliament suspended | 7174 support | 7256 resistance | Sterling advanced again | Trading analysis

Welcome back with 2020 off to a lively start already | 7595 7640 resistance to watch today | Short the rallies

10th September 2019

  • Sterling advanced again after surprise growth figures, weighing down FTSE 100
  • UK economy grew 0.3pc in July, reducing fears of third-quarter contraction
  • Europe markets flat ahead of busy week

Brexit developments had threatened to be the day’s highlight, but in the event those bright GDP figures for July set the tempo, sending sterling surging until it hit a midday buffer, and pushing the FTSE down. European equity markets never really found their stride, with the overall picture for the continent flat. There’s not clear consensus on what kind of stimulus will emerge from the ECB on Thursday, so investors may be waiting for a clearer signal from the central bank.

The FTSE 100, weighed down by the pound’s gains all through the session, ended 0.64pc down, while the mid-cap FTSE 250 closed off 0.14pc down. It will be interesting to see if that was one of those Monday wobbles that gets retraced fairly quickly or if this is the start of the next down leg. Personally I wouldn’t be surprised if it retraces back to 7330 or so before it drops off again.

U.S. Recession

For all the debate on whether the U.S. is headed for a recession there’s plenty of evidence that certain corners of the economy may already have tumbled into one. After two boom years, America’s factories are starting to suffer. Rising uncertainty has put a damper on capital expenditures, and a range of data points are starting to look ugly. From his trade policy to tax cuts and deregulation, President Donald Trump’s grand economic vow was to bring factories home. But as he bids for a second term there are signs he may have shot his own manufacturing recovery in the foot and undermined his own best argument for reelection — a strong economy.

Market Open

Asian markets had a mixed start to trading Tuesday after U.S. stocks snapped three days of gains, while sovereign bond yields rose in Europe and America. U.S. stocks that had driven a recent rally such as health-care, tech and real estate retreated. German bunds led the drop in sovereign debt, and rates on longer-dated Treasury notes climbed more than those on shorter-dated securities, reversing an inversion in the yield curve. Investors are biding their time this week ahead of the ECB meeting on Thursday and Federal Reserve gathering next week that will throw light on the path of monetary policy. On the trade front, Treasury Secretary Steven Mnuchin said earlier that the U.S. and China have made “lots of progress” on talks.

U.K. Goes Prorogue

The British parliament will be suspended at the end of business on Monday, with lawmakers expected to vote against Prime Minister Boris Johnson’s early election before midnight local time. A bill designed to block a no-deal Brexit has now become law, but the government is seeking loopholes to get around it, according to a person familiar with the matter. House of Commons Speaker John Bercow earlier surprised MPs by announcing plans to step down by Oct. 31. The pound — which has plunged 17% since the vote to leave the EU in mid-2016 — pared gains from earlier in the session after the announcement by Bercow, who has been a thorn in the government’s side and has given opportunities to opponents of a no-deal Brexit to have their say and take action in the Commons to prevent it.

FTSE 100 Trading Signals, Forecast and Prediction

The political shambles continues in Westminster and the FTSE 100 was driven by cable rising yesterday. That has now levelled off a bit and as such the FTSE could be basing a bit here at the 7200 area in the short term. We might well have seen a slight overreaction to the downside yesterday so I am thinking that we may well see a bit of a climb back towards the 7330 resistance level before further downside.  With a Monday sell off like that it usually retraces by the end of the week however with the slightly chaotic backdrop it may do that by midweek. So basically favouring a bounce for the moment.

FTSE 100 Trading Signals, Forecast and Prediction
FTSE 100 Trading Signals, Forecast and Prediction

If the bears were to break below the 7213 daily support level (they tried yesterday, testing 7205 before we saw the bulls bring it back up) then I am looking at a drop down to the daily support level at 7174 and would expect this level to hold, at least initially. We are however on the bottom of the 10 day Raff channel as I write this at the 7220 level so we may see a bit of an initial bounce towards the daily pivot and 200ema at 7257.

If the bulls were to break above 7257 then 7271 is the next level of note which is the new 2 hour resistance level after the drop yesterday, and then 7330 is still showing above that where we have the daily coral line.

Should the bears break below 7175 then it starts looking a bit grim, and the bottom of the 20 day Raff channel at 7070 currently looks likely to be tested. Markets hate uncertainty and there is certainly a lot of that around, though its looking a bit more positive again on the trade front. Until it isn’t as it seems to change with the wind!

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