FTSE 100 Support 7014 7007 7003 6985 6976 6950 6903 6892
FTSE 100 Resistance 7033 7064 7083 7121 7156

Good morning I hope you had a good weekend. The rhetoric about the drone that China captured on Friday continues, with the Pentagon saying that it will be retuned. Either way the breaking of that news on Friday certainly helped my gold trade which had just tagged the buy order at 1130, to climb straight to the 1140 target. It saw equity markets dip a little bit and then bounce. The support on the 2 hour FTSE chart held and set up a decent bounce which has carried forward to this morning. We are going to have pretty light volume this week and most will be expecting the Santa Rally phenomenon to start (or even continue!) this week. So, we could see the FTSE 100 rise to the top of the 20 day Bianca at 7083 and then a retest of 7130 over the course of this week.

US & Asia Overnight from Bloomberg

The dollar retreated versus most major peers, as heightened geopolitical tensions over China’s seizure of a U.S. naval drone added to reasons for traders to pull back amid the greenback’s strongest rally since 2008. Australian and New Zealand stock markets rose as U.S. equity futures rebounded.

Japanese shares declined as the yen led gains among major currencies after news that broke Friday on the confrontation drove up Treasuries. Contracts on U.S. indexes rose Monday. Crude oil gained, extending a climb from last week as an increase in maritime tensions could crimp deliveries. The offshore yuan jumped by the most in two weeks after the People’s Bank of China raised its fixing for the currency onshore. Australia’s currency reversed declines after the government forecast a slightly narrower deficit this fiscal year as it bids to stave off a credit rating downgrade.

Traders will be monitoring developments after U.S. President-elect Donald Trump lashed out at China over the weekend, while China’s Communist Party-affiliated Global Times mocked Trump’s demeanor as “lagging far behind the White House spokespersons.” The incident threatens to impede the momentum of what has been called the global reflation trade: gains in stocks and the dollar and a slide in bonds, spurred by prospects that Trump’s spending agenda will fuel inflation in the world’s biggest economy. Volumes are expected to thin in coming weeks before the December holiday season and end of the year, with the Bank of Japan’s policy decision on Tuesday the last Group of Seven central bank meeting for 2016.

“I can’t see the dollar index in a sustained rally — two rate hikes are priced into fed funds futures, and a lot of expectation is built into Trump’s policies,” said Janu Chan, a senior economist at St. George Bank Ltd. in Sydney. “On the other side of the equation, the ECB and BOJ are not likely to ramp up monetary stimulus anymore. Profit taking is most likely behind current U.S. dollar weakness, but it’s possible it’s also due to geopolitical concerns on the reports that China seized the U.S. drone.”

Stocks

The Topix index of Japanese shares slid 0.3 percent as of 1:14 p.m. in Tokyo, snapping a two-day advance; the Kospi Index was little changed after an earlier decline
China’s Shanghai Composite Index lost less than 0.1 percent while Hong Kong’s Hang Seng Index dropped 0.8 percent
Australia’s S&P/ASX 200 Index climbed 0.7 percent and the New Zealand benchmark advanced 0.4 percent
Futures on the S&P 500 Index rose 0.1 percent after the gauge fell 0.2 percent to 2,258 on Friday. The measure barely moved over the course of last week after rising to a record. The Dow added 0.4 percent in the five days, for its sixth straight weekly gain, the longest run in a year

Currencies

The dollar declined 0.6 percent to 117.27 yen. The greenback retreated 0.1 percent to $1.0465 per euro. It reached $1.0367 on Thursday, its strongest level since January 2003
Net long positions on the dollar rose by 11,897 contracts to 318,330 contracts in the week to Dec. 13, according to Commodity Futures Trading Commission data released Friday. That’s the highest level since Jan. 19
The Bloomberg Dollar Spot Index has strengthened 7.1 percent this quarter, heading for its best rally since the three months ended Sept. 30, 2008
The Australian dollar edged lower, buying 72.97 U.S. cents
Malaysia’s ringgit declined 0.1 percent to touch 4.4792 per dollar, the weakest level since 1998, during the Asian financial crisis

Commodities

West Texas Intermediate rose 1 percent to $52.40 a barrel, adding to Friday’s 2 percent rally
Gold rose 0.3 percent to $1,137.82 an ounce, heading for a second day of gains
[Bloomberg]

FTSE 100 Outlook and Prediction

For today I am looking at a pretty simple plan and looking to go long at around the 7015 area for a run to the 20 day Bianca channel top at 7083. The 2 hour chart support held well on Friday (albeit from slightly higher than my long order) and has stayed bullish since. As such buying the dips is probably a good move for the short term. This rally started at the 6680 level on 5th December (still can’t believe we nailed that long entry there!) and has run pretty well since so probably has a bit further to go. Above 7083 we are looking at 7130 for the recent high, then 7156 level for the top of the 20 day Raff channel.

Support wise, if 7015 breaks then 6985, 6972 and 6950 are the immediate supports. We also have 6960 for the bottom of the 10 day Bianca channel. For today I think that the 7000 level will hold.

In the week ahead, we have the release of Thursday’s final reading on U.S. third quarter gross domestic product for fresh indications on the strength of the economy and further hints on the future path of monetary policy. There is also a monetary policy announcement from the Bank of Japan on Tuesday, with most investors expecting the bank to hold its negative interest rates and 10-year government bond yield target steady.