The FTSE 100 outperformed yesterday on the back of the weak pound.
Throughout yesterday’s session, sterling pushed lower and lower on account of speculation that a UK general election might be announced, and the sizeable drop in the pound prompted a rally in the FTSE. Eurozone equity markets posted modest gains despite the backdrop of heightened trade tensions between the US and China.
Almost two hours after the close of the London Stock Exchange, we heard from Prime Minister Johnson who called upon his own MPs to back his plan, and for them to vote against Mr Corbyn’s request for a "pointless" extension. Mr Johnson doesn’t want a general election, and he feels the UK’s chances of getting a deal from the EU have increased. Today’s vote about a possible extension will determine the next course of action, and should MPs try and block a no-deal Brexit by obtaining an extension, the prime minister would probably call a general election, and that might put further pressure on the pound.
As of Sunday, China started imposing tariffs on some of the $75 billion worth of US goods it marked out for levies, and the US began imposing tariffs on $112 billion worth of Chinese imports. Both sides are due to meet this month to discuss trade, but it was reported they are finding it difficult to agree a date for the meeting, and that sent out the wrong signals.
The dollar index rallied yesterday as traders sought out safe-haven currencies. The turbulence in the pound and the weakness in the euro helped the greenback. There is still talk the Federal Reserve will lower US interest rates later this month, but there are also high hopes for monetary easing from the ECB, who are due to meet next week. The political upheaval in the UK is damaging the pound, and things are likely to get worse before they get better.
Gold pushed higher yesterday even though the greenback rallied. In recent months, the metal usually lost ground whenever there was a rally in the US dollar, and the fact that it made headway suggests that dealers are still cautious. The metal has been in a strong upward trend recently, and while it holds above the $1,500 mark, the bullish move is likely to continue.
Oil declined as the latest round of the tit-for-tat tariff spat between the US and China weighed on the energy market. China started levying tariffs on US oil imports on Sunday. Tariffs are essentially a tax on the consumers, and either the Chinse consumer will take the hit, or else, China will seek alternative sources for its oil and bypass the US; but either way, it will hit one of the two largest economies in the world.
At 9 30am (UK time) the UK construction PMI report will be released and traders are expecting a reading of 45.9. Eurozone PPI will be posted at 10am (UK time), and economists are expecting the July reading to tumble to 0.2% from 0.7% in June. Should there be a sizeable drop in PPI, it could be a sign that demand is weak, and that could lead to soft CPI readings in the future.
US manufacturing PMI and ISM manufacturing reports will be released at 2.30pm (UK time) and 2.45pm (UK time), and dealers are anticipating readings of 50.0 and 51 respectively. The Chicago PMI report saw a decent bounce back in August, and traders will be wondering will there be a similar move in today’s reports.
EUR/USD – remains in the wider down trend of 2019, and if the bearish moves continues it might target the 1.0900 area. A rally might encounter resistance at 1.1164.
GBP/USD – has been driving lower since March and if it remains below the 1.2200 region, it might target the 1.1980 area. A move to the upside might run into resistance at 1.2400.
EUR/GBP – the weekly candle last from mid-August appears to be a bearish reversal, and if the downward move continues it might target 0.8891. A rebound in the currency pair might bring 0.9200 into play.
USD/JPY – last week’s candle seems to be a bullish reversal, and a break above the 107.00 area, might bring 108.59 (100-day moving average) into play. Should the wider downtrend continue it might retest the 104.50 area.
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