TERRORISM HITS UK AGAIN BUT MARKETS APPEAR MINIMALLY IMPACTED

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Market Overview

Moving into the final week before the UK election, traders also have to take into account the impact of yet another terrorist related incident in the UK in the past three months and the second attack of the election campaign. Initially is seems as though markets have been minimally impacted, with sterling barely more than a dozen ticks lower, whilst the FTSE 100 is higher (the negative correlation trade seems to be still working). So perhaps this is a sign of the calm before the storm of the election. There is a mild dollar positive reaction today with the US 2 year yield recovering from a decline in the wake of a disappointing Non-farm Payrolls report on Friday. However, with the 10 year yield in decline this suggests that the market is questioning just how quickly the Fed will tighten further down the road, whilst also questioning growth and inflation potential

Wall Street closed positively on Friday with the S&P 500 +0.4% at 2439, whilst Asian markets have been mixed to slightly weaker today (Nikkei -0.1%). European markets are relatively solid today despite the terrorist attack in London as markets seemingly become ever more desensitised to the frequency of these events. In forex there is a very slight dollar positive bias, with marginal euro and sterling weakness with even the yen slightly weaker. In commodities, even gold is also a touch lower. Oil has opened positively today by around +1.0% but with technicals o a deteriorating path, can this last?

The services PMIs are in focus today for traders. Although Germany and France are on public holiday today, the Final Eurozone Composite PMI is first up at 0900BST which is expected to be revised slightly down to 56.8 (from 57.0). The UK services PMI is at 0930BST and is expected to drop back to 54.4 (from 55.8 last month). The US ISM Non-Manufacturing is at 1500BST and is expected to drop back to 57.1 (from 57.5). US Factory Orders are also at 1500BST and are expected to drop by -0.2% for the month having grown by +0.5% last month.

Chart of the Day – FTSE 100

As the election approaches the bullish control of the chart is being questioned. Quite how the market also now copes with the London terrorist attck will be interesting too. The market is marginally higher in early moves, however twice now in the past three sessions, strong intraday gains have been sold into and the market has ended the day close to the low of the session. Arguably these are shooting star candles which are corrective signals. The sellers are threatening. Despite Friday’s move to an all-time high at 7599, this comes as a six week uptrend is being increasingly pressured. The momentum indicators retain a positive configuration but are beginning to look a bit tired. The Stochastics are threatening a profit-taking signal whilst the MACD lines are flattening off. This could just be the market consolidating in front of the election but the threat of a correction is growing now. The initial support to watch is at 7497 and a breach would open a correction back into an old banc of support 7389/7447.
ftse-05062017

EUR/USD

In the wake of the disappointing Non-farm Payrolls report, the euro broke out to a close at a new high dating back to 9th November. The third bull candle in four sessions has now moved through the previous resistance at $1.1267. The corrections continue to be bought into at higher levels and the bulls remain in control. Last week’s key low at $1.1108 makes the long term pivot at $1.1100 even more robust, whilst there is also support now at $1.1200 which has supported the last two completed sessions. Momentum indicators remain solidly strong with RSI in the high 60s an and Stochastics consistently above 80. The MACD lines have started to plateau so this leaves a slight degree of caution. However there is little reason to think that today’s early drop will be anything more than another chance to buy. The hourly chart shows support initially around $1.1250.
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GBP/USD

In the last few days before the election, traders may begin to get a little nervous about taking a decisive view. Add in the impact of the London terrorist attack and this makes Cable even more unpredictable. There has been an initial opening move lower today, perhaps understandable given events of Saturday night in London, however there is little significant impact as yet. The support around $1.2775 remains key as the breakout support and there is a mild corrective bias to momentum that would favour a drift back towards the support. This would also be backed by the usual anti-sterling reaction that would tend to occur in the wake of a UK terrorism event. There is resistance building up at $1.2920, above which would improve the outlook, whilst the hourly chart reflects more of a consolidation play. This could become a feature of the next few days of trading. There is support at $1.2830 initially.

gbpusd-05062017

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