UK100, Daily & H4
European stock markets are broadly higher. Eurozone markets, which rallied from the off led by Italy’s MIB, have come off early highs, while the UK100 extended gains through the session and as of 10:34 GMT was up 0.69%, while GER30 was up 0.57% and MIB up 0.78%. The broad move higher came after a strong session in Asia – where Chinese equity markets rallied again amid the verbal support from authorities and plans to cut personal income taxes to support the domestic economy, as trade tensions start to have an impact – and helped to boost stock market sentiment. China’s President Xi Jinping vowed “unwavering” support for the private sector, although it remains to be seen whether this is a lasting rebound in market sentiment. US futures are also up, while oil prices are down from early highs and at USD 69.20 per barrel.
In the UK, the focus will be on the fragile political scene, with Prime Minister May due to make an unusual appearance at 14:30 GMT, in an attempt to shore up support in the face of growing support among her Conservative party MPs for a no-confidence vote. May is to say that she is 95% of the way towards securing a workable deal, as well as providing details. Whether this will be enough to save herself remains to be seen, as her Brexit plan is deeply unpopular among significant portions of both Eurosceptic and Europhile members.
The Pound has declined by an average of nearly 1.5% versus the Dollar, Euro and Yen over the last week, which reflects an increased Brexit-risk discount after the October 17 Brussels summit, which had only recently been trumpeted as a make-or-break threshold, came and went without any sign of a breakthrough on the seemingly insoluble Irish border problem, and with the EU cancelling a formerly pencilled-in special Brexit summit for mid-November due to the lack of progress. Now the Prime Minister is facing an existential threat, with the Conservative Party’s 1922 Committee, formed of backbench members of parliament, needing only two more letters from party MPs to trigger a no-confidence vote. This would pave the way to a leadership challenge, which would hurl a spanner in the works of the time-running-out Brexit negotiation timetable.
Along with Pound discount, we have seen so far UK100 moving higher, crossing earlier above the 6922 – 7095 range where it was stuck for the past 7 days. A closing, today, above this barrier could suggest that in the near term the index is ready to recover a bit from the sharp drop in October. This is based on the positive bias presented, as the UK100 is off its lows moving above 23.6% Fib. level set from 7557 high and by forming higher lows since October 11.
However in the long term, such move higher cannot confirm the turn of the overall negative outlook into a positive one, but could oppositely alert a possible selling opportunity. This is based on the decline seen for UK100 since May, with the index looking unable to recover since then, by forming lower highs. Hence, any rebound could just show a short-term recovery for this long-term decline, and therefore another opportunity for a possible sell-off.
Meanwhile, daily momentum indicators support the increase of negative momentum, while intraday indicators are sloping northwards stating the rise of positive momentum in the near term.
To sum up, a close today above 7095, could trigger the attention towards the 7220-7260 area. The latter coincides with August’s lows, 20 day SMA and 50% Fib. level set from September’s peak. Further gains could lead towards the 7400-7450 Resistance area (i.e. between trendline connecting lower highs and 200-day SMA).
However a failure for index to sustain an upwards movement would suggest the return to the 6922 Support level. Intraday Support levels are set at 7035 and 7000.
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Andria Pichidi
Market Analyst
HotForex
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