UK Opening Call and FX Comment from Alpari UK on 5 February 2013
UK retail sales jump as shoppers undeterred by poor weather
Today’s UK opening call provides an update on:
• Political uncertainty in Spain and Italy drag global markets lower;
• RBA keep rates on hold at 3%;
• Chinese services PMI jumps to 54.0 from 51.7 in January;
• UK retail sales rise 1.9%, as shoppers battle the bad weather to grab themselves a bargain;
• EUR/USD, GBP/USD, USD/JPY & EUR/GBP analysis.
The political uncertainty in Spain and Italy weighed on stock markets across the globe yesterday, as the US and Asia both closed lower, with the former suffering its biggest daily losses this year.
The uncertainty surrounding the future of Spanish Prime Minister Mariano Rajoy and the rise once again of Silvio Berlusconi’s party in Italian polls, has been a dagger to the heart of the recent rally in the markets, that has seen stock indices trading at multi-year highs.
We could now see a brief return to the risk on/risk off trading that we became accustomed to last year. It appeared that we had moved away from this over the last month, with traders instead paying more attention to corporate earnings and the economic data, however this could only ever last as long as the eurozone remained stable.
Overnight, the Reserve Bank of Australia opted to keep interest rates at 3%, in its first meeting of the year. The central bank cut interest rates four times last year in a bid to stimulate the economy in a time of falling commodity prices and attempt to curb the appreciation of the Aussie dollar. Interest rates are now at record lows and unlikely to be slashed further in the coming months.
The outlook for this year in Australia is generally more positive, helped significantly by an expected return to higher growth levels in China, its largest export partner. Economic data out of China has been improving significantly over the past few months, and January has been no different with the latest Services PMI rising to 54.0 from 51.7.
The economic calendar is once again looking pretty full today, with services PMI’s for the eurozone, UK and US being released throughout the day. In the eurozone, we’re expecting these figures to show some improvement from December, in line with the recent improvements seen in economic data out of the area. Although this does not apply to France, which continues to head in the wrong direction.
The threat of a first ever triple dip recession is doing little to deter people in the UK from splashing the cash, as retail sales in January rose 1.9%, despite expectations of a 0.5% drop. The difficult weather conditions were clearly no match for the lure of the January sales, although it is worth noting that sales of premium products including tablet computer also rose. This could mean that the 49.5 forecast for this month’s services PMI may be a little pessimistic, and could fall well short of the final figure.
The euro is trading lower against the dollar this morning. The pair has become very overbought over the past couple of weeks, so this period of correction has been expected for a while. It is currently finding support from a previous key level of resistance around 1.3490, the 50% retracement of the move from May 2011 highs to July 2012 lows. If the pair trades higher from here, the next target will be 1.3832, the 61.8% retracement of the same move, with a break above here being very bullish. If it breaks below the 50 fib level, it may suggest the bull run is over, prompting a move back towards 1.32, where it will find support from the ascending trend line dating back to July.
Sterling is trading flat against the dollar this morning. The pair has found support once again over the past couple of days around 1.57, where the ascending trend line dating back to January 2009 crosses the 61.8 fib level, of the move from June’s lows to this year’s highs. This second failed attempt to break this key support level may now lead to the formation of a double bottom as long as the neckline is broken around 1.5865. This would be quite a bullish move for the pair and based on the size of the double bottom, should prompt a move towards 1.60.
The dollar is trading flat against the yen this morning. The pair looks quite bearish in the short term, following a long period of buying that has seen the pair gain more than 20% since its lows back in September. Both oscillators are also providing sell signals on the daily and weekly charts, with the stochastic crossing in overbought territory and the RSI pointing down in overbought territory. The next level of support should come around 92.0, which is a previous level of support and resistance.
The euro is trading lower against the pound this morning. The pair has broken back below 0.8575, the 61.8% retracement of the move from June 2011 highs to July 2012 lows, despite finding support here yesterday. If it manages to close back above here it would be quite a bullish signal for the pair. If not, then the next key level of support will come around 0.8525 from the 200 week simple moving average. If it breaks below here, this could suggest that the bull run has come to an end for the pair, however if it holds as a new support level, it will act as confirmation of the original break above last week, and be quite a bullish signal.
Ahead of the open we expect to see...
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