Alpari UK
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UK Opening Call from Alpari UK on 13 March 2013
Appetite for Italian debt tested following Fitch downgrade
Today's UK opening call provides an update on:
• Dow hits all time highs and extends winning run to eight days;
• Eurozone industrial production contracts at a slower rate in February;
• Appetite for Italian debt tested at an auction today following the Fitch downgrade;
• US retail sales watched closely for signs that new taxes and the sequester hit spending.
The Dow extended its winning run yesterday, finishing marginally higher for an eighth session, while once again hitting new all time highs.
The FTSE is expected to open lower this morning after being one of the few indices to end the European session higher, on hopes of additional stimulus from the BoE next month. Another batch of woeful data out of the UK, this time in the form of manufacturing, industrial and GDP data (December - February), has all but convinced people that we're back in recession and given the closer voting among the MPC recently, an additional £25 billion in asset purchases next month now looks nailed on.
The European session is going to be a little quieter in terms of economic data, with the main release this morning being the industrial production figure, which is expected to have fallen again in January compared to a month earlier, following a surprising jump in December. On a more positive note, this should bring the year on year figure down to -2.2%, the lowest since June last year, which at least suggests the euro area is making some progress even if it is very gradual.
Appetite for Italian debt will be tested at a bond auction this morning, when the country attempts to raise up to €7.25 billion. While the interest paid at today's auction will undoubtedly be higher, following the inconclusive election last month and Fitch's downgrade earlier this week, the existence of the OMT backstop will prevent yields rising too much, while demand for the bonds is expected to remain high.
US retail sales for February will be an interesting one to watch this afternoon. There have been concerns that the expiry of certain tax breaks on 1 January, in particular the payroll tax, together with the uncertainty surrounding the sequester may have impacted consumer spending at the start of the year, although so far we have seen little evidence of this. The data today is again expected to suggest that the impact has been minimal, at worst, with both retail sales and core retail sales rising 0.5%.
EURUSD
We’ve seen some consolidation in this pair over the past couple of weeks, with it trading in a range between 1.2950 and 1.3150. This is likely to change in the coming days, given that the support level and the descending trend line now appears to have formed a descending triangle. This tends to be a continuation signal, with the pair breaking below the 1.2950 support level and heading lower. If this happens, the next support levels should come around 1.29, 1.2876 and 1.2850 (200 day SMA). If we see a break above, based on the size of the entry into the triangle, the target for the pair would be between 1.3350 and 1.34.
GBPUSD
There has been a lot of downward pressure on this pair in the last few days, with sellers trying to push sterling below its 1.49 support level. A failure to do so may result in quite a bullish formation on the daily chart, as long as today’s candle closes above yesterday’s. This would create a bullish engulfing pattern, prompting a move higher, with the initial target being 1.50, a key psychological level. A break above here would suggest that we could see a move as high as 1.53, which was a major support level that the pair broke below last month.
USDJPY
The yen has weakened significantly against the dollar in the last six months, and this looked set to continue after the pair broke through a major resistance level, 94.75, last week. What we’ve seen since over the past 24 hours though is the yen strengthen, which to me suggests we’re going to see that previous resistance level tested as a new area of support. This would act as confirmation of the original break and once again prompt a move higher with this weeks highs of 96.70 providing the next major resistance level.
EURGBP
The euro has quickly turned bearish against the pound, despite breaking above the descending trend line only last week. The pair found resistance on Tuesday around 0.88, which I highlighted in yesterday’s morning analysis as a major resistance level. Yesterday’s doji candle suggests we could now see a reversal in the recent up trend, which would be made more bearish if today’s candle closes lower, resulting in an evening star formation. Initially, this should prompt a move back towards the descending trend line, testing it as a new level of support, which would act as confirmation of last weeks break. If this occurs, it would then probably be followed by another attempt to break above 0.88.
Ahead of the open we expect to see...
Appetite for Italian debt tested following Fitch downgrade
Today's UK opening call provides an update on:
• Dow hits all time highs and extends winning run to eight days;
• Eurozone industrial production contracts at a slower rate in February;
• Appetite for Italian debt tested at an auction today following the Fitch downgrade;
• US retail sales watched closely for signs that new taxes and the sequester hit spending.
The Dow extended its winning run yesterday, finishing marginally higher for an eighth session, while once again hitting new all time highs.
The FTSE is expected to open lower this morning after being one of the few indices to end the European session higher, on hopes of additional stimulus from the BoE next month. Another batch of woeful data out of the UK, this time in the form of manufacturing, industrial and GDP data (December - February), has all but convinced people that we're back in recession and given the closer voting among the MPC recently, an additional £25 billion in asset purchases next month now looks nailed on.
The European session is going to be a little quieter in terms of economic data, with the main release this morning being the industrial production figure, which is expected to have fallen again in January compared to a month earlier, following a surprising jump in December. On a more positive note, this should bring the year on year figure down to -2.2%, the lowest since June last year, which at least suggests the euro area is making some progress even if it is very gradual.
Appetite for Italian debt will be tested at a bond auction this morning, when the country attempts to raise up to €7.25 billion. While the interest paid at today's auction will undoubtedly be higher, following the inconclusive election last month and Fitch's downgrade earlier this week, the existence of the OMT backstop will prevent yields rising too much, while demand for the bonds is expected to remain high.
US retail sales for February will be an interesting one to watch this afternoon. There have been concerns that the expiry of certain tax breaks on 1 January, in particular the payroll tax, together with the uncertainty surrounding the sequester may have impacted consumer spending at the start of the year, although so far we have seen little evidence of this. The data today is again expected to suggest that the impact has been minimal, at worst, with both retail sales and core retail sales rising 0.5%.
EURUSD
We’ve seen some consolidation in this pair over the past couple of weeks, with it trading in a range between 1.2950 and 1.3150. This is likely to change in the coming days, given that the support level and the descending trend line now appears to have formed a descending triangle. This tends to be a continuation signal, with the pair breaking below the 1.2950 support level and heading lower. If this happens, the next support levels should come around 1.29, 1.2876 and 1.2850 (200 day SMA). If we see a break above, based on the size of the entry into the triangle, the target for the pair would be between 1.3350 and 1.34.
GBPUSD
There has been a lot of downward pressure on this pair in the last few days, with sellers trying to push sterling below its 1.49 support level. A failure to do so may result in quite a bullish formation on the daily chart, as long as today’s candle closes above yesterday’s. This would create a bullish engulfing pattern, prompting a move higher, with the initial target being 1.50, a key psychological level. A break above here would suggest that we could see a move as high as 1.53, which was a major support level that the pair broke below last month.
USDJPY
The yen has weakened significantly against the dollar in the last six months, and this looked set to continue after the pair broke through a major resistance level, 94.75, last week. What we’ve seen since over the past 24 hours though is the yen strengthen, which to me suggests we’re going to see that previous resistance level tested as a new area of support. This would act as confirmation of the original break and once again prompt a move higher with this weeks highs of 96.70 providing the next major resistance level.
EURGBP
The euro has quickly turned bearish against the pound, despite breaking above the descending trend line only last week. The pair found resistance on Tuesday around 0.88, which I highlighted in yesterday’s morning analysis as a major resistance level. Yesterday’s doji candle suggests we could now see a reversal in the recent up trend, which would be made more bearish if today’s candle closes lower, resulting in an evening star formation. Initially, this should prompt a move back towards the descending trend line, testing it as a new level of support, which would act as confirmation of last weeks break. If this occurs, it would then probably be followed by another attempt to break above 0.88.
Ahead of the open we expect to see...
Read the full report at Alpari News Room