30 June 2016 at 13:48 GMT
- Breakout FTSE 100 recovers entirety of its Brexit losses
- Struggling FTSE 250 more representative of UK business
- Sterling bulls should wait for 1.3850
As political paralysis descends over London, markets wait for
the Brexit-related peaks and valleys to flatten out. Photo: iStock
By Clive Lambert
What a week we're having! While UK politicans from boths sides of the floor and both sides of the Brexit campain run around making the Muppet Show script writers look like amateurs, the markets have finally started to settle down.
So what do the charts say, and what are the key levels to keep an eye on now?
The "comeback kid" award must go to the FTSE 100 index, which – it should be remembered – isn't really that representative of "UK PLC" at all. The FTSE rallied from 5,899 to 6,380 even before we knew the result on the basis of market "wisdom" calling for a Remain win. Then on Friday, we dropped down to a low of 5,788 before recovering swiftly.
As I write we are back at last week's highs and arguably this chart is saying "what's all the fuss about?". This morning's high was 6,398; the high back in April was 6,427 and this was a failure at an area where we've seen a number of failures since last October.
Above here we have a reasonably clear run to the all-time high from last May, up at 7,122.
The low on Friday was a "tag" of the 38.2% Fibonacci retracement of the March 2009 – April 2015 rally, a level that has seen a number of bounces in the last 12 months as you can see on our weekly chart below. .
Daily FTSE index:
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Weekly FTSE index:
If you look at the FTSE 250, however, things arent so rosy. The FTSE 250 comprises the next 250 companies behind the top 100 in the headline index. This is far more representative of companies doing business in the UK, and as you can see from our chart hasn't done anything near as well as its top_tier counterpart on this week's recovery trade.
In fact, it's only bounced to the low from June 16.FTSE 250 index (daily):
So on to the currency... my favourite "factoid" (if you can use the word favourite in this instance) of the week was that cable dropped on Friday to the lowest levels since 1985, when David Bowie and Mick Jagger were topping the charts with "Dancing in the Streets".
In GBPUSD, 1.3229 was the low on Friday morning, and this was followed by a recovery to 1.3980. We then sold off again on Monday to a new low of 1.3121. Since then we've seen a tentative recovery trade, up to a high of 1.3535 yesterday afternoon and with 1.3350-66 acting as a pivotal level so far this week.
To really be able to say we're out of the woods and the market has upside potential, we would need to retake 1.3850, and that's currently a long way off.GBPUSD daily:
EURGBP has behaved pretty well and got up to a big level at 0.8367 before we found sellers. This is the halfway mark of the selloff from December 2008 to July 2015 (0.9803 to 0.6932). Since then, we've posted some small red candles and yesterday afternoon a move below Marabuzo support at 0.8231 attracted buyers (the low was 0.8205).
I had this 0.8231 level as one of two downside targets, expecting to see a weaker tone as things dusted themselves off. The second target was/is 0.8118 which would be a retest of the broken resistance from April.
Also, 0.8082 and 0.7980-0.7900 are big areas of support to watch below that. We have found sellers over the last 24 hours on rallies to 0.8294 so this protects 0.8320 and 0.8380. Above the latter, the next upside target of note is 0.8700. EURGBP daily:
One more chart is worthy of note – the old favourite "flight to quality" that is gold.
Gold broke resistance at $1,308/oz on the news of the vote, spiking right up to $1,362.6/oz on Friday. Since then we've seen a pullback, but we seem to be attracting buyers at none other than $1,308/oz – the broken resistance.
As long as $1,308/oz is below I would expect to see $1,362/oz retested so I'm buying dips there but would rethink if we dropped through $1,308/oz (although there is another strong support zone at $1,286-89/oz).
Hope you're all staying safe in these interesting and volatile markets.
— Edited by Michael McKenna