London open starts with the commodity pairs mainly in the red and the safe havens of yen and US dollar at odds with the Swiss franc. There is not a lot of market-moving data out today, so the price action could be choppy. China’s data this morning was weaker than expected which has set a more bearish tone.
The US dollar opened this week on a positive note and has traded higher into the London open to trade within the current October range and between $94.00-$94.50 again. Today’s economic calendar is light of Tier-1 news events, but we did learn that Chinese Industrial Output for September year-on-year came in under expectations and below the previous reading. Later on this afternoon and before the US futures open we get the US Industrial Production figures which are also expected to come in lower than the previous readings.
The British pound had a great run last week with sentiment rising for Cable as the Bank of England signaled that their proposed rate hike could come significantly earlier than first thought. The idea would be to raise interest rates and cool an economy that is having to deal with rising inflation due to supply chain disruptions and energy prices going through the roof.
The GBPUSD has found a previous level of support and is back in the middle of the range that it had carved out between June and September of this year. One phrase that comes to mind is don’t diddle in the middle. This could easily break down again on US dollar strength.
The UK’s FTSE100 has benefited from oil and gas companies doing well and miners have found an industry supported by higher commodity prices. The FTSE is one of the only major indices not to have found new all-time highs in the last 18 months but could use the current momentum and price action to pop out of the current trading range. More momentum will come into the index from the likes of IAG who will see bullish flows on the back of the US opening up its borders to the UK for those that are vaccinated.
Oil continues to plow higher and is now firmly above the midpoint of the measured move on its journey to $90 per barrel. Last week did see the US dollar come off its highs which helped the energy complex though there was a significant amount of build-in inventories from the USA which could slow the progression of oil prices. Also, as the market sustains at these higher levels, more oil rigs and fracking can come on stream and we are seeing that in the oil rig data each week. This will eventually build supply and should temper the rising commodity price.
The yen continues to sell off as we get closer to the Japanese general election. Japan's manufacturing and export data has not been very good and there is a real base case scenario that the new administration will increase the stimulus packages to try, and jump-start their economy and tackle the COVID-19 situation. A break higher than this inflection level and we could be on for a breakout, retest, and continuation trade. 117 remains the bullish measured move target.