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FTSE100 higher on worse than expected UK GDP data

The UK economy is fairing fairly well but collecting the data is not easy, so revisions are likely to be made. One of the vaccine leaders has announced that they will develop a booster jab to tackle the Delta variant and we may get a bank holiday if the football team beats Italy on Sunday. It’s a Friday, so the markets will do their best to confuse you, best to trade small and with high discipline.

Market Brief

Equities in Europe are trading higher at the London open following the United Kingdom's latest reports on the gross domestic product (GDP), industrial production. Later on today the UK reports on trade balances. The European Central Bank (ECB) has another Monetary Policy Meeting ahead of the US Open which will be preceded by speeches from ECB President Lagarde and Bank of England Governor Baily at 11 am. Yesterday the ECB announced a change in its inflation target from "below, but close to 2%" to 2%.

The UK FTSE 100 is at the base of a recent consolidation period, the 7000 level is key support and a close back above the daily 50 ema would be the best sign that the uptrend is to continue. The 20 & 50 daily ema’s are currently flattening off reflecting the sideways action since April. While the Delta variant causes the markets to remain twitchy, it may be better to wait for the price action to either drop towards the 200 ema for a buy, or wait until we are above this range and buy a test of the previous resistance.

The UK economy is still on track to make a V-Shape recovery, though it is not accelerating to pre-pandemic GDP levels. GDP is estimated to have grown for a fourth consecutive month in May 2021 by 0.8% but remains 3.1% below its pre-pandemic level (February 2020)

Today’s data shows that the British economy is estimated to have expanded by 0.8% in May compared to the previous month. This marks the fourth consecutive month of growth but its failure to meet market expectations. According to the Office for National Statistics, the UK’s GDP remained 3.1% below pre-pandemic levels seen in February last year.

The service sector rose 0.9%, with accommodation and food service activities surging as much as 37.1% boosted by the relaxation of the coronavirus-related restrictions. Consumer-facing services refer to retail trade, food, and beverage serving activities, travel and transport, and entertainment and recreation and the increase is all down to returning consumers and business post-vaccination rollouts.

The UK is heavily reliant on the Service Sector but to get the GDP higher we will need Production and Construction to rise in the coming months as well.

The pound is still hovering around the daily 200 ema and 1.3750 will be key today unless we can get above yesterday's high. With the strengthening US dollar, I still expect a look below the 1.3650 in the coming days/weeks.

The US dollar index (DXY) is currently green for the day and is testing the opening price from Wednesday. This could be a level of resistance that traders are looking at and as it’s in the middle of yesterday’s range, I would not recommend taking a trade at these levels.

The AUDUSD is struggling to make a reversal having tested the daily 200 ema a few days ago and then quickly selling off. Data out of China and the global risk-off sentiment due to rising COVID cases is not helping the commodity markets or the Aussie. Last night’s data showed the Chinese CPI dropping and that is being attributed to falling pork prices. The Chinese authorities are trying to manage the cost of commodity prices after they had spiked earlier this year, but CPI is formulated around consumer retail habits. Higher costs of materials in production have not necessarily been passed on from the factory to the consumer so better livestock numbers and weaker demand for pork would be the reason for a lower CPI reading.

The move into the safety of the yen is likely to be unwound as the fundamentals favor the USA versus Japan currently. The summer Olympics are being heavily disrupted by the ongoing COVID crisis and not allowing spectators to attend will be a massive hit to the Japanese economy. South Korea is also transitioning to a heavy lockdown, so the Asia-Pacific regions are not fairing very well with regards to controlling the COVID-19 and subsequent disruptions.

Tier 1 data around the US open will come from the Employment Change and Unemployment rate from Canada, so we could get a move in the USDCAD later on.

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