Key Talking Points:
- The FTSE 100 starts December on the front foot after its best month since 1989
- EUR/GBP nears the end of a descending triangle pattern reducing its trading range
European equities are broadly higher this morning following their Asian counterparts as China reported better than expected manufacturing data. The Caixin survey came in at 54.9, up from the prior level of 53.6, marking the fastest rate of expansion in 10 years, underlying the recovery in China.
The FTSE 100 is up around 1.3% at the European open after a softer close yesterday to end its best month since 1989, rising 12.3% in November on the back of bullish momentum from vaccine hopes. December is generally considered to be a good month for equities, and although no large moves are expected going into the holiday period, sentiment is considered to be generally bullish in the stock market, which is likely to keep European indices drifting higher towards year end.
The Arcadia Group has now become the biggest corporate casualty from the coronavirus pandemic in de UK, after Sir Philip Green’s retail empire filed for administration last night after rejecting a 50 million loan from Sports Direct tycoon Mike Ashely. The business is now likely to be broken up, which could in turn lead to share price boosting for Arcadia’s competitors as we could see bargain takeovers from the likes of Ashley Fraser, JDSports and Boohoo. Frasers Group is up 4.7% (FTSE 250 index) followed by JDSports which is up 2.9% so far today.
FTSE 100 Daily Chart
For the past three weeks the FTSE 100 has been trapped in sideways trade between 6,255 and the 61.8% Fibonacci at 6,490, as many investors were likely happy to take their profit after the bullish run at the beginning of the month. This has allowed for oversold conditions to stabilise and offers new entry points for future buyers, which is likely to be the cause for the next push higher. This 61.8% Fibonacci is a key resistance that needs to be broken in order to attempt to fully close the coronavirus gap, given that the summer highs were halted at this same level.
Whilst the path of least resistance is likely to remain to the upside, further sideways moves cannot be discarded, so 6,255 is a key support area to keep an eye on. If we see a break below this level, the next possible increase in buying pressure could be at the 50% Fibonacci at 6,160, followed by the 6,000 mark in confluence with the 100 day moving average.
EUR/GBP DESCENDING TRIANGLE PATTERNS NEARS ITS END
In the currency market, EUR/GBP continues to drift lower as Brexit headlines are ramped up heading into the December 31st deadline, despite the Pound taking a hit last week as talk reignited about a possible independence referendum in Scotland. So far, the 0.90 handle has been strong in halting GBP weakness as it has become a key resistance for the pair, whilst the horizontal 0.8863 line continues to offer support for the euro. On the daily chart we can see how a descending triangle pattern formed back in September is now getting closer to it culmination, tightening the trading range and increasing the likelihood of a bearish break of the 0.8836 support.
EUR/GBP Daily Chart
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--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
