As the dust begins to settle on what was another mixed US jobs report on Friday, there is an air of consolidation and possibly even recovery (on equities) across several markets on Monday morning. However, one area where the action is being seen is in sterling as traders set up for what could be a crucial week in the direction of Brexit. The emphasis is on the word “direction” too, rather than use of anything more definitive, as uncertainty remains heighten with less than three weeks until the US supposedly leaves the EU. Whilst sterling is selling down in front of what could be three crucial votes in Parliament, the likelihood is that the price and outlook for sterling will look drastically different by this time next week. The pathway seems increasingly moving towards a softer form of Brexit and that should mean sterling higher, but for now the uncertainty is hitting.
Wall Street closed well off its lows of the session on Friday to see the S&P 500 -0.2% at 2743 whilst US futures are ticking slightly higher by +0.1% today. Asian markets are showing decent recovery signs today with the Nikkei +0.5% and Shanghai Composite +2.0%. European markets are all showing mild recovery moves too, with FTSE futures and DAX futures a shade under half a percent higher. In forex, there is very little move on major pairs other than with sterling which is -0.2% lower, although there are hints of mild dollar correction again. In commodities, the rebound from gold on Friday is just bumping up against the $1300 resistance area again, with oil managing a decent start around half a percent higher.
It is a relatively quiet start to the week on the economic calendar, especially in the European morning, however the US Retail Sales at 1230GMT will be clearly of interest (keep in mind that the US made the Daylight Saving Time shift over the weekend). On a core basis Retail Sales ex-autos are expected to have improved by +0.3% on a month on month basis in January (compared to a -1.8% decline in December).
Chart of the Day – French CAC 40
Uptrend channels on the major European markets are under pressure now as the selling pressure has increased. For the French CAC, there is quite a narrow uptrend channel which comes in at 5208 today, whilst the rising 21 day moving average which has also flanked the recovery in recent months, and is a basis of support today at 5182. The concern is that this correction in the past couple of sessions has resulted in the momentum indicators posting a couple of sell signals, with the RSI back below 70 and a MACD sell signal. This suggests that support between 5168/5200 will comes under pressure as the first test. The first important sup