GBP and Coffee continue higher; Indices mixed

Summary:

• Further gains for Sterling; GBPUSD > $1.31

• Coffee surges to new YTD high

• FTSE continues to lag

• DE30 trades a little lower

• US500 mixed as Trump impeachment drafted

With just a week to go until the general election it seems that the financial markets are placing their bets on a Conservative majority with the pound extending its push higher. Sterling has hit another 7-month high against the US dollar and you have to go back to May 2017 to find a better GBP/EUR rate. It is quite clear that the markets are looking favourably on the prospects of a Conservative majority, which due to the promise of delivering Brexit will lift some uncertainty at least for the next couple of months.

While there has been a slight narrowing in the lead enjoyed by the Conservatives over Labour, at present it’s looking like there won’t be a repeat of the 2017 election where a disastrous Conservative campaign and an inspired Labour one saw a stark change in popular opinion and ultimately delivered a hung parliament.

Coffee prices are on the rise again today and have been testing the $125 level for the first time since October 2018. Despite a lack of support from Brazilian real, coffee soared nearly 35% within just 6 weeks. Concerns about declining inventories are behind this move but $125 area is an important resistance so bulls face a major test here.

Global stocks are looking to regain their footing after a rocky start to the week with European bourses recouping some of their losses and US benchmarks began the cash session in the green. However, as has been a constant theme in recent months the leading UK benchmark continues to lag with the FTSE 100 pretty much flat on the day. The further appreciation of the pound is providing a headwind for UK blue-chips and the FTSE remains not far from its lowest level in 6 weeks. 

The DE30 is trading a little lower on the European close, drifting back below the 13100 handle.  The German factory orders data October was released at 7:00 pm GMT. Reading turned out to be a disappointment as consensus called for a 0.4% MoM increase while the actual data showed a decline of 0.4% MoM. Decline can be ascribed to a 3.2% MoM drop in domestic orders as foreign orders grew 1.5% MoM. The biggest decline was spotted in the capital goods category.

The early gains for the US500 have been pared back a bit with the market pretty much flat at the time of writing. While it hasn’t had a discernible market impact it is worth noting the Speaker of the House Nancy Pelosi said that the House will draft articles of Trump impeachment as president engaged in abuse of power and violated Constitution. House is controlled by Democrats but the bill is set to stuck in Republican-controlled Senate where it needs 2/3 majority to pass. Therefore for Democrats the question is how could then use this in a long presidential campaign. So far there’s a minimal market reaction as stocks are recovering from early-December slump.

In terms of levels Fib retracements are working quite nicely in the US500 with a break above the 61.8% fib retracement at 3124 paving the way for further upside with the 78.6% coming into play at 3139. As for potential support the 38.2-41.4% fib region from 3103-3106 could now be seen as important in the near term and as long as price remains above here then the action could be described as constructive.