European Open: Equities Sell-Off Through Asia, Inflation and BOC in Focus

Asian indices were mostly lower overnight, taking their bearish lead from Wall Street and Europe. Volatility was capped elsewhere, with inflation and a central bank meeting now in focus.

Charts (3)


Asian Indices:

  • Australia's ASX 200 index fell by -60.8 points (-0.87%) and currently trades at 6,957.00
  • Japan's Nikkei 225 index has fallen by -513.58 points (-1.76%) and currently trades at 28,579.80
  • Hong Kong's Hang Seng index has fallen by -474.15 points (-1.63%) and currently trades at 28,661.58

UK and Europe:

  • UK's FTSE 100 futures are currently down -2.5 points (-0.04%), the cash market is currently estimated to open at 6,857.37
  • Euro STOXX 50 futures are currently up 6 points (0.15%), the cash market is currently estimated to open at 3,946.46
  • Germany's DAX futures are currently up 28 points (0.18%), the cash market is currently estimated to open at 15,157.51

Tuesday US Close:

  • The Dow Jones Industrial fell -123.04 points (-0.36%) to close at 34,077.63
  • The S&P 500 index fell -28.32 points (-0.69%) to close at 4,134.94
  • The Nasdaq 100 index fell -134.24 points (-0.96%) to close at 13,809.30


Indices take a dip

As futures markets hinted, cash indices opened lower across Asia and remained under pressure for most of the day. Japan’s shares led the down as they grapple with their own rise in coronavirus cases, with the added pressure of investors now fretting over the rise of cases in India. The Nifty 50 is currently down -0.44% although the Sensex is -1.8% lower. The Hang Seng fell -1.3% from the open and pretty much remained anchored to its lows, whilst the ASX 200 fell -1.6% at the open but later recovered to trade around -0.9% lower.

Still, European futures have just opened mixed and they’re not hinting at an extension of the sell-off. At least not yet anyway.


FTSE 100: Market Internals

The FTSE 100 had its worst session since late February yesterday and bears made light work of breaking the bullish trendline from the 25th March low. Closing just off the lows of the session is never a great sign, so unless sentiment is given one heck of a boost today, we suspect bears will try to fade into intraday rallies and test the next major support level around 6800.


FTSE 100: 6859.87 (-2.00%) 20 April 2021

  • Energy and financial stocks led the FTSE 100 lower yesterday
  • 7 out of the 10 broad sectors closed in the red.
  • 13 (12.87%) stocks advanced and 87 (86.14%) declined
  • 83.17% of stocks closed above their 200-day average
  • 75.25% of stocks closed above their 50-day average
  • 65.35% of stocks closed above their 20-day average

Outperformers

  • + 1.61%   -  SEGRO PLC  (SGRO.L) 
  • + 1.48%   -  Polymetal International PLC  (POLYP.L) 
  • + 1.27%   -  Avast PLC  (AVST.L) 

Underperformers:

  • -8.11%   -  International Consolidated Airlines Group SA  (ICAG.L) 
  • -7.60%   -  British American Tobacco PLC  (BATS.L) 
  • -7.31%   -  Imperial Brands PLC  (IMB.L) 

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Forex: Will BOC talk taper?

This has been the main question leading into today’s meeting, which also has a CPI report as a prelude. Although the likelihood has dwindled recently with the rise of covid cases. However, the OIS curve (overnight index swap) shows markets still expect BOC to lead the way higher in terms of policy alterations. We just don’t really expect it today. Still,

The Canadian dollar was the weakest major yesterday due to weaker oil prices, stemming form a rise of covid cases in India. We may find this theme also dominates its movements today, even if some of the moves yesterday appear to be a little stretched.

  • CAD/CHF fell to a six-week low, after finding resistance at the 0.7316 / 0.7330 zone. We remain bearish beneath this level and for a run towards 0.7200.
  • USD/CAD rallied to a five-day high and formed a higher low this week on the daily chart/ A break above 1.2650 confirms a bullish trend reversal.

UK inflation data also hits our screens at 09:30, with a speech from BOE governor scheduled for 20:30.

  • GBP/USD rolled over from 1.4000 resistance yesterday and is a touch above our bearish target at 1.3900/19. The reward to risk appears unfavourable for bears around current levels until prices break below 1.3900. target zone. However, if a base formed above 1.3900 it may tempt bulls back to the table.
  • Since falling to our initial 0.8600 target on Monday, EUR/GBP has retraced from its lows and now hovers around a key resistance level. Given the amount of noise which today’s data dump may generate, then this could easily lead to whipsaws around 0.8640 resistance before its next move unfolds.

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EUR/USD: All eye on 1.2000

EUR/USD formed a bearish pinbar yesterday, warning of buyer exhaustion after breaking above 1.2000 on Monday. A break beneath 1.2034 confirms the near-term reversal problem, but we will refrain from becoming too bearish for a few technical reasons. Monday’s strong bullish candle is more compelling than yesterday’s bearish candle, prices remain above 1.2000 and the US dollar index (DXY) has stalled just below its own resistance level.

Furthermore, the four-hour chart shows a decent trend is trading within a bullish channel. So, unless we see a catalyst for strong USD buying, its hard to see how bulls won’t be tempted to load up with any dip towards 1.2000.

  • The bias remains whilst prices hold above 1.2000.
  • Bulls could seek ow volatility dips above 1.2000 / bullish channel.
  • A clear break beneath 1.2000 and the bullish channel invalidates the bullish bias.


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