European Open: Japan’s GDP Contracts for the First Quarter in Three

Whist there had been a growing expectation that Japan’s economy would shrink in Q1, the number came in much worse than expected.

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Asian Indices:

  • Australia's ASX 200 index rose by 41.7 points (0.59%) and currently trades at 7,065.30
  • Japan's Nikkei 225 index has risen by 628.23 points (2.26%) and currently trades at 28,456.06
  • Hong Kong's Hang Seng index has risen by 351.14 points (1.25%) and currently trades at 28,545.23

UK and Europe:

  • UK's FTSE 100 futures are currently up 52.5 points (0.75%), the cash market is currently estimated to open at 7,085.35
  • Euro STOXX 50 futures are currently up 28 points (0.7%), the cash market is currently estimated to open at 4,034.84
  • Germany's DAX futures are currently up 89 points (0.58%), the cash market is currently estimated to open at 15,485.62

Monday US Close:

  • DJI futures are currently up 117 points (0.34%), the cash market is currently estimated to open at 34,444.79
  • S&P 500 futures are currently up 50.75 points (0.38%), the cash market is currently estimated to open at 4,214.04
  • Nasdaq 100 futures are currently up 11.75 points (0.28%), the cash market is currently estimated to open at 13,324.66

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Asian indices higher on Japan’s GDP miss

Shares in Japan led gains across Asia as a weak GDP report reaffirmed the likelihood of further / prolonged stimulus form BOJ (Bank of Japan). Consumer spending was a major culprit to the disappointing figures as new infections continued to rise and the vaccination rollout continued to slow down. The Nikkei 225 rose 2.3% and the TOPIX was up 1.6% at time of writing. At -1.3% QoQ, it was the worst quarter since Q3 2020.

Index futures have opened higher, pointing to a firmer open with their respective cash markets. FTSE 100 futures are up 0.75% whilst Euro STOXX 50 futures and DAX have risen 0.7% and 0.6% respectively.

The FTSE 100 did well to recover on Thursday, when it rebounded back above 6850 to close with a relatively large bullish hammer on the daily chart. Yet upside momentum has been a little underwhelming since, and yesterday’s Spinning Top Doji show of a lack of commitment from buyers and sellers. That bullish momentum is currently lacking following last week’s large bearish outside week should be of concern to bulls. Yet, at the same time, choppy intraday price action doesn’t give a compelling case for a rally or a sell-off. Bulls need to break above 7067 resistance or bears break beneath 6988 support before its next directional move can get underway.


FTSE 350: Market Internals


FTSE 350: 7032.85 (-0.15%) 17 May 2021

  • 96 (27.35%) stocks advanced and 231 (65.81%) declined
  • 18 stocks rose to a new 52-week high, 1 fell to new lows
  • 83.76% of stocks closed above their 200-day average
  • 19.37% of stocks closed above their 20-day average

Outperformers:

  • + 6.98%   -  Diploma PLC  (DPLM.L) 
  • + 4.73%   -  Hochschild Mining PLC  (HOCM.L) 
  • + 3.85%   -  Watches of Switzerland Group PLC  (WOSG.L) 

Underperformers:

  • -6.69%   -  Restaurant Group PLC  (RTN.L) 
  • -5.41%   -  Trainline PLC  (TRNT.L) 
  • -4.71%   -  SSP Group PLC  (SSPG.L) 


Forex: USD and JPY remain the weakest major currencies

The Japanese yen and US dollar were the weakest currencies overnight. The yen came under pressure following a surprisingly weak GDP report, with growth contracting -1.3% in Q1 (2.8% prior) and falling -5.1% compared with the same period last year (11.7% previously).

The US dollar index (DXY) gapped lower to touch a fresh three-day low overnight, stopping just shy of retesting 90.00 support as investors continue to remain concerned over inflation, and the prospect of lower rates for longer. This is seeing USD/JPY trade sideways just above 109.00 and has found support at the Marabuzo line highlighted on in Friday’s Asian Open report.

With DXY holding above 90.0 then it leaves EUR/USD vulnerable to move lower beneath 1.2183 (also taken note of the small bearish wedge on the hourly chart).

EUR/GBP has broken beneath yesterday’s bearish low to confirm the bearish engulfing candle as a near-term reversal. The fact it occurred at the 0.8620/30 resistance zone suggests a swing high is in place and prices could be set to move lower.


GBP/JPY breaks out from compression

With sentiment for the yen on the back foot and UK reopening supporting the British pound, GBP/JPY broke to its highest level since February 2018 overnight. Prices had been consolidating since closing above the April high last Monday, but momentum has now seen it break out of this holding pattern. With bullish momentum on its side, we remain bullish on the cross whilst prices hold above 154.22. Given there are no structural resistance levels until the 156.62 high, we shall keep an open upside target.


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Commodities: Metal extend their highs

Metals were also higher overnight thanks to the weaker dollar, which saw gold prices stop just shy of testing 1875.61 resistance. With the US dollar index holding above 90.0 it increases the probability that gold may retrace lower from current levels, but bulls could look for the broken channel or 1844 to hold as support.

Silver prices also broke above 28.32 resistance overnight, but the jury is out to whether it can close above this key level or create a reversal candle by closing back beneath it by close of business. Having rallied nearly 8% since Friday’s low, a close beneath 28.32 could signal the start of a corrective phase but we’d continue to look for potential bullish setups above 79.66.


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