Late surge see 8217 s FTSE rally 0 5 on mining strength but still stuck in ranges

A late surge helped the FTSE 100 to close the day higher by 33pts or 0.5% mostly on a bounceback with strength in mining shares and banking stocks after both sectors suffered losses yesterday. However, the FTSE remained locked in its current trading range between the 5800 and 5876 as the UK Index trends sideways with many traders awaiting a break out.

The bounceback today is mostly weighted in the miners, with the FTSE 350 mining sector rallying over 2.3% by mid morning trade. The FTSE 350 banking sector also rallied strongly on the day, gaining over 1.5% and seeing banks such as Barclays amongst the days top gainers.

A lack of economic data due out today apart from the UK CBI Industrial Trends Survey gave investors little to trade on news wise. UK CBI factory orders dropped surprisingly to -21 this month against expectations of a reading of -8, its lowest levels since December last year. The export order book balance also fell to -17 from -9 a month ago, marking its lowest levels since January. This reading shows continued sensitivity to economic headwinds across Europe and also dampens sentiment somewhat that manufacturing is picking up.

The news was not met necessarily negatively by the market, as it increases pressure on the Bank of England to keep the printing presses switched on and increase asset purchases.

Economic data picks up with pace from tomorrow in truth, where we will see the latest German Ifo survey, as well as US existing home sales. Later in the week on Friday we should also see UK GDP for the second quarter upwardly revised from a previous contraction of 0.7%.

The FTSE 100 remains locked in its current trading range, with a lack of significant movement outside support and resistance levels. This sideways pattern is keeping trader activities in the extreme short term and many investors are awaiting a break out of these ranges before taking their next move with more vigour. We need to see the FTSE 100 break out above the 5876 level and more significantly the 5900 resistance level to enable the UK Index to target a break of the psychologically important 6000 level once again.

(see FTSE 100 chart below) 

The euro however has seen some support today, helping the single currency to trade higher by 1% against the US dollar and back above the $1.24 level. The Euro strengthened above the resistance level of $1.2450 to trade close to $1.2500, a level not seen in almost 7 weeks trading. If the euro is able to consolidate above this resistance level it may help to entice more euro buyers in the near term. A sell off from this level however could convince traders that a return to the 1.2250 level is on the cards.

(see euro chart below)

A bullish note from JP Morgan Cazenove on European insurers helped to increase demand for stocks such as Aviva, with the bank highlighting that the sector had been ‘oversold.’