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The pound opened the week range-bound, stabilising at the tight range of 1.2366 – 1.2472 against the US dollar. Of course, Friday’s ‘flash crash’ is not representative of the value of the sterling in the mid-term; nevertheless, the recent incident has been a good test for the currency, as it gave some visibility on the depth of the pound market and the lack of liquidity following the UK’s decision to leave the EU. Yet more importantly, it warned of a further downside potential on the back of Brexit concerns.
The FTSE 100 made a flat start to the week. The cheaper pound, combined with firmer oil and commodity prices, continue to be supportive of fresh bids in the UK’s mining and energy stocks as investors seek to buy the dips in hopes to see a further recovery in the commodity markets, which have remained depressed for over more than a year.
The 7010/7000p zone could be an interesting buy-the-dip for a further recovery toward 7140/7150 area. The key short-term support is eyed at 6940p, the major 38.2% retracement on Sep 15th to Oct 4th rise, while a slide below this level would suggest a short-term bearish consolidation and bring the 6900p level back on the radar.
Royal Dutch Shell (+0.72%) and British Petrol (-0.19%) give contradictory signs at the intra-day trading as oil tests the $50 level, yet with a slight lack of confidence as the OPEC’s decision to cut production would not decrease the global supply enough to send the price of a barrel higher.
BHP Billiton (+1.05%), Rio Tinto (+0.67%), Anglo American (+0.93%)
Banks remain under downside pressure with Lloyds (-2.17%) and Barclays (-1.87%) leading losses in London at the early hours of the trading week.
Euro-pound stabilises above 0.90
The EURGBP spiked to 0.9257 at Friday’s flash crash, trimming hopes to see the pound recovering to the 0.8000/0.7500 zone against the single currency following the Brexit. The mid-term trend remains positive above 0.8709 (major 38.2% retracement on Jul’15 to Oct’16 rise) for a potential rise towards the 0.9300/0.9500 area in the mid-run.