FTSE rises ahead of the mini-budget
The FTSE fell 1% yesterday after the BoE raised interest rates by 50basis points to 2.25%, . The vote was far from unanimous, with three in favour of a 75-basis point hike, five for 50 basis points, and one for a 25-basis point hike. This highlights the lack of consensus on how to deal with core inflation at 6.3% and an economy likely already in recession.
This is the backdrop to which Chancellor Kwasi Kwarteng will reveal his mini-budget, which is expected to bring a slate of tax cuts to inject growth into the flagging UK economy. The rise in national insurance is set to be scrapped, and the planned increase in corporation tax is also set to be ditched.
However, the OBR won’t be assessing the min budget’s impact on public finances, which could prove to be a costly error, leaving the markets scrambling to understand the impact on the economy across the short and medium term.
In addition to the mini-budget, PMI data will be in focus. Manufacturing PMI is expected to remain in contraction at 47.5. Meanwhile, service sector activity is likely to stall at 50.
Where next for the FTSE?
The FTSE broke down below the multi-month rising trendline and is testing support zone at 7150 – 7125, which has offered support on several occasions across the year. The RSI supports further downside. A break below this support zone opens the door to 7000, the July low.
Should bulls successfully defend this support zone, buyers will look to rise over 7250, the rising trendline resistance to expose the 20 sma at 7270. A move above the 50 sma at 7370 could negate the near-term downtrend.
USD/CAD rises above 1.35 ahead of CAD retail sales & US PMI data
USD/CAD rose to a two-year high on Thursday as the US dollar saw follow-through buying after Wednesday’s Federal Reserve hawkish rate hike. However, the pair soon pulled back as the loonie found support from higher oil prices, as supply concerns picked up following Putin’s escalation of the war in Russia.
Hawkish Fed bets and recession fears continue to act as a tailwind for the pair, and USD/CAD has risen back over 1.35. Oil is also falling towards 6-month lows as China’s zero-COVID policy adds to the deteriorating fuel demand outlook.
Attention turns now to Canadian retail sales, which are expected to fall -2% MoM in July after rising 1.1% in June. Sales slow as inflation remains elevated, and interest rates rise.
US PMI data could also provide some direction to the pair.
Where next for USD/CAD?
The breakout above the multi-month rising trendline resistance favours USDCAD bulls. However, the RSI is deeply in overbought territory, so buyers should take caution.
Buyers will look to rise over 1.3545 to attack the 1.36 round number.
Meanwhile, the breakout point at 1.34 could offer support; a break below here opens the door to 1.3225, with a move below this level negating the near-term uptrend.