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Market analyst predictions for June 2015

by City Index

Each month, we collate expert and analyst opinion for a short to medium-term snapshot of the financial markets. Gain valuable insight and shape your trading strategy with our monthly predictions.

Analyst Market Bias 1st target 2nd target
Ashraf Laidi EUR/USD Bullish $1.0980 $1.1200

Once the markets absorb the notion that any Fed hike this year would be all but a tightening of conditions, the case for buying the euro dips is more alluring. Read my full article here.

Analyst Market Bias 1st target 2nd target
James Chen GBP/USD Bearish $1.5250 $1.5000

As of late May, the US dollar continues to assert its renewed strength and as a result, GBP/USD could potentially see a June re-emergence of its entrenched downtrend after the rebound. Read my full article here.

Analyst Market Bias 1st target 2nd target
Ken Odeluga UK 100 Bearish (short term) 7083 6736

The rip-roaring exuberance that lifted the market to multiple highs in the early months of the year has passed and the weekly view also shows stochastic oscillators that are quietly on edge. Whilst I believe in the near term a push higher is likely, I see growing potential for a correction after new highs are reached, hence why my second price target is sharply lower. Read my full article here.

Analyst Market Bias 1st target 2nd target
Kelvin Wong US SP 500 Bearish 2040 1980

The S&P 500 (US SP 500) is coming close to a key inflection level of 2140/2150 with deteriorating technical elements. The Index faces the risk of a significant “min correction” of 5% to 6%. Read my full article here.

Ashraf Laidi – Cautiously bullish on EUR/USD

The extended divergence between the improvement in Eurozone macro dynamics and conflicting signals from Greece public officials has kept the euro relatively supported until a new batch of US inflation data began to drag on the single currency. As Greece faces its next four payments to the IMF, totalling €1.6bn by end of June, we anticipate a government reshuffle as the most likely path ahead. In which case, this could unleash the departure of several radical members and force Tsipras to change Syriza’s coalition party.

A government reshuffle would help avoid the uncertainty associated with a referendum (on a Greek Eurozone exit) or snap elections and pave the way for the “new” government to pass new legislation on pension reforms, thereby allowing Greece to return to final agreement before payments are due by end of June.

Euro bears (those looking to short the euro) will find fertile ground in the event of a referendum as the environment will be exacerbated by capital controls on bank withdrawals and transfers. Such a situation would combine the euro gloom of the May 2012 elections with that of Cypriot depositors’ exodus in July 2013. Tsipras’ increasing pragmatism will not escape the conclusion that Greece must comply with the EU/IMF program in order to obtain the remaining €7.2 bn.

The impact of any positives from stabilisation in Greece risks on the euro will likely be absorbed by a gradual improvement in US data, further building the case for an autumn Fed rate hike. But once markets absorb the notion that any Fed hike this year would be all but a tightening of conditions, the case for buying the euro dips is more alluring than chasing the lows.

ashraf-gbp-usd

James Chen – Potential reemergence of the downward trend

james-chen-gbp-usd-june

GBP/USD spent most of the first half of May rising in a sharp incline, especially during and immediately following the UK elections on May 7.

This substantial surge culminated at a 2015 high of 1.5813 in mid-May, topping off the considerable rebound and partial recovery that had been in place since mid-April’s multi-year low of 1.4565.

This partial recovery occurred after a sharp, prolonged downtrend that saw the currency pair drop from a high of 1.7190 in July of last year to the noted April low of 1.4565, a decline of more than 15% within nine months.

In the middle of this May, the US dollar began to reassert its previous strength after a short period of retreat. This resurgence in dollar strength prompted GBP/USD to pullback sharply from its noted mid-May high, back down below the key 1.5500 support level.

In the process of this decline, the currency pair has also dipped below an uptrend support line that represents the rebound from multi-year lows, and re-approached its 200-day moving average to the downside.

As of late May, the US dollar continues to assert its renewed strength and as a result, GBP/USD could potentially see a June reemergence of its entrenched downtrend after the rebound.

With any such revival of the bearish trend for GBP/USD, the next major targets to the downside for the month of June remain at the 1.5250 and then 1.5000 support levels.

Ken Odeluga – FTSE 100 all set for June ‘staycation’

Having notched up seven fresh record highs in the space of a couple of months, the FTSE 100 consolidated only moderately in May.

Post-election glow

A largely unforeseen outright victory by the Conservatives at the election early in May gave sentiment a much-needed recharge, softening what looked set to become a significant correction.

The problem is, whilst impetus from the post-election fillip doesn’t appear to be quite exhausted yet, upside momentum seems to be looking for the same pause that could have happened earlier in the spring, had the fortuitous election outcome (from the market’s perspective) not occurred.

As we’ve stated several times before, caution is advised when trying to read effects of the wider UK economic picture in the FTSE 100’s performance.

Its constituent companies are mostly global multinationals whose shares react most strongly to international events.

However, the FTSE 100 also contains several giant consumer-orientated firms whose shares are highly sensitive to UK economic currents.

In that respect, last month, UK prices finally joined those in dozens of other developed nations, by falling into real deflation, with a -0.1% reading for April.

At the same time, the Bank of England showed no inclination to adjust its underlying message that the next move in interest rates would be up, even if not anytime soon.

The scene is set for the UK to continue to add to and benefit from globally low interest rates and cheap central bank money, a major prop of international stock markets.

Plus, UK consumption, including retail sales, which surged more strongly than expected in April, can be expected to at least buttress major UK consumer-related firms, preventing the significant FTSE retail sector declines seen last year.

Lazy summer

To this thumbnail sketch of recent fundamentals, I add the FTSE 100’s technical picture which right now largely looks like a medium-term match between monthly and weekly highs seen over the last two months.

The key pivot of 6930, formed from the FTSE’s erstwhile best-known all-time high on the last day of the last century, should continue to provide moderate-to-firm support, if two weekly closes at 6960 do not suffice.

However, the rip-roaring exuberance that lifted the market to multiple highs in the early months of the year has passed and the weekly view also shows stochastic oscillators that are quietly on edge.

The Moving Average Convergence Divergence (MACD) lines are close to crossing lower in weekly intervals and the Slow Stochastic did so the week before I write this.

This threshold isn’t showing in the monthly record yet, and relying on that picture alone we could even project the index higher early in June, suggesting another visit to May’s high of 7083, or slightly higher.

The possibility is partly corroborated by the 7085 May contract high of InterContinental Exchange’s FTSE 100 Index Future.

Even there though, the MACD signals some slacking off by the market in June.

The most obvious floor thrown up by the monthly chart is the thin body of the doji formed by trading in July 2014 at 6736.

The FTSE 100 has pivoted above or below the level ever since.

The close of trade in March of this year—6773—which the FTSE barely deviated from at the start of April, will probably work in conjunction with the above.

FTSE-100-FUTURE-WEEKLY-FOR-MONTHLY-PREDICTION-27TH-MAY-2015 FTSE-100-MONTHLY-FOR-MONTHLY-PREDICTION-27TH-MAY-2015 FTSE-100-WEEKLY-FOR-MONTHLY-PREDICTION-27TH-MAY-2015

Kelvin Wong – S&P 500 looks toppish below 2170/2180

As seen from the year to date performance (ending 21 May 2015) of the major and Asian stock indices (chart 1), the S&P 500 has recorded a lacklustre performance of 3.53%. This dismal performance of S&P 500 is way below its counterparts such as the Euro STOXX 50 (+17.50%), Nikkei 225 (+16.05%) and Shanghai Composite (+35.19%) despite its improving economic conditions versus Europe, Japan and China.

Let’s us dissect the S&P 500 from a technical analysis perspective to gauge its future expected performance.

kelvin-june-1

Key elements

  • The S&P 500 is now trading close to the upper boundary (resistance) of its long term ascending channel (in light blue) in place since 02 October 2011 low at 2170/2180 (see weekly chart).
  • The 2170/2180 resistance is a significant zone as it confluences with multiple Fibonacci projection clusters (see weekly & daily charts).
  • The long term RSI oscillator continues to flash a bearish divergence signal since late December 2013 which indicates weakness in upside momentum in price action of the Index (see weekly chart).
  • Another weakness can been seen in the recent price action since late December 2014 as the Index has traced out an impending bearish “Ascending Wedge” configuration (in dark blue) with its upper boundary (resistance) at 2140/2150 (see daily chart )
  • The lower boundary (support) of the “Ascending Wedge” configuration stands at 2100 (see daily chart).
  • The significant supports are at 2040 which is the 200-day Moving Average (in orange) follow by the lower boundary of the long-term ascending channel (in light blue) at 1980 (see daily chart).
  • Market breadth has started to deteriorate since 24 April 2015 as the NYSE cumulative Advance/Decline line has traced out a lower “high” despite a higher “high” seen in the S&P 500 (see chart 2).
  • The Biotechnology sector which is considered as a sector leader due to its superb performance seen last year (+39%) has started to underperform against the S&P 500. Its relative strength chart by taking the respective ETFs (exchange traded funds) of the Biotechnology sector (IBB) against the S&P 500 (SPY) is being capped by a graphical resistance. In addition, the RSI oscillator is coming close to its overbought region. This weakness seen in a sector leader warrants caution on the broader market (see chart 3).
kelvin-june-21 kelvin-june-3 kelvin-june-4 kelvin-june-5 kelvin-june-6

Key levels (1 to 3 months)

Intermediate resistance: 2140/2150

Pivot (key resistance): 2170/2180

Support: 2100, 2040 & 1980

Next resistance: 2335

Conclusion

The S&P 500 (US SP 500) is coming close to a key inflection level of 2140/2150 with deteriorating technical elements. As long as the 2170/2180 pivotal resistance is not surpassed, the Index faces the risk of a significant “min correction” of 5% to 6%. A break below 2100 is likely to add impetus for this potential steep decline towards 2040 before 1980. Do note that the long-term bullish trend is still intact (see monthly chart).

On the other hand, a clearance above 2180 is likely to invalidate the bearish view to open up scope for a multi-month upside movement to target the next resistance at 2335.

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