What’s Happening?

The FTSE 100 staged a big rally following the UK’s Brexit vote, driven by a combination of factors including a lower Pound, a strong UK economy and a rising oil price. Recent technical signs suggest the FTSE may have peaked and a trading correction may be starting. With a log of news coming out from the UK, Europe and the US related to politics, the economy and corporate earnings, the FTSE 100 could be particularly active this week.

Technicals:

Since bottoming out in February, the UK 100 CFD has been trending higher. There was a brief selloff in June following the Brexit decision before the index exploded upward out of a big base.

Recently, signs have emerged that suggest this uptrend may be ending.The recent new high was not confirmed by a new high in the RSI, a negative divergence suggesting upward momentum slowing. A double top near 7,100 also suggests bulls may be getting tired. The index has dropped back under 7,000 toward 6,925 to retest its recent breakout point. A successful test would keep the underlying uptrend intact, but a failure would signal a downturn with next potential support near 6,855 and the 50-day average then 6,755.  

Fundamentals

There are a number of factors that could influence trading in the FTSE over the course of this week.

  1. Trading action in GBP: Since June the FTSE has been trending in the opposite direction of Sterling because many of its members are multinationals priced in many currencies and expectations a weaker pound could boost the UK economy. The FTSE did not go to a new high following the GBP flash crash, a big non-confirmation that suggests the pound could be close to a big bottom.  A stabilizing or recovering pound could provide a headwind to UK stocks. Chatter related to Brexit positioning and posturing could also impact GBP and the FTSE.
  2. UK economic figures – This week UK inflation (Tue), employment (Wed) and retail sales (Thu) are all due which could impact speculation related to corporate earnings prospects and whether the Bank of England may need to bring in more stimulus or not.
  3. Earnings season and general sentiment toward stocks. – The usual seasonal selloff in stocks really hasn’t happened this year so far but there has been a slow drip downward. The FTSE could get caught up in any swings in sentiment toward global stock markets.
  4. Other external factors. The US Presidential debate Wednesday night and the ECB meeting Thursday morning may also have an impact on trading and sentiment toward world markets. Changes to risk-on / risk-off views could influence currency and index trading.