The FTSE 100 is trading near its October 14 low of 6255, with a successful break to that low opening up for a decline to 6109 which is a 61.8% correction of the rally from 5870 to 6487. Please see the chart below.
If the FTSE Index manages to remain above the 6255 low we may reach the 6450 level. However, as we have stressed many times before, the main reason for the sluggish price action is being caused by commodities firms dragging down price. With this in mind, momentum traders are probably waiting for a break to the 6255 – 6487 range.
FTSE 100 Estimates Based On Regression Analysis
In our work on the FTSE 100 correlations, we know that the Bloomberg commodity index and DAX 30 are major influencers. Today we estimate that if it was down to commodities alone, the FTSE 100 should be trading closer to 5980, with the Bloomberg Commodity index declining on the back of a stronger Dollar. In the case that we use the DAX as an explanatory variable and on the back of the ECB fueled expectations, the FTSE 100 should be trading closer to 6450. The estimations are based on a linear regression estimate with a sample of 3 months.
This highlights the two forces driving the FTSE 100 with softer commodities now being in command.
Data on tap this afternoon is the U.S. NFIB Small Business Optimism along with the U.S. Wholesale Inventories, with expected outcomes according to the Bloomberg News Survey being 96.4 and 0.1% MoM respectively. These two economics series do not tend to move the markets a great deal, but as we are trading near support, they may affect whether there is a breach to the FTSE 100’s range or not.
Technical outlook
Traders are expecting both commodities to end their slide and the DAX to bounce and are probably going long at current levels, remaining bullish as long as we trade above the October 14 low of 6255. These traders are expecting price to revert back to the fair value of 6450, based on the DAX.
Momentum traders will wait for a break to the 6255 – 6487 range.
Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano
--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com
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