FTSE 100: Commodity Markets Wants to See The FTSE 100 at 6040

2015-11-18 08:35:00

Alejandro Zambrano, Market Analyst

The FTSE 100 remains capped at 6250 which is last week’s breakdown level. The next natural step for the FTSE 100 is to trade sideways and then to break higher as traders realize that the index will not trade lower nor give back some of its gains in a potential move to trade higher.

The alternative, a break to yesterday’s low of 6226 would indicate to us that a correction is underway and we would expect the DAX to pullback to 6191 which is a 38.2 percent correction of the gains from Monday’s low. The next support level beyond is the 50 percent correction level at 6164.

A break to yesterday’s high of 6279 may take price to the November 10 high of 6330, but traders will be careful in adding to long positions unless they see strong breakouts to the DAX 30 or S&P 500.

Longer-Term Drivers: Commodities Are Still Bearish

Commodity markets worked great to predict last week’s losses. And they have not improved as the FTSE 100 has rallied, this is due to the Dollar gaining.

The Bloomberg Commodity index is currently implying that the FTSE 100 should be trading closer to 6040. On the other hand, the driver of the last few days has been the DAX 30 and it’s now implying that the FTSE 100 should be trading near 6558. These levels have been estimated using linear regression and the last 6 months of data.

For now as I expect the DAX to pull back slightly, I would await less support from the DAX in the next 1 to 2 days.

FOMC Minutes

A Fed December rate hike is still a threat to the FTSE 100. This evening, traders will scrutinize the minutes to figure out what triggered the Fed to mention the December meeting as a potential lift-off date. For now the market is only predicting 3 rate hikes by the end of 2016, while the Fed itself is expecting 5 hikes.

If the Fed minutes show that the market should expect more than 3 rate hikes, then this may have adverse implications for the FTSE 100.