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FTSE 100 Forecast: Unclear Direction as Driving Forces Collide

FTSE 100 Forecast: Unclear Direction as Driving Forces Collide

Daniela Sabin Hathorn, Analyst

Key Talking Points:

  • Brexit and Covid-19 remain the biggest forces behind stock market volatility in Europe
  • FTSE 100 attempts to recover buyer support but lacks momentum
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The FTSE 100 is looking vulnerable again today as movement resumes in the port of Dover after two days of gridlock as an attempt to prevent the spread of a new strain of coronavirus through Europe, putting downside pressure on European equities.

British stocks have been at the center of a risk-off move starting late last week as Brexit concerns resume. Fisheries continue to be the main discussion point in the last leg of talks, as the EU yesterday rejected a proposal from the UK government for a reduction of 35% of the catch in UK waters. The EU is only willing to accept as low as 25%, and this disagreement could see talks go past the December 31st deadline and into the new year, dragging on uncertainty for longer.

Stock Market Holiday Calendar 2020/21

A better than expected GDP reading in Q3 was unable to provide much solace to UK investors as the figure came with an increase in public debt, rising more than 30.8 billion pounds in November. Nor was the House of Representatives and Senate backed US stimulus bill of $900 billion, given that Donald Trump has expressed dissatisfaction and may not sign the bill.

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Looking ahead at the next two days, a reduction in liquidity may see markets moving rapidly, but the general perception is that there is a lack of direction. Equity markets are currently pending on the resolve of many open fronts like Brexit, the coronavirus pandemic, and the US stimulus bill, and any of these can offer heightened volatility in the days to come, so investors must be aware.

FTSE 100 Daily chart

FTSE 100 Forecast: Unclear Direction as Driving Forces Collide

On the daily chart, we can see the FTSE 100 is stuck below the 61.8% Fibonacci level, falling under the 20-day moving average. Momentum indicators have reset the overbought conditions seen last week, so we could see continued buying support up until 6,600, although this area is likely to remain as a strong resistance unless there is a risk event.

To the downside, 6,255 remains as key support as Monday’s retracement was unable to fall below this level, which had previously acted as a barrier for further losses. A break below this level would leave the FTSE 100 exposed until the next support area between 6,160 and 6,110, before risking losing the 6,000 mark.

FTSE 100 BEARISH
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Change in Longs Shorts OI
Daily 21% -21% 12%
Weekly 14% -24% 6%
What does it mean for price action?
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--- Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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