The FTSE 100 (FXCM: UK100) is higher by 1.25% as of writing. All sectors are in fact higher with the Energy and Basic Materials Sector leading the way. The current rally is a continuation of the bullish bias supported by the dovish tone at yesterday’s ECB meeting and the markets are now pricing in a 90% likelihood of a 10 bps reduction in the deposit rate by March.
The slump in crude oil, downside risks to inflation and emerging markets are all factors keeping the ECB on their toes, Draghi stating that the “policy stance will need to be reviewed in March.” The situation is comparable to the October 2015 meeting, and at the subsequent rate meeting the ECB did indeed cut rates.
The FTSE 100 is also supported by a Nikkei Asian Review article published late yesterday evening. It suggests that the Bank of Japan, which will host a rate meeting starting January 28, is taking a serious look at expanding its monetary easing as soft oil prices make it hard for the central bank to reach its 2% inflation target.
The FTSE 100 needs to breach Tuesday’s high of 5917 to end its bearish momentum. This seems likely with the DAX 30 already having ended its downward trend. If Tuesday’s high of 5917 is reached, the market will most likely aim for the January 14 high of 6000. However, entering long positions on a break today will require a stop below the 5656 support level and this would impair the risk/reward ratio. My preferred setup would rather be a pullback to the support level post a break.
With the ongoing crisis in the U.S manufacturing sector, today’s Markit U.S. Manufacturing PMI for January will be crucial. The market anticipates an outcome of 51 from 51.2 in the month prior and a higher than expected reading should most certainly ease expectations of a major slowdown impacting the U.S. economy.
Losing Money Trading? This Might Be Why
FTSE 100 | FXCM: UK100
Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano
--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com
Contact and follow Alejandro on Twitter: @AlexFX00
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