FTSE 100 Maintains Bullish Bias Ahead of FOMC Meeting

2016-01-27 11:05:00

Alejandro Zambrano, Market Analyst

Talking Points

The FTSE 100 remains robust despite strong declines in the China CSI 300 index. Stronger commodities are helping it here
A dovish Fed may help the FTSE 100 to trade higher as it softens the Dollar and strengthens commodities
A break to yesterday’s high of 5944 may take price to the January 13 high of 6010

Losing Money Trading? This Might Be Why

The FTSE 100 (FXCM: UK100) remains robust despite this week’s strong declines in the China CSI 300 index, and it is potentiality trading lower in the weeks ahead, after breaking its August 2015 low earlier this week. This may haunt the FTSE 100 in the weeks ahead, but for now investors are ignoring it.

While The CSI 300 Takes value, Commodities Give

The Bloomberg Commodity Index has risen 4% over the last week and everyone’s favorite commodity to trade, Crude Oil, has risen by 15.6% over the same period. This helps the FTSE.

A linear regression using the Bloomberg Commodity Index as sole explanatory variable, shows that the FTSE 100 may still rise to compensate for the commodity gains. The current fair value estimate is 5980. In the long-term, prospects for commodities remain bearish as long as the Fed is expected to raise rates and commodity producers stick to their price wars. The FOMC is expected to be dovish today.

FOMC

Overnight-index-swaps are projecting 25bps hikes over the next 12 months and the Fed would probably need to imply this is a fair estimation at today’s meeting to keep the outcome dovish. If this happens then commodities and stock markets are expected to remain supported.

Reasons to be dovish are the soft Retail Sales, Manufacturing sector, Stock Markets, and Emerging Markets, whilst strong employment data over the last few months highlights a reasonable expectation that the Fed will be hawkish.

Technical Levels

A break to yesterday’s high of 5944 may take price to the January 13 high of 6010. The next level beyond this is the January 6 high of 6158.

Yesterday’s low and last week’s low, 5768 and 5600 respectively, are acting as supports. With the overall trend being bearish, I would expect traders to use pullback to the 5750-5850 range as an opportunity to load up on long positions, with a target of 6010 and 6158 in the weeks ahead.

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FTSE 100 | FXCM: UK100