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FTSE 100 Remains Stable Ahead of BoE Rate Decision

FTSE 100 Remains Stable Ahead of BoE Rate Decision

2016-05-12 08:04:00
Alejandro Zambrano, Market Analyst
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Talking Points

  • The FTSE 100 price momentum has slowed down substantially over the last few days.
  • Last week’s low and Tuesday’s high is keeping the FTSE 100 trapped.
  • On the macroeconomic front, today’s Bank of England Rate Decision and the Bank of England Inflation Report are the highlights.

FTSE 100 price momentum has slowed down substantially over the last few days, as traders are not sure if they should be buying or selling the index.

Technically, Monday’s low of 6107 and Tuesday’s high of 6182 has kept the FTSE 100 trapped. The range could be extended to include last week’s low of 6054, making the range 6054 to 6182.

Extending the range to last week’s low could make sense to most market participants as Monday’s low of 6107 will probably be seen as a short-term low and a breach to it may not matter much given the proximity of that last week low.

When price is trading sideways as it was doing at the time of writing, traders have little incentive to take action. Instead, activity tends to pick up when and if price breaches either the upper or the lower end of the range, as a breach to the range may be the start of a trend.

Resistance levels above Tuesday’s high of 6182 are the intraday high of 6210, formed in the afternoon of May 3, and the April 27 high of 6341.

We note that a breach to last week’s low of 6054 could be important for the multi-week trend, because if the FTSE 100 slips below 6054, then price would also be trade below its April low of 6060, which is a major support level. The March 10 low of 6006 and the February 24 low of 5841 are support levels below last week’s low of 6054.

Our Stock Market forecasts for Q2 2016 are now live on the site. Download them for free.

FTSE 100 | CFD: UK100

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Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano

On the macroeconomic front, today’s Bank of England Rate Decision and the Bank of England Inflation Report are the highlights. Economists do not expect any changes to either the policy rate or the BoE Asset Purchase Target. Instead, focus will be on the BoE’s outlook for the economy and their monetary policy.

According to GBP Overnight Index Swaps, the markets expect the BoE to reduce its policy rate by 7 basis points over the next 12 months. This view may not be surprising given the recent declines of U.K. PMI’s (leading economic indicators) and risks if the U.K. does vote to leave on June 23.

The question is whether the BoE will also lean towards being dovish and thereby trigger lower short-term interest rates, which may help FTSE 100 firms, or whether the BoE will ignore the recent slowdown to U.K. economic activity and prefer the status quo.

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--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com

Contact and follow Alejandro on Twitter: @AlexFX00

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

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