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FTSE 100: Range Trading Dominates

FTSE 100: Range Trading Dominates

Alejandro Zambrano, Market Analyst

Talking Points

  • Price lacks a strong bias within the 6053-6195 range.
  • Bank of England’s Carney, Broadbent, Weale, and Vlieghe testify before Parliament today, where they will discuss the May 2016 Inflation Report and Brexit.
  • The ZEW Expectations Index may rise to 12 from 11.2.

The FTSE 100 was range bound this morning, much as it has been since price reached the current levels on May 4.

The May 6 low of 6053 is a strong support and traders have attempted to take out this level over the last few weeks, but buyers have thus far managed to repel such efforts. On the other hand, the May 12 high of 6195 that has kept buyers at bay.

Within the 6053-6195 range, the FTSE 100 lacks a trend and neither bullish nor bearish traders have control. This situation will probably prevail until a break to the range occurs. We note that a similar episode prevailed earlier this year, when the FTSE 100 traded sideways from March 1 to April 11. The only benefit to a ranging market, from a trend trading perspective, is the strong momentum, which tends to follow a break to the range.

Resistance levels above the upper end of the current range at 6195 are the May 17 high of 6217, the May 3 high of 6283, and the April 27 high of 6341. The nearest support levels below the May 6 low of 6053 are the March 10 low of 6006 and the February 24 low of 5843.

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

Bank of England’s Carney, Broadbent, Weale, and Vlieghe testify at Parliament today, where they will discuss the May 2016 Inflation Report and Brexit. However, given the Bank of England’s warning as to potential Brexit risks coupled with its (already public) monetary policy, today's German ZEW Expectations Index could have a bigger impact on the FTSE 100.

The ZEW Expectations index has a mild correlation to year-on-year changes of the DAX 30, which in turn has a high correlation to the FTSE 100. The current correlation between the DAX 30 and FTSE 100 is 0.709 when using daily data covering the last six months. Today’s ZEW Expectations Index may therefore provide clues about what to expect from the FTSE 100 given that correlations between the DAX 30 and FTSE 100 remain strong.

The German ZEW Expectations index (Economic Sentiment), queries 300 financial experts about their view on the German economy 6 months into the future. The index experienced a steep decline since March 2015, which was at the same time as the FTSE 100 peaked last year. However, since late 2015, the index has stabilized and the FTSE 100 has followed a similar pattern.

--- 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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