What’s inside:
- ‘Brexit’/’Bremain’ headlines continue, not having same impact on FTSE as it is on sterling
- Will stick to our discipline of the charts in an attempt to avoid the confusion
- Higher high on its way, but don’t expect strong momentum in either direction
Headlines regarding the EU vote are causing some wild swings in sterling as implied volatility for GBP surrounding the vote later this month hits impressive post-crisis highs. The same jitters are not being felt in the UK stock market, though, as the FTSE 100 is trading more in line with a generally stronger appetite for risk.
Last week we saw ‘Brexit’ fears hit the stock market along with sterling, this week we have seen the same fears hit the currency, but not stocks (in fact the opposite yesterday). There are explanations out there as to why ‘Brexit’ hitting sterling helps stocks; for example, a weaker currency helps international corporate profits and makes UK stocks ‘cheaper’. Today, both sterling and stocks are rising together. So, as we can see, generally speaking, no one really seems to know (especially the financial media) how this whole thing will play out and exactly what impact it will have should the vote decide for a push to the exit, or what it will do to financial markets.
So with that, we will stick to our discipline of looking at the charts while keeping in mind a theme we mentioned last week – the trading environment will ‘bremain’ less than ideal until after the vote has come and gone.
The question we asked on Friday was, “higher low or lower high?”. If the early-day rally can hold and the market can close above 6303, then we will have our answer through the creation of a higher from the 5/31 swing high. The FTSE briefly traded above that peak yesterday, but failed to create a true higher by not closing above prior daily resistance. If the rally can hold, then we will look to the 6275/6300 region as support. As long as the market can maintain without a sharp sell-off, we could be on our way to the 2016 high at a sizable resistance zone running back nearly a year in the ~6425/85 vicinity.
If the market fails to hold onto today's rally and sinks back well below 6300, then a higher level range could be developing from the one we saw dominate through much of May. A failed rally would also likely create a bearish daily reversal bar.
FTSE 100 (UK100) Daily
Global risk appetite is fairly healthy at the moment, with the S&P 500 at 2016 highs and crude oil holding near the $50 mark. However, with uncertainty in the air regarding the EU vote, we should keep our expectations low of seeing a strong trend develop between now and June 23. Which is why we may be seeing another range develop; today could go a ways towards helping determine which scenario unfolds - higher high/range?
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX. If you have any questions or comments, please email Paul at instructor@dailyfx.com.
