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FTSE 100 Technical Posturing Weakens, Watch GBPUSD

FTSE 100 Technical Posturing Weakens, Watch GBPUSD

Paul Robinson,

What’s inside:

  • The FTSE 100 breaks down out of triangle on short-term chart and trend-line
  • On the verge of breaking more key support
  • GBP/USD rallies higher out of wedge, could put near-term pressure on the 100

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The FTSE 100 took a little bit of a hit yesterday afternoon once the U.S. market entered into action. Sterling rallying by about 75 bps vs the US dollar didn’t make matters any better; the 21-day correlation between GBP/USD and the footsie is currently -68%.

The other day we took a close-up look at the footsie on the hourly, making note of a developing triangle and expressed our continued bias towards the top-side. However, as is the case with these types of formations we must wait for the break, which we got. Downward. This cracked the index below the trend-line rising up from the head of the inverse head-and-shoulders pattern we have been running with. The footsie is currently challenging the bottom of the recent congestion period extending back to 2/14 and the neckline of the H&S formation. A break below this area, we’ll call it 7250, is likely to result in more selling. On a break of support we will look to 7227 and lower.

FTSE 100: Hourly

Created with TradingView

Currency impact. As already noted, there is a significant inverse correlation of -68% on a 21-day basis between GBP/USD and the FTSE 100. Yesterday, cable broke higher out of a wedge formation, which could mean we are about to finally see a directional move. If this is the case, then downward pressure is likely to be exerted on the FTSE in the days to come. There are of course other factors at work here – i.e. general risk sentiment – but the ‘what is bad for sterling is good for stocks and vice versa’ theme remains in play. Especially when it comes to the FTSE 100 out of the UK indices, due to the index largely comprised of companies which earn a majority of their profits outside the UK and benefit from weaker sterling prices.

GBP/USD: 4-hr

Created with TradingView

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---Written by Paul Robinson, Market Analyst

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