FTSE 100 – Big Support Break on Hawkish BoE, Strong Sterling
- Hawkish BoE breaks the FTSE 100, rips sterling
- A clean drop beneath 7300 clears a path towards 7100/50
- Will take a reversal back above support to pause outlook
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On Wednesday, we took a look at the FTSE 100 ahead of yesterday’s BoE meeting, making note of the month-long trading range. Will the BoE break the range, we asked. Confidence in that happening wasn’t particularly high, but we recognized it as certainly a possibility. As we are seeing now it is becoming reality, with a hawkish BoE giving further life to an already strong sterling and sending shares reeling. We closed yesterday just below the very important 7300-mark, but just above the lowest point of the range created on 8/29 at 7289. So, if today the index can sustain trade where it is or worse, that will make for a confident break.
Not only will thoroughly tested horizontal support have been cleanly broken, but the double-top will be triggered with an official break of the neckline, along with saying goodbye to the 200-day moving average. The February 2016 trend-line is long gone with yesterday’s sell-off. This sets the index up for a move towards the area right around 7100, which has pretty good support, but between here and there we are left with room to operate from the short-side. The measured-move target derived by the height of the double-top formation points to a move to around 7050.
There is a lot of time between now and the close of trade today, and should we see a reversal back above our big threshold of support, then we will need to put the brakes on shorts. It won’t turn the outlook bullish, but will require waiting for the clean break before sharpening the knives. The FTSE heading lower would certainly be contra to our outlook for other major indices – DAX, CAC 40, S&P 500 – but these markets aren’t joined at the hip and can go do their own thing.
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FTSE 100: Daily
---Written by Paul Robinson, Market Analyst
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