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FTSE Price Analysis: Technical Convergence Seeks Resolution

FTSE Price Analysis: Technical Convergence Seeks Resolution

Paul Robinson,

What’s inside:

  • FTSE stuck below area surrounding 7550
  • Support by important Feb 2016 trend-line
  • GDP tomorrow, GBP strong inverse relationship

Find out what is expected to drive the FTSE & British Pound into year-end - DailyFX Q4 Forecasts.

The FTSE hasn’t moved much since the last time we took a look at it, playing a game of ping-pong between support and resistance. There is strong resistance right around the 7550-area. It dates back to closing and intra-day high prints in May, and has been a big point of market interest. After dropping off in the summer, the August rally was abruptly capped at 7552 prior to a nearly 360-point decline into last month’s low. We’ll call the ‘hurdle zone’ roughly 7545/65 in which the market needs to cleanly clear. Next up beyond there is the 7599 intra-day record high.

Getting to that point will likely require rising trend-line support from the February 2016 low to hold. The trend-line, or slope support, connects the important global market low of 2016 with the ‘Brexit-day’ low. It was validated as key support during much of August into September before giving way to heavy selling. The recapture early this month has brought the t-line back into play as support with a test and hold last week and flirtation with it during recent sessions.

Rising support and horizontal resistance are quickly converging, taking on almost the shape of an ascending wedge. Not quite a wedge, but the principle is similar. This suggests we should soon see a resolution to the top-side and new record highs. But if trend-line resistance breaks and the 10/18 low at 7485 breaks then focus will shift lower.

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FTSE: Daily

Tomorrow brings Q3 GDP at 830 GMT time. The bigger move is likely to be seen in the pound, but an outsized move is likely to have its impact on the FTSE. The one-month correlation between the UK index and GBPUSD is a strongly -80%. The inverse relationship could weaken (strengthen), but worth keeping tabs on given how significant it has been. General global risk appetite remains firm and should we see a weaker currency it is reasonable to conclude we will more-likely-than-not see more record highs notched out in the 100.

---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.