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FTSE Technical Outlook – Trading in Resistance Zone, but Will it Matter?

FTSE Technical Outlook – Trading in Resistance Zone, but Will it Matter?

Paul Robinson, Strategist

FTSE Technical Highlights:

  • FTSE rally continues with impressive momentum
  • At top of resistance zone, appears overbought
  • ‘Super Thursday’ tomorrow, GBP impact could be felt

Check out the newly released DailyFX Quarterly Forecasts to find out what are likely drivers in the weeks ahead for the FTSE and GBP.

The FTSE has put together an impressive rally since bottoming in late March, but can it continue? At this time the market is overbought as evidenced by its lack of pullbacks during this nearly 10% run, and with the index trading at the top of a resistance zone, a pullback is favored.

There is a very steep trend-line rising up just under the footsie since the rally began, and a break below should have the market in pullback mode or worse. How that pullback plays out will determine our next move. If it is fierce, then we may have seen the best of the run for awhile and shorting will become the approach on rallies. If the decline is shallow and met with dip-buyers, then at some point we may see a run towards the old high.

Tomorrow, we have ‘Super Thursday’ with the BoE not only making an announcement on monetary policy, but also releasing its inflation report. The FTSE and GBP have an extremely strong inverse relationship right now, with the 1-month correlation at -98%. The two are practically trading on a 1-to-1 basis inversely. With that in mind, should we see a strong move in sterling we are likely to see the opposite unfold in the FTSE.

For live coverage of the BoE announcement, join my colleague Nick Cawley at 10:45 GMT time.

See this guide for 4 ideas on how to Build Confidence in Trading.

FTSE Daily Chart (w/Correlation to GBPUSD)

FTSE daily chart with correlation to GBPUSD

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---Written by Paul Robinson, Market Analyst

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