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FTSE Technical Outlook – GBP Pounding Helps Push Stocks Towards Record

FTSE Technical Outlook – GBP Pounding Helps Push Stocks Towards Record

2018-05-16 08:01:00
Paul Robinson, Currency Strategist
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FTSE Technical Highlights:

  • FTSE record high only a stone’s throw away
  • GBP been a big boon for the multi-national index
  • Pullback finally in the works soon?

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

FTSE record high only a stone’s throw away

The FTSE is only a stone’s throw away from record highs, less than 1% from notching a new best ever. Last week, when we were looking at the footsie the thinking was we would see a pullback develop from resistance just under 7600. But not to be with the pound continuing to remain without a meaningful bid.

GBP been a big boon for the multi-national index

The FTSE would have rallied even if GBP hadn’t fallen sharply, with the help of firmer global risk appetite, but the move would have been much tamer. However, with the FTSE 100 index consisting primarily of multi-national companies who earn their profits outside the borders of the U.K., a weak currency gives earnings a boost once converted back into the local currency.

The helping (and hurting) of sterling on the FTSE isn’t a new story, but with the one-month correlation between GBP and the FTSE registering as low as -98% the other day, it’s been about as strong of a relationship it can get. (-100% would mean trading inversely at a rate of 1-to-1).

Pullback finally in the works soon?

The record high is situated at 7792, and with a little more push from here we should see it soon. We’ve been looking for the elusive pullback, but can one develop? Taking currency considerations out of the picture for a second, it seems resistance after the run will prove formidable on a first attempt to break through.

We’ll be watching how price behaves around the old high, and should we see a bearish rejection of sorts, then that will be our cue to look for weakness to unfold. Keep an eye on the whether the steep trend-line off the March low can act as support.

From a tactical standpoint, fresh longs look risky at this juncture without a pullback, shorts look premature without proper price action (you don’t want to be the only one selling.)

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

FTSE Daily Chart (w/GBPUSD Correlation)

FTSE daily chart with GBP correlation

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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