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FTSE Technical Outlook Following Brexit ‘Agreement’; GBP Correlation a Factor Again

FTSE Technical Outlook Following Brexit ‘Agreement’; GBP Correlation a Factor Again

Paul Robinson, Strategist

FTSE Technical Highlights:

  • EU and UK agree on 6-month flexible extension
  • Pulling back from t-line off record high
  • FTSE/GBP correlation strengthening again

For the recently released Q2 FTSE & GBP Forecasts, check out the DailyFX Trading Guides page.

FTSE pulling back from trend-line

The FTSE saw very little impact on the EU/UK 6-month Brexit agreement, as was also the case with the Pound, which brings into play a currency/stock index relationship worth watching again. The one-month correlation between the FTSE/GBP is -0.60, after trading in positive territory briefly during late-March into this month.

It’s a statistically significant correlation and with GBPUSD coiling up and ready for a breakout from a wedge formation, it could act as a boon (drop in GBP) or anchor (rise in GBP).Even if not using so much as a guide for the FTSE, it’s worth noting from a risk management perspective when holding positions in both the UK index and GBP-pairs at the same time.

GBPUSD Daily Chart (wedge nearing breakout)

GBPUSD daily chart, wedge nearing breakout

Looking at the Footsie from its own technical standpoint, it is coming off a significant trend-line running down from the record high. This will remain a hurdle for the market as long as a close doesn’t develop above 7477.

The price action for the FTSE has been 3 steps forward, 2 steps back. With resistance and this tendency, a pullback is seen as likely to continue developing. It could very well be a pullback to buy at some point if done in constructive fashion, but for now caution is warranted for longs until 7477 is broken.

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

FTSE Daily Chart (t-line resistance)

FTSE daily chart, t-line resistance

You can join me every Wednesday at 9 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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

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