FTSE 100 Surrenders Early Gains as Downside Pressure Intensifies
- The Blue-Chip Index continues to flirt with the 7000 key level, close below is key.
- Weaker Pound allows multinational companies to keep losses in check.
- Money markets now pricing in 175bp of rate hikes by November on inflation fears.
The FTSE 100 rallied 70-odd points in early European trade, courtesy of multinational companies who earn in dollars, as they will now receive more bang for their buck when converting profits to Pounds. Dollar-denominated revenue accounts for 26.9% of total revenue for FTSE 100 companies. As the session wore on however, the index surrendered the early gains as markets continue to grapple with a deteriorating economic outlook as well as the U.K. Government's economic plan.
The Organization for Economic Co-Operation and Development (OECD) released its growth forecast for the rest of the year and 2023. The OECD downgraded the GDP rate for the UK from 3.6% to 3.4% for 2022 with “declining real incomes and disruptions in energy markets” the major issues. The 2023 forecast is worse with the growth rate expected to remain flat.
On the corporate front, the biggest gainer of the session was Unilever (ULVR) with early gains of 3%. As rate hike bets increase (markets are now pricing in 175bp of BoE rate hikes by November) which in turn will increase bond payments, we saw house builders’ stocks suffer with Persimmon (PSN) the biggest loser posting losses of 7.5% during the session. Big week for the index as it hugs to the 7000 key level, with the YTD low and bottom of the range firmly in sight.
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FTSE 100 Daily Chart – September 26, 2022
From a technical perspective, we have seen a steep decline over the last two weeks and have since printed a new lower low on the daily timeframe. The weekly candle close last week closed just above the 7000 key psychological level which has been holding firm since March 2022. On the daily timeframe, we have seen 9 consecutive days of bearish price action as we now trade well below the 20, 50 and 100-SMA with the gradients all pointing lower, a sign of ongoing downside momentum. We have seen a slight bounce from our daily lows thus far, as we hover just above the support area 6937. If we are to maintain our bearish momentum, we would need a daily candle close below the key 7000 area with the YTD lows resting at 6757. A bounce higher here could see a test of the 7135 resistance area, or a deeper pullback could see us retest the ascending trendline.
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Key intraday levels that are worth watching:
- 6757 (YTD LOW)
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Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.