FTSE 100 Outlook and Analysis for 18th October 2019
The pound’s biggest rally in decades came to a juddering halt during a frenetic day of trading on Thursday, as the UK and European Union struck a new Brexit deal following weeks of intense talks. Sterling jumped to a five-month high against the euro and came within touching distance of $1.30 for the first time since May after Boris Johnson unveiled his “great new deal” – before skidding back down when the Democratic Unionist Party said they could not accept the proposed terms, throwing its ability to get through Parliament in doubt.
The currency ended the London session slightly higher, cooling off after six days of surging gains and ending what had been its fastest rally since 1985 according to Bloomberg data.
Sterling is up more than 7pc since sinking to a 34-year low of $1.17 in early September, and has risen 5pc since last Thursday, when a relief rally began after Mr Johnson met with Irish Taoiseach Leo Varadkar for crunch talks. The past few days saw the currency shifting wildly off the back of headlines, tweets and whispers, with sterling’s implied volatility hitting its highest level since the referendum in 2016 amid a surge in bets that it will move sharply up or down.
Despite the whipsawing foreign exchange rate, Britain’s stock markets were relatively stable throughout the day. The domestically-focused FTSE 250, which lists London’s mid-cap companies, ended the day up 0.16pc after dropping back strong gains following the deal’s announcement. The more foreign-focused FTSE 100 ended the day up a meagre 0.2pc, despite the muted performance by the pound which normally gives it a boost because member companies’ earnings abroad are worth more when changed back into sterling.
A Deal, At Last?
Boris Johnson faces his biggest battle yet — the U.K. Parliament. Johnson’s Brexit deal with the European Union was barely agreed before it ran into trouble at home, as his Northern Irish allies in parliament said they could not support it. Before Brexit observers had time to give a sigh of relief over the agreement with the EU, Johnson’s aides back in London began trying to muster the votes needed to get the plan through parliament, where he does not have a majority. The latest in the developments: The Democratic Unionist Party said they won’t support the deal. But it’s unlikely the bloc’s leaders would refuse a request for an extension if the U.K. seeks it, according to an EU official. Meanwhile, investor nerves continue to be tested: The pound rallied on news of the agreement between the U.K. and the EU, before dropping again as the scale of the remaining challenge became clear.
Asian stocks looked set for a cautious start Friday ahead of a slew of economic data coming from China. U.S. equities posted modest gains amid mostly positive earnings reports. Futures edged up in Tokyo, were lower in Australia and flat in Hong Kong. The S&P 500 Index fluctuated for most of Thursday around the 3,000 level, as Morgan Stanley became the latest big bank to defy expectations for weak growth. Doubts over whether a Brexit deal can win approval whipsawed the pound, while treasuries edged lower and the dollar declined. The focus Friday moves to the latest reading on the health of China’s economy with the release of third-quarter GDP, September industrial production and retail sales data. Elsewhere, oil turned positive hours after a U.S. government report showed large declines in fuel inventories, outweighing a bigger-than-expected crude build.
FTSE 100 Outlook | Trading Signals | Forecast | Prediction | Analysis
Brexit Brexit Brexit, not making it any easier at all. That said we got a decent reaction initially at the 7220 resistance level yesterday and gold climbed well from the 1285 support. For today, we will again be driven by the news, and cable, and how the deal now fares at the next hurdle, along with Parliament. Initially I am thinking that we see a drop down towards the 7140 level and we may well see a bounce here as this level holds the first test. If it does then we will likely see a bounce up towards yesterdays close price and also the cluster of resistance levels at the 7190 area. With the 30min chart showing this level as fairly key with the coral, moving average and the daily pivot we may well see a stutter here.
Should the bulls break above the 7193 level then we will likely get a rise towards the 7250 resistance area next, a climb that would need help from the news and further declines in the pound. Talking of which it had a go towards 13000 but swiftly dropped back from there. Again, news is driving that. Back to the FTSE and should we move above the 7255 level then I am thinking that R3 at 7308 is a distinct possibility and possibly the 7350 area next week if the bulls take control. We also have the top of the 20 day channel at 7365 so a stutter here and possible drop back from this level may well pan out.
On the support side of things, we have that 7140 as mentioned. However, should the bears break below this level then I am looking at 7110 where we have the 10 day Raff channel, and then 7090 below that. It also brings the recent low of 7007 into play as well. For today though I think we may well see 7140 hold, at least initially.
Lots of resistance and support levels out there and different scenarios that may play out.
With the drop off 7240 yesterday the 2 hour chart has gone bearish and is showing resistance at the 7191 level as well, so I expect a stutter at this area on any initial rally.
Stay nimble, good luck and be cautious today as its also Friday, which are notoriously odd! Have a great weekend.
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