6th February 2019
The pound’s slide yesterday has propelled the FTSE 100 to its highest level in almost four months. The index has leapt 2pc in yesterday’s global rally after stellar earnings from industry bellwethers, such as Alphabet and BP. The FTSE 100 is on course to rack up a sixth day of gains as sterling sinks. The bulls have managed to pull away not only from 7000, but also now 7100. That means that we are still on course for a test of the 7235 resistance level mooted in previous emails.
The UK economy is on the brink of contraction after the services sector stuttered to a standstill in January amid mounting Brexit uncertainty. The services sector, which accounts for around 80pc of the economy, suffered its worst performance since the Brexit vote in IHS Markit’s PMI survey. The closely-watched index stumbled to a reading of 50.1 last month, well below economists’ expectations. Any reading above 50 indicates expansion. The largest part of the economy slid towards contraction territory last month as the Brexit impasse in Westminster forces businesses to turn cautious. IHS Markit economist Chris Williamson warned that the UK economy is in its “weakest growth spell for six years” and blamed “Brexit anxiety” for the slowdown. With Q4 GDP now expected to come in at a mere 0.1%, it is likely that Thursday will see the BoE being more dovish compared with prior meetings.
Donald Trump issued a call for unity as he warned that the “politics of revenge” and “ridiculous partisan investigations” threatened to derail the “economic miracle” taking place in the United States. The US president, delivering his second annual State of the Union address to a joint session of Congress, appealed to Democrats to reach a compromise on paying for his proposed wall on the Mexico border, toning down his rhetoric on illegal immigration.
FTSE 100 Trading Signals, Forecast and Prediction
For today we might well see the bulls continue the momentum for a bit longer ahead of the BoE tomorrow (expect them to be dovish, as per the Fed last week) and I am looking at resistance at the 7192 level to start with, with the more key looking 7235 above that. Should the bulls manage to push through this level them the top of the 10 day Raff channel, following the past 6 days of rises, is now showing resistance and the top of the channel at 7345. A level that seemed a long way away just a few weeks ago!
A slight spanner in the works for the bulls is that we are just hitting the 200ema on the daily here at 7165. However, having hit this level yesterday evening the reaction so far was pretty muted, with most bears I expect having experienced a bit of a mauling following that false break of 6800 on 28th January. I am however watching this 7170 area closely in case it does act as resistance. The rise we are seeing will also be some short covering.
On the support side of things, the bears will need to break the 7135 level. We have a couple of decent looking supports here namely the daily pivot and also the 2 hour support. Below this then I am looking at 7065 where we have the 2 hour coral. The momentum is firmly with the bulls in the short term, and we may well follow the tentative rise seen on the Australian market, and Asia in general (though most closed for New Year holidays still Wednesday).
So, fairly simple plan today again really, looking for 7192 and 7235 resistance, the latter likely to get a decent reaction if seen I feel. That is also just above R1 for today which sits at 7220. Might have another green candle candle today to make 7 in a row – and something that will probably end shortly. As such, don’t fall in love with the upside and watch for resistance levels. We still have the daily support down at 6930 remaining untested so a dip to that area or just above may well still play out of the bears appear around this 7170 to 7235 area. If the bulls fail to reach 7192 and it looks like we are turning down then shorting around 7170 to target 7135 or lower is also valid. Basically thinking short the rallies again for today.
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