FTSE 100 live outlook prediction analysis for 28th August 2020
The FTSE 100 slipped 0.75pc into the red yesterday, back below the 6,000 points mark, after US Federal Reserve chief Jerome Powell said he would not rush to raise interest rates and could allow inflation to stay above his 2pc target “for some time”.
Federal Reserve chairman Jay Powell has unveiled the biggest policy overhaul for nearly a decade at the US central bank, as he unleashes yet more firepower to fight off the coronavirus crisis. The Fed will seek to stoke up economic growth even if this means price rises spike higher than its inflation target, in a major break with previous guidance.
Policymakers have committed to achieving 2pc inflation since 2012, but will now tolerate overshoots after switching to an “average” target – allowing the economy to run faster and helping to prop up millions of jobs.
The move is the clearest signal yet to financial markets that interest rates will be stuck near zero for years to come, further fuelling a share boom that pushed the S&P 500 to new highs in the wake of the chairman’s speech. It could spark calls for the Bank of England to follow suit. The Fed has already cut interest rates close to zero and embarked on a $2 trillion money printing programme to counter the economic plunge triggered by Covid-19.
Running Hotter
Federal Reserve Chair Jerome Powell unveiled a new approach to setting U.S. monetary policy, letting inflation and employment run higher in a shift that will likely keep interest rates low for years to come. Following a more than year-long review, Powell said the Fed will seek inflation that averages 2% over time, a step that implies allowing for price pressures to overshoot after periods of weakness. It also adjusted its view of full employment to permit labor-market gains to reach more workers. “Maximum employment is a broad-based and inclusive goal,” Powell said Thursday in a speech delivered virtually for the central bank’s annual policy symposium traditionally held in Jackson Hole, Wyoming. “This change reflects our appreciation for the benefits of a strong labor market, particularly for many in low- and moderate-income communities.” The new strategy is being undertaken to tackle years of too-low inflation. It hands the central bank flexibility to let the job market run hotter and price pressures float higher before taking action as it may previously have done.[Bloomberg]
FTSE 100 Outlook | Trading Signals | Forecast | Prediction | Analysis
Treasury yields jumped after Jerome Powell said the Federal Reserve will remain accommodative and shift to a more relaxed approach on inflation. Japanese stocks tumbled and the yen rose after a report that Prime Minister Shinzo Abe will resign due to health reasons.
Yield curves steepened in Asia along with U.S. Treasuries after Powell said the Fed will seek inflation that averages 2% over time, a step that implies allowing for periods of overshoots. Australia’s 10-year bond yield breached 1% on Friday for the first time since June as other sovereign notes fell.
U.S. and European stock futures rose along with most Asian equities. The S&P 500 on Thursday reached a fresh all-time high. The Nasdaq Composite also set a record before closing in the red. The dollar retreated, erasing Thursday’s advance.
It’s end of month, a Friday and a bank holiday weekend ahead so even more likely to be an odd one! The S&P has pushed above the 3500 level and getting into resistance with 3512 fib and 3520 R2 for the moment so we may well see a bit of profit taking start to kick in on that soon. Vix (volatility index – can front run some bearishness) has risen as well to 29 (DFB) for the moment. A pullback on the S&P before another leg higher towards the election/year end would certainly fit – the daily RSI(10) is at 84 now so it could do with resetting that overbought indicator.
So where does that leave the FTSE for today… Well, we have dropped off the 6060 level and retested that 5990 level yesterday, and now bounced back. Initial resistance is at the 6045 level where we have the 200ema on the 30min, along with another test of the 2 hour resistance levels at this area. Above this then R1 is at a fairly close 6058 and we may well see the bears appear here initially this morning. News broke earlier that the Japanese PM is to resign on health reasons – despite the initial drop markets have since bounced back. There is still strength around for the moment. Above the 6060 level then I am looking at a rise towards the R2 level at 6098, with a possible overshoot towards 6110. Above this then we have the top of the 10 day Raff channel at 6142 – a level that is probably worth shorting if it got that high today.
I am thinking that we may well see some profit taking towards the end of the session – though maybe sooner if the S&P starts to get a bearish reaction as it gets into that resistance zone.
Support wise today we have the daily pivot initially at 6022 then yesterdays low at 5988. Should the bears break below this S1 and the fib are pretty close by at 5979ish. The bulls will certainly be keen to close the month out above 6000 though so we may well see a bounce here should we get that low. Below this then 5895 is next up as the main level to watch, maybe with a pause at 5950 the recent low. A break and hold below 6000 does keep the bears aiming for 5700 though as we have mentioned a few times, and if the S&P were to drop it would certainly get the FTSE dropping fairly quickly. Mainly as the FTSE 100 has been lagging the bullishness on other markets.
So watching 6022, 5990 as the main support. 5950 retest below that. Resistance wise, 6058, 6105, 6140 are the main levels to watch.
Have a great long weekend.
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