FTSE 100 Hangs on to Support at SMAs as Iran Prepares to Retaliate

Risk Aversion Muted at the Start of Trading

The FTSE 100 was initially off to a bullish start as the stock index traded to 7,624.2 only to pare its gains. As of this writing, the stock index is trading at 7,590.0, just a mere 0.1 point higher than where it opened. Kingfisher leads gains at 2.51%, followed by Barratt Developments at 2.41%. On the other hand, Rentokil Initial is the biggest loser at 3.31%.

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NAS100

NAS100 (11324.8)

In Profit

STOP

SELL

TP1

11478

TP2

11338

Initially, headlines were quiet about the US-Iran conflict. In fact, one could even argue that risk appetite slightly dictated trading in the Asian equities market. This may have been brought about by news that a Chinese delegation is preparing to fly to the US to sign their Phase One deal. Investors somehow may have also felt relieved that violence has not ensued after the US killed Iranian General Soleimani last week.

Shift in Market Sentiment

However, just a couple of hours ago, it was reported that Iran’s parliament voted to classify Pentagon as a terrorist group. This was followed by reports that the country is looking at as much as 13 scenarios to avenge Soleimani’s death. Of course, this news has once again stirred up risk aversion. Demand for higher-yielding assets like equities are dampened. Meanwhile, while safe havens like the dollar, yen, and gold are getting stronger.

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FTSE 100 Outlook

On the hourly time frame, we can see that FTSE 100 has been trending lower as evidenced by the descending channel. In fact, FTSE 100 CFDs has just bounced off resistance at the top of the channel. Now, if risk aversion is not sustained, the stock index could find enough support at the 100 SMA and 200 SMA. It may soon re-test its most recent highs at 7,617.4 or maybe even go as high up as 7,675.4 where it previously peaked in December. On the other hand, a strong bearish close below the SMAs could mean that FTSE 100 may be headed to the bottom of the channel and re-test yesterday’s low at 7,524.9.

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