FTSE 100 consolidates below the June highs, and it looks like only a matter of time until it moves beyond the 6,500 level. Both fundamental and technical factors point to another leg to the upside. However, some caution is needed at these levels as some confirmation would help the bullish scenario.
FTSE 100 benefited from the jump in worldwide equities. Right after the US elections, the stock markets in the world traded with a bid tone. The change in the US administration is welcomed by the markets. Next, the COVID-19 vaccine news was responsible for another rally. Finally, at the current levels, the technical picture shows a market that broke out of a falling channel, consolidates below horizontal resistance and forms a contracting triangle.
Will this triangle act as a continuation pattern? If yes, we can talk about a pennant formation with a measured move much higher than the 6,500 level. If not, expect the index to fade the rally and slowly come back down and retest the channel.
Brexit To Be Decisive
Brexit remains the wildcard. If, in the case of the GBP, things are clear (i.e., a no-deal leads to lower GBP, a trade deal to higher GBP), the interpretation is a bit different for FTSE100. Unless it lagged consistently the other markets in the last four years, higher stock market prices and a higher currency should not go hand in hand for an exceedingly long time. Take, for instance, the USD and the US stock market. This year, the stock market outperformed, while the USD tanked.
Brexit negotiations are still ongoing, and the big question is if there will be an agreement until the end of the transition period. The EU states will get an update on the Brexit trade this Friday at 07:00 GMT, and rumors are that an incipient deal will be announced.
FTSE 100 Technical Analysis
Bulls may want to buy a new high above 6,500, with a stop loss below the lowest point in the pennant. As for the target, it should equal the distance from the lowest point in the falling channel, projected from the pennant’s upper edge.
FTSE 100 Price Forecast