Summary:

  • The UK100 has risen this week but remains below the key 7295 level
  • Price tumbled to a 4-month low last week as the GBP rise weighed on the market
  • Several indicators now suggest the market is in a downtrend

Aside from the huge swings in cryptocurrencies the main story in the markets last week was the incredible rise in the pound, with a trio of positive developments contributing to the largest weekly rise since 2009. First of the CPI rose back to a 4-year high of 2.9% Y/Y, before the Bank of England statement revealed a clear hawkish shift in the rate-setting committee with a majority of MPC members believing that some withdrawal of monetary stimulus was likely to be appropriate over the coming months. Finally, Gertjan Vlieghe, arguably the biggest dove of all, on Friday expressed his support for an imminent rate hike.

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 There has been a noticeable divergence between the GBPUSD and UK100 in recent months. This could suggest furtherdeclines for the UK100. Source: xStation

Whilst the pound’s huge rally stole the headlines, there was another important development going on which seemed to slip under the radar, with the UK100 (FTSE 100 underlying) slipping to a 4-month low and breaking a key support zone at 7295.

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 The UK100 dropped sharply last week and fell through a prior support level at 7295. Source: xStation

Not only did last week’s drop see the UK100 fall through a prior support level but there was also some significant technical damage done to the prevailing uptrend. The market has been above the 200 day SMA ever since a couple of days after the Brexit vote and in dropping below it, there is a case to be made for the uptrend to seen as over. A drop below the 200 day SMA preceded a larger decline that began in the summer of 2015. A key level to watch going forward is 7090 and should price fall below here then a deeper correction could well occur. Alternatively a break back above 7295 would negate this latest weakness somewhat and see the market attempt to move back above the 200 day SMA.  

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 The UK100 has dropped below the 200 day SMA for the first time since just after last summer’s Brexit vote. Is the uptrend over? Source: xStation