UK100 at 5-months lows

UK100, Daily

In yesterday’s post on UK100, I wrote :”A Long Entry was taken once the first 30M Bullish candles seen at 7327.5. Targets for hourly , 4-hour and Daily timeframe have been set based on ATR (14) at 7340.00(H1) , 7350.00(H4), and 7360.00(H4) , while the Daily on was set at the mid of the Fluctuation seen since August 11 which is at 7386.00(Daily). Resistances for all 3 time-frames have been set at 7305.00 (H1) , 7300.00 ( H4), 7270.00 (Daily).” – This trade reversed completely ,  and hit both stop loss levels for a net loss of 57.5 pips. 

The surge higher in Sterling following yesterday’s BoE warning that a rate hike may be necessary in coming months, had a southwards affection on UK100 with a further dip today, especially after the hawkish comments from BoE’s Vlieghe earlier and as Sterling continues to strengthen.

BoE’s Vlieghe said a hike could come “as early as in the coming months” during a speech in London earlier. This is notable as Vlieghe has earned himself as being the most dovish member of the Monetary Policy Committee, having been in a minority of one in favour of cutting rates in July 2016 (before the Brexit vote), and who said just a couple of months ago that “a premature hike would be a bigger mistake than one that turns out to be slightly late.” He said today that, “the evolution of the data is increasingly suggesting that we are approaching the moment when bank rate may need to rise.” This fits the tone of the BoE’s statement yesterday, which emphasized the dwindling spare capacity in the economy while hinting that it will likely upwardly shift inflation projections in the next quarterly edition of the inflation report in November. It is expected that the BoE to reverse last August’s 25 bp cut hike at the November MPC meeting, which would be the first tightening since July 2017.

Therefore for UK100 after seen yesterday the Break to the downside of a triangle in which the price action was moving, but also the break of 200-Day MA, can suggest that in shorter time-frames   (intra-daily) the UK100 can be traded Short. However the particular index is inversely correlated with sterling, hence even if sterling has made new highs of the year, we do not expect this strength to be continue given the lack of progress in Brexit negotiations seen so far.

Nevertheless,  UK100 is already oversold since is moving in a 5 months low path with next Resistance levels at 7180.00  and 7100.00.  Hence a retracement can be seen sooner or later. On the other hand,  only a possible break above 7250.00  but more sufficiently above 7295.00 will suggest that index is possibly in an uptrend again.