Technical charts and breadth market data suggest that the UK FTSE 100 index may have scope to rise further in the coming weeks/months.
As of Wednesday, 90% of the members in the UK FTSE 100 index are above their respective 100-day moving averages (DMAs), not too far from 92% a week ago. Data from 2002 onwards suggests that when 92% of the members were above their respective 100-DMAs.
On technical charts, the index, up over 18% from October, is attempting to break above crucial resistance at the 2018 highs of 7790-7805. A decisive break above could pave the way toward the upper edge of a rising channel from 2003 (now at about 8300).
A more bullish perspective would be the potential target of the reverse head & shoulders pattern (the left shoulder at the 2018 low, the head at the 2020 low, the right shoulder at the 2022 low) pointing to roughly 30% upside from current levels in coming months/years. In a way, it wouldn’t be surprising given that the index has been essentially sideways for the past two decades.
As of now, the break of a series of resistance zones in recent weeks confirms that the trend is bullish. However, a negative divergence on the daily charts of the FTSE 100 index indicates that the rally is showing some signs of fatigue. A pause/minor retreat can’t be ruled out in the near term. There is quite strong support at the January low of 7708, which could contain the downside. Stronger support is at the November high of 7600.
The FTSE has begun 2023 much the same way it ended 2022, with a strong bullish advance. The all-time high around 7909.50.
The rate of increase witnessed over the last week places the index at risk of overextending, something that the RSI concurs with (daily chart). Over the short to medium term, the possibility of a deeper pullback receives greater credibility should price action trade and hold below 7831. Failure to do so, provides a potential opportunity for another attempt at the all-time high.
The daily chart helps to reveal the oscillating price action that ensued for most of 2022, largely between 6980 ad 7680, and the strong break above the 7680 zone of resistance. The golden cross (50 SMA above the 200 SMA) suggests a strong confirmation of the existing uptrend but as mentioned above, early signs of a pause and possible pullback have appeared intraday and will need to be monitored at the close. Something to keep in mind is that strong trending markets can remain in overbought territory for extended periods and therefore, a move lower, out of overbought territory on the RSI ought to be monitored for pullback scenarios should they arise.
The Swiss Franc saw its largest gain against the Euro since early November on Wednesday after failing to overcome breakpoint resistance last month.
EUR/CHF made a high of 1.0097 in January which was just above a breakpoint resistance level at 1.0089. These levels may continue to offer resistance. That move also briefly went above an ascending trend line but was unable to sustain the rally. This might signal a false break which could indicate a longer-term reversal.
After making an all-time low at 0.9407, the price action has created a rising wedge formation, also known as an ascending wedge. This can be observed by noting ascending trend lines above and below the price that are converging. A break below the lower trend line may signal that bearish momentum might unfold.
Prior to EUR/CHF breaking lower yesterday, it was above all short, medium and long-term Simple Moving Averages (SMA). The move lower beached below the 10- and 21-day SMAs which could signal that short-term bullish momentum has faded.
USD/CHF collapsed on Wednesday but paused at the breakpoint support level that was created from the February 2022 low of 0.9150. It may continue to provide support ahead of the October 2022 low of 0.9087 that was tested and held last month.
USD/CHF has been in a 0.9085 – 0.9409 range for two months with volatility decreasing, as illustrated by the narrowing of the 21-day Simple Moving Average (SMA).
On the topside, resistance might be offered at the previous highs of 0.9288, 0.9362, 0.9409, 0.9456, 0.9547 and 0.9591. Although USD/CHF has been range-bound, it is once again below all short, medium and long-term SMAs. It has been in this state several times recently without gaining directional momentum. A breakout of the range might see momentum unfold in that direction. Support may lie at the previous lows of 0.9876, 0.9817, 0.9723, 0.9644 and 0.9407.
Retail sales volumes have fallen 1% from November, indicating a challenging environment for consumers amid the ongoing cost of living squeeze. The monthly data declined in terms of value spent (value is an indication of price rises) as well as quantity bought. Longer term trends reveal that value spent is considerably higher while volumes purchased decline – which is consistent with the current inflationary environment as consumers spend more for less.
In fact, volumes were 1.7% below February 2020 levels and anecdotal evidence advanced by the report suggests that the decrease in online sales was partly attributed to the Royal Mail strikes as consumers opted for in store shopping instead.
The daily chart reveals more granular price action as the pair retreats from that neckline level, back towards the zone of support around 1.2300. From here, bulls will be looking to find support and a bounce higher into next week – which could be helped if US GDP disappoints. Upon a potential move above the neckline, there is often a propensity for prices to then test the neckline before another leg higher. Thereafter, 1.2676 comes into play as a further resistance level.
Support as mentioned lies at 1.2300, followed by the psychological level of 1.2000 which is a fair distance away from current levels.
Last year, XAU/USD suffered as aggressive monetary tightening pushed up bond yields and the US Dollar. That dampened the prospect of holding gold. It also remains a key risk for the yellow metal this year.
Gold continues to trade higher within the boundaries of a brewing Rising Wedge chart formation. While the pattern itself is bearish, prices may continue higher within the boundaries of the wedge. A breakout higher would likely offer an increasingly bullish bias. Otherwise, a breakout under would open the door to perhaps revisiting the 50-day Simple Moving Average. Negative RSI divergence shows that upside momentum is fading. This is a sign of fading upside momentum, which can at times precede a turn lower.
The Euro’s failure to extend gains against the US dollar following data last week that showed the dip in US inflation reinforcesthe near-term range outlookfor the single currency. EUR/USD hasn’t been able to capitalize on last week’s gains following the rise above stiff resistance at the May 2022 high of 1.0786, coinciding with a slightly upward-sloping trendline from 2017. Over the past few days, it has held within the daily range high/low range of 12 January.
Any fall below 1.0786 could open the door toward quite a strong cushion at the early-January low of 1.0482. Furthermore, a break below 1.0482 would confirm that the upward pressure had faded somewhat, which could extend toward the 200-day moving average (now at about 1.0300). On the other hand, a decisive rise above last week’s high of 1.0867 could pave the way toward the 200-week moving average (now at about 1.1225) – a crucial barrier for the medium-term outlook.
Oil prices started 2023 in much the same way they ended 2022 oscillating around headlines of China’s reopening. While a more open Chinese economy is good news as it remains a large player in the oil market, but signs of economic fragility continue.
Major global economies are at the peak, or near the peak, of their respective rate hiking cycles where they are expected to remain until inflation shows conclusive evidence of lowering. As such, the tighter financial conditions are likely to weigh on consumer confidence, lending and overall infrastructure investment which tends to make use of greater quantities of oil in the good times.
While the state of China and the resilience of the global economy remains uncertain, OPEC + appears like it can be relied on to continue reducing its oil output on a monthly basis – which tends to provide support for oil prices. Thanks to soaring oil prices, inflation and U.S. President Joe Biden’s SPR sales, oil prices are roughly 35% lower than the 2022 peak.
WTI reveals that prices were previously supported at the latest test of support at $77. Prices are slightly lower in the European session with the next level of resistance up at the early December high around $83.
The target price range that the Biden administration set for SPR refills provided a massive zone of support and the launchpad for the latest bullish move. Another test of $77 could be on the cards this week ahead of the December Fed minutes which is due to be released tomorrow and the December NFP data due on Friday.
After rising above 14,000 for the first time in January 2021, the German index continued higher before peaking at 16,295 in November that same year. Although fiscal stimulus and quantitative easing assisted in driving the initial move, a shift in the global inflation narrative forced central banks to increase interest rates.
As the ECB (European Central Bank) embarked on a journey to tame price pressures through restrictive monetary policy, Dax futures fell before rebounding off the October 2022 low of 11,829.
Since then, a steady rally and a slight pullback has been met with a stern reaction from bulls. With Dax prices currently trading higher, a break of 15,000 has provided a sense of comfort to bulls.
After rising above the 50-day MA (moving average) at 33,675, Dow futures retested 34,000 before pausing at 34,489. With dismal earnings weighing on US equity, Dow retraced back to that same zone of support at the prior resistance level of 34,000.
As the index searches for a fresh directional bias, price action could move in either direction. For bullish momentum to gain traction, prices would need rise above 34k and clear 35,000.
On the contrary, a drop below 33,750 and below the 50-day MA could fuel bearish momentum. If sellers drive prices below 33,450, the next level of support could come into play at 33,189.
After the deluge of monetary policy activity this week, there remains a remarkable lack of clarity in what currencies were the winners of the substantial uplift in the average developed world benchmark rate. With the Federal Reserve’s, European Central Bank’s and Bank of England’s individual 50 basis point (bp) rate hikes, the yield differential of the most liquid currencies have narrowed. More importantly, the messaging around forecasts has made the average terminal rate – the point at which the central banks will pause from their hike regimes – significantly higher than was previously expected three or six months ago. Technically, after this most recent run of hikes and projections; the Reserve Bank of New Zealand and the New Zealand Dollar has seen the benchmark rate level out. That said, the forecast has continued to move higher through government bond yields and swaps-based forecasts. Through mid-2023, the terminal rate is seen topping 5.57 percent which is a 68bp premium relative to the second highest positioned: the Federal Reserve. And yet, despite that advantage, the Kiwi has wavered with a tentative technical break from NZDUSD.