The FTSE100 (LSE: UKX) has faced challenges in gaining momentum this year, currently trading 1% lower year-to-date and facing the prospect of a third consecutive week of losses.
The U.K.’s recent descent into recession, marked by two consecutive quarters of GDP contraction, poses a significant headwind for the index. Despite economists’ expectations, the fourth-quarter GDP contraction was deeper than anticipated, potentially dampening market confidence in U.K. stocks and contributing to downside pressures.
However, recent reports signal a glimmer of hope, with an uptick in private sector activity. S&P Global’s data indicates that private sector output experienced its fastest growth in nine months in February, driven by the services sector’s outperformance over manufacturing. The final S&P Global UK PMI Composite Output Index rose to 53 in February from 52.9 in January, hinting at potential resilience in the U.K. economy. Nonetheless, this week’s risk sentiment is likely to be heavily influenced by events in the U.S., particularly the Federal Reserve Chair Powell’s Testimony and the release of Nonfarm Payrolls data, which could further sway market dynamics.
Technical
The FTSE100 has recently shown signs of optimism, with a short-term uptrend evident in its price action. This trend is underscored by the index’s crossover above the 100-day moving average, indicating a shift in sentiment from bearish to bullish.
Notably, the 7501.38 level emerged as a significant point of interest for buyers, coinciding with oversold RSI conditions. The demand for the index outweighed the supply at this level, propelling the index higher and establishing 7501.38 as a robust support level.
However, the upside momentum was limited, reaching only as far as 7742.04, where overbought RSI conditions emerged, leading to selling pressures and a subsequent downturn. Currently, the index has converged with the 100-day moving average, breaking through the 50% Fibonacci Retracement level and nearing the 61.80% Golden Ratio. Should the Golden Ratio act as an intermediate support level, a resurgence in upside momentum could potentially target the 7742.04 resistance level. Conversely, if downside pressures persist, a retest of the 7501.38 support level is probable, reflecting ongoing uncertainty and potential bearish sentiment among investors.
Summary
The FTSE100 faces hurdles amid the U.K.’s recession, weighing on market confidence. Despite recent signs of optimism, including an uptrend and support at 7501.38, downside pressures persist. Events like Powell’s testimony and Nonfarm Payrolls will shape sentiment, potentially influencing a surge towards 7742.04 or a retest of 7501.38.
Sources: S&P Global, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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