The FTSE 100 index (LSE: UKX) continues its upward trajectory, notably reaching a seven-month high at approximately 7750, propelled by softer-than-expected inflation figures in the UK. The consumer price index for November tumbled to 3.9% from October’s 4.6%, below the forecasted 4.4%. This unforeseen decline prompts speculations of potential Bank of England (BoE) interest rate cuts as early as March 2023.
The benchmark index rallied over 1.5% in response to the inflation dip, marking a notable sentiment shift among investors anticipating a dovish monetary policy shift. Sectors sensitive to rate fluctuations, particularly homebuilders, real estate, and real estate investment trusts, led the rally, while energy and banking sectors also saw substantial gains.
Technical Analysis:
FTSE (LSE: UKX) hovers around 7694.9, aiming to breach an ascending channel pattern following the below-expectation inflation data. Trading above the upward 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line) indicates an optimistic trend. The RSI at 68.91 signals growing bullish momentum.
A sustained push above the channel could offer short-term trading towards the 7726.8 resistance level, with a break above potentially testing the higher resistance at 7768.4. Conversely, short-term trading opportunities could arise towards the initial support at 7,611.6 should the push higher falter, with a sustained break below the level likely to bring the 7551.9 support into focus.
Summary:
The FTSE 100’s robust performance reflects a positive confluence of factors: lower-than-expected inflation, dovish BoE expectations, and a prevailing risk-on environment. While technical indicators point towards further upside potential, cautious optimism remains key.
Sources: TradingView, Dow Jones Newswire, Office for National Statistics, MT Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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