The FTSE 100 index (LSE: UKX) has been experiencing a flurry of activity lately, marked by significant economic data releases. Starting with the UK’s latest labour data, unemployment stubbornly stood at 3.8%, defying expectations for a slight uptick to 4%. Meanwhile, quarterly earnings growth surged beyond forecasts, boasting a robust 5.8% against the 5.6% consensus. On the global front, the index felt the impact of hotter-than-expected US inflation data, which tempered risk sentiment worldwide and weighed on equity markets.
However, Wednesday ushered in its own importance with the release of the UK’s inflation figures. Year-over-year inflation maintained its course at 4%, contradicting predictions of a slight uptick to 4.2%. Moreover, core inflation, standing at 5.1%, fell short of the anticipated 5.2%, painting a relatively dovish picture. This report could potentially boost sentiment regarding the UK’s prospects for interest rate cuts.
Given this backdrop, the question looms: could this latest inflation data serve as a pivot, aiding the index in recovering some of its recent losses after a nearly 1% decline on Tuesday?
Technical
On the 4H chart, a recent breakdown occurred from a consolidation range between 7,609.62 and 7,689.71. The crossing of the 25-SMA (green line) below the 100-SMA (orange line) confirmed the bearish momentum in the short term, while the RSI lies close to oversold conditions.
From the prior uptrend, the price has now retraced past the 61.8% Fibonacci golden ratio at 7,515.06, where it is currently retesting the sustainability of the break below this psychological level. If the resistance of the retest holds, the downtrend could intensify. In this case, support at 7,491.02 could be the first hurdle to the sellers before a psychological demand zone at 7,452.43 offers additional support.
However, if the price advances above 7,515.06, the Fibonacci midpoint at 7,549.55 could be pivotal to determining whether a trend reversal could occur. A breakout could lead the price toward 7,574.36 before the multiple-SMAs converge near the support of the prior consolidation range at 7,609.62, which could provide strong resistance.
Summary
The FTSE 100 index looks to bounce back from Tuesday’s selloff, backed by the softer-than-expected inflation data that came out domestically. The Fibonacci midpoint at 7,549.55 could be crucial in determining whether a trend reversal could be triggered.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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