Hello Traders! đ
Today, weâre diving into the FTSE 100, which is currently testing the 8230.0Â level after the bullish momentum seen over the past two trading sessions. Letâs explore the marketâs fundamentals and technical analysis as we look into whatâs shaping the index today.
Market Overview
As of September 25, 2024, the FTSE 100Â is trading near 8230.0, following a moderate pullback after a period of sustained bullish movement. This leveling out follows a strong rally where the index renewed its highs on September 20. The positive momentum was largely driven by Chinaâs economic stimulus, where the government introduced further measures to support liquidity.
Chinaâs People's Bank cut the reserve requirement ratio (RRR) for several banks by 0.5 basis points, allowing the system to gain long-term liquidity amounting to 1.0 trillion yuan. Additionally, the interest rate on seven-day reverse repo operations was reduced from 1.70% to 1.50% for the first time in a decade.
These actions have had a positive impact on global markets, particularly in mining and luxury retail sectors, which are heavily influenced by Chinese demand. Mining companies such as Anglo American Plc., Antofagasta Plc., and Glencore Plc. saw significant gains ranging from 4.0%â7.0%, benefiting from the Chinese stimulus.
However, despite these positive developments, the FTSE 100 faces some downward pressure today as traders re-evaluate monetary policy decisions from central banks globally. Last week, the U.S. Federal Reserve cut its benchmark interest rate by 50 basis points, and now market participants are speculating whether the Bank of England will follow a similar dovish pathâ.
Bank of England governor Andrew Bailey hinted at a potential reduction in rates but stressed that inflation needs to show long-term stability around the 2.0% target. The 2.2% rise in consumer prices in August, coupled with a 5.0% increase in wages, supports the BoEâs cautious approach, but rates are unlikely to return to historic lowsâ.
Fundamental Insights
Chinaâs Economic Stimulus: Chinaâs continued efforts to stabilize its economy have provided a notable boost to global markets, particularly the mining sector. Companies such as Anglo American, Rio Tinto, and Glencore have benefitted significantly from Chinaâs move to inject 500 billion yuan into the economy for share buybacks and provide long-term liquidityâ. These measures are essential to supporting the recovery of the global stock markets, including the FTSE 100.
Impact of Sterling and Global Central Banks: The pound retreated from its March 2022 peak of $1.34, providing some relief to UK equities today. The focus is now on how the Bank of England will respond to global central bank movements, especially in light of the U.S. Federal Reserve's recent rate cut and the dovish policies of the European Central Bank. No immediate rate cuts are expected from the BoE, but its stance will remain crucial in the coming weeksâ.
Technical Analysis
On the H4 chart, Bollinger Bands are narrowing, reflecting potential short-term consolidation as the price nears the critical 8230.0 level. The narrowing bands indicate reduced volatility, but a breakout in either direction could lead to more decisive movements.
The MACD indicator continues to show bearish momentum, with the histogram below the signal line, suggesting that the current pressure may persist in the short term. However, the Stochastic oscillator approaching oversold levels signals that a reversal might be imminent, particularly if broader economic conditions stabilize.
Resistance Levels:Â 8251.9, 8270.0, 8300.0, 8341.1
Support Levels:Â 8225.9, 8187.0, 8146.5, 8116.3
Market Considerations
The FTSE 100 is at a pivotal point, with important levels to watch on both the upside and downside.
đŒ Potential Upside: If bullish momentum continues, the index could break through 8251.9, pushing towards 8300.0 or higher. However, developments in global monetary policyâparticularly any further action from the Bank of England or the U.S. Federal Reserveâwill significantly influence market direction.
đœ Potential Downside: Should broader economic concerns intensify or market expectations around central bank actions shift, the FTSE 100 may break below 8225.9, testing support levels down to 8187.0. Keeping an eye on Chinaâs stimulus effects and any changes in global geopolitical tensions will be key in understanding where the market is heading next.
What to Watch in FTSE 100
Monetary Policies: Stay updated with decisions from the Bank of England and U.S. Federal Reserve. Further rate cuts or policy shifts could dramatically affect market sentiment.
Chinese Stimulus Impact:Â Chinaâs economic measures will continue to be a major driver of the FTSE 100, particularly for sectors like mining and luxury goods, which are sensitive to Chinese demand.
Geopolitical Developments:Â Any escalation in geopolitical tensions could weigh on investor sentiment and drive volatility in the FTSE 100.
đ Disclaimer: Remember to consider all relevant factors and conduct thorough research before making any trading decisions. The information provided is for informational purposes only and does not constitute financial advice. Trading involves risk, and readers should be aware of the potential for loss. Always consult with a financial professional if needed.