FTSE100 & DJIA Outlook Ahead of US Inflation Data

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Yesterday’s press conference by the UK prime minister Theresa May had indeed a huge impact on the markets, sending GBP higher across the board by more than 2.5%, while the FTSE100 Index posted its biggest one-day decline since the beginning of the year.

Global equities also had eased a lot of their gains by the end of the day, while the US equities closed slightly lower. This is of course on the back of the strong language of the British PM. Yet, hard Brexit is still more likely. Therefore, the volatility is here to stay. In today’s article, we will take a look at some of the global indices and what’s the possible scenarios over the coming weeks.

FTSE 100 Bearish Engulfing Candle

ftse100 18 jan 2018 orbex

Before looking at the chart, Hard Brexit is still more likely. Theresa May yesterday said that the UK would not be a part of the EU one single market. At the same time, she wants all the benefits of it, which might not happen since the UK is out of the Euro Union. The question here, why would the EU accept such thing? The answer is, they will not.

The FTSE100 had its biggest one-day loss since the beginning of the year, declining by more than 1.40%. This is also the biggest one-day decline since late November of last year, ending almost two months of consecutive gains.

From a technical point of view, yesterday’s close formed a bearish engulfing candle on the daily chart, which suggests a beginning of a short term retracement to the downside. The first Fibo level stands at 7193 which represents its 23.6% from the recent rally as shown on the chart. The second level would be the former resistance at 7105 which turned in to support now.

Moreover, the 38.2% Fibo stands at the same level, which should be watched very carefully, as a break below that support would clear the way for further declines ahead. Otherwise, if the British Pound failed to sustain the recent gains due to the solid resistance at 1.2415, this would renew the uptrend in FTSE100. Therefore, traders are advised to keep an eye on both.

DowJones Failed Below 20K

djia 18 jan 2017 orbex

The Dow Jones Industrial Average has been trying to print the 20K mark since 13th of December of last year, but without any chance, which eases the possibility to do so. However, there are many factors involved.

From a technical point of view, the US equities including SPX, DJIA and NDX has been rising significantly with no reasonable retracement to the downside. Moreover, the Trump rally continued without any retracement as well.

The technical indicators are heavily overbought on all timeframes, which makes it hard for these indices to keep on climbing without a short term retracement. Moreover, I would not be in a position to long the US equities at these level. It’s so risky to do so.

Since December until today, the DowJones Index has formed some sort of a round top which should be watched carefully as long as the 20K is not on the chart yet. On the downside view, traders should keep an eye on 19740, where buyers appeared many times in the past month.

The downside view remains favorable for the time being. However, traders need to be aware that we are at the beginning of the earnings season, which might be the catalyst for these indices to rise further. This is if the earnings were strong enough to support an upside rally.

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