The decline in the US wages’ growth is weighing down on the FTSE 100

After a very interesting and volatile first trading week of the year, since the first one wasn’t really a “full trading week”, the FTSE 100 seems to be back in action with very attractive price action. The London index spent the last week running a rally from the 6,350 points’ support area that I mentioned to you in my previous note up to the 6,550 points where it looks like that the momentum died down.

What is very important to take into consideration is the release of the Non-Farm Payrolls report from the US on Friday that took the air under the FTSE’s wings at this point. The report printed in a mixed fashion and even thought the numbers of jobs added beat analysts’ expectations and the unemployment rate fell to fresh lows it was the decline in the Average Hourly Earnings component that disappointed traders. So even though the labor market is progressing well this is not equally reflected on the employees’ paychecks and that is an issue for the domestic economy.

Following this development most global stock markets turned negative with the FTSE 100 pulling back for its 6,550 highs to end the week around the 6,500 points area where we find it this morning. This turn in the stock markets’ fundamentals seems to suggest that the momentum in the FTSE might be switching to the downside and that’s a possibility that I would like to explore this week.

My primary scenario calls for a decline below the 6,450 points’ level which I consider as the pivot point for the FTSE 100 at this time. Should the London index break this important short-term support area then my targets are set at the 6,400 and 6,300 points’ levels as the FTSE will look to revisit its previous week’s lows. The index is trading within a broader sideways formation between the 6,300 and 6,600 levels and we should be looking to play the ranges while it lasts.

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