Fed officials’ bullishness and Brexit uncertainty push the FTSE 100 lower

Quite a volatile period for the FTSE 100 over the past few days and even though the index remained within its broad sideways range the changes in direction were again the headline. The FTSE is pushing towards the bottom end of this price range today as the FPC once again warned investors about the potential aftermath of a Brexit.

The Financial Policy Committee highlighted the EU referendum as the number one risk during their March 23 meeting and as a result both the Pound and the FTSE are in a downwards rally at the moment. It goes without saying that the potential repercussions of a British exit from the EU cannot be adequately quantified and stock markets hate nothing more than uncertainty.

The London index is trading around the 6,080 points’ area as I am writing these lines to you and this area has been tested again and again over the past few days and it has held as a medium term support. Given the broader macroeconomic climate and Fed’s inclination to leave interest rates at their current level for now we would be more biased towards a robust performance from the markets however there is a part of the market that believes that the Fed will not remain cautious for an extended period of time.

Long story short several Fed officials are expected to speak publicly this week and expectations are that they will not be as concerned as Janet Yellen. Add to that the bearish bias from the domestic political uncertainty and you get why the FTSE is in the red today. Whether the current support will hold though is another question and my approach is to “wait and see”.

If the FTSE successfully breaks lower then the 6,000 points will be the next stop and I would be inclined to join the downtrend as soon as I get a confirmation that the break has taken place. In the opposite case a return to the 6,150 points would seem reasonable as the FTSE will continue trading directionless within the broader sideways formation we’re seeing in recent weeks.

alpesh

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