FTSE 100 is battling to break below 6,780 points as Governor Carney confirms interest rate hike is the plan

The FTSE 100 is battling to break below 6,780 points as Governor Carney confirms interest rate hike is the plan

The FTSE 100 made another effort to reach for the 6,900 highs last week but again with no success. The London main index hit 6,880 points on Friday 6^th of June but after that the week was a bearish one proving that the momentum is slowing shifting lower.

At the time I am writing this analysis for you I am looking at the FTSE trading around 6,780 points having dropped 100 points in a week’s time. The index came under pressure the whole week as the recent positive developments in the UK domestic economy brought forward the discussion for an early rate hike from the Bank of England.

The encouraging labour data and the steady printing of the Industrial and Manufacturing Production reports illustrated that the UK economy is firing on all cylinders and investors rightfully believe that the BoE will be the first major central bank to raise rates after the recession.

What accelerated losses for the FTSE however and in my view marks the turning point for the medium term outlook for the index were Governor Carney’s comments on Thursday evening. The policymaker went ahead and stated clearly that an interest rate hike is possible and it could come sooner than the market is expecting.

Now we knew that analysts and market participants were discussing the possibility of an early rate hike in light of the impressive UK performance. But having the BoE Governor himself stating that it could come even sooner than the market is expecting is a totally different thing.

My view for the FTSE is that further losses should be expected, I have highlighted the 6,780 points area in my recent letters to you and as I am writing these lines the FTSE is battling to break below this level. I believe that the break is only a matter of time, the outlook is pointing to the downside and with official confirmation from Gov. Carney that a rate hike is on the way investors will have to reposition themselves ahead of this possibility.

The next stop for the FTSE will be the 6,700 points and if this sell-off accelerates it could reach them during this week. I am not excluding the possibility that the FTSE will hold above the critical 6,780 support and pull back a bit. But as I said above the momentum is to the downside and unless something spectacular changes the current outlook the FTSE will break below this area and make an effort to hit the 6,700 points base.

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