FTSE’s outlook hinges on the Fed’s views on the US economy so caution is advised

The volatility in the global money markets remained elevated and along with it the lack of momentum and uncertainty of the US economy create a difficult field to tread for traders and investors alike. The new year hasn’t started with the best of conditions and apart from the situation in the Asian markets what worries me more is the lack of a clear outlook regarding the US economy and the Dollar.

Even though the Fed hiked their key interest rate in December and everyone expected the Dollar to rally higher as soon as the new year started what we’re seeing is a lack of consistency and that translates to uncertainty in the global stock markets and of course the FTSE 100. As long as investors don’t have a clear outlook on how the US economy is fairing and whether they should expect a more bullish policy from the Fed the situation in the stock indices will remain pretty much the same.

Given that I want to remind you how important is to remain focused on the short-term, even intra-day outlook of the various indices, the FTSE 100 included. What we’re seeing now is a drift without direction as traders are not willing to take any longer term positions while the price action remains choppy. So for this week my two main scenarios will revolve around the breakout from the recent highs and lows the FTSE has printed in recent sessions.

To the upside I am looking to enter long should the London index break above the 5,950-60 points’ area and I would like to try to get as much as I can targeting the 6,050-60 area without risking to stay too long in the market. To the downside, the obvious support lies in this morning’s lows at 5,770 points and a clear break of this area should send the FTSE 100 to test its monthly lows around the 5,650 points’ level.

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