The FTSE 100’s outlook is mixed ahead of the inflation report today

This week my note to you comes on a Tuesday as I am writing to you from Greece, even fund managers get to take a few days of holiday! So at the time I am typing these words I can see the FTSE trading very close to its 6,500 points’ lows having spent last week on a downtrend that led the index to this area. What I can’t fail but notice however is the fact that the index looks so oversold at these levels.

One could assume then that my analysis would suggest that a correction to the upside would be the next logical step for the London index and indeed if you look at things from a technical standpoint that would be your conclusion. But this time I am torn and that’s because the fundamentals don’t align with the technical outlook and that mixes up things a bit.

To be more precise, as I mentioned above a correction from this area seems the next natural step as the FTSE has dropped more than 200 points recently and the momentum that drove that decline has diminished. At the same time though today we will have the chance to find out how inflation is fairing in the UK and we know that this report will takes its toll on the FTSE.

Now, analysts expect the core inflation reading to tick higher this month and that would mean that the accelerated rate of prices’ growth should put more pressure on the BoE to think about raising rates early next year. And from my previous notes you should know by now that this is not a welcome development for the FTSE 100 as pricier money supply doesn’t bode well for stock markets.

So now you see why I am torn at this point and why I think FTSE’s outlook is a bit mixed. However we need to be prepared for this development so here are my scenarios: to the upside, I would welcome a break above the 6,600 points’ barrier that would drive the FTSE towards the 6,650 points’ area at least. To the downside a break below the 6,500 points’ support would signal renewed pressures on the index but on that case I would be a bit more reserved than to follow the downtrend. Nevertheless, for the more adventurous trader the technical targets lies around the 6,450 points.

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