Last week in my previous note to you I have called for a consolidation on the FTSE 100 between the two important levels of 7,000 and 7,100 points and it seems that I was right on the money. The reasoning behind my analysis was mainly that the way the FTSE was trading at the time and the lack of any important reports or developments scheduled for the past 7 days meant that the London index would find it difficult to break these important support/resistance zones.
Now, a week after that and as the FTSE 100 did hold its sideways pattern between the aforementioned levels I believe that we could see some more action as we move forward. For me the most important event of the week will be the Fed meeting on Wednesday and I think that it has the potential to cause quite a stir in the markets.
Just so I can bring you up to speed here, the hot topic of chatter between traders and investors these past couple of weeks has to do with the recent string of discouraging reports and figures from the US. Across almost all sectors and metrics the recent performance of the domestic economy in the States has been short of amazing and that has driven market participants to doubt whether the Fed will remain firm in its rhetoric and intention to hike rates at the end of the summer.
It goes without saying that such doubts are always reflected on the major money markets and we have discussed and explained many times in the past why a prolonged low-rates environment works wonders for the FTSE 100 along with the rest of the global stock markets. As such I believe that the anticipation of a slightly more bearish rhetoric from the Fed has the potential to keep the FTSE 100 trading near its 7,100-50 highs.
Whether that will translate to fresh and sustainable gains will hinge on what the Fed policymakers will discuss during their meeting. Any hints towards a delay in their hiking agenda or even any comments that could be translated as more bearish than before will most probably send the FTSE towards the 7,250 area and that will be my target for now.
At the same time though we need to be mindful of the possibility that the Fed could appear unfazed from the recent dismal figures from the economy and reaffirm their intention to hike soon. Such a development should drive the global indices sharply lower as investors that would have built up their positions would rush to offload them. In such a scenario my first target obviously lies at the 7,000 points support floor.
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