The FTSE’s outlook is strongly connected to this week’s FOMC meeting

This week finds the FTSE 100 trading just shy of the 6,700 points’ level, a support area that has limited the index’s price action over the past months. I believe that it is important to assess the FTSE outlook over the next few days coming from a technical and a fundamental standpoint so we can be prepared for the events to come.

On the one hand many analysts suggest that the FTSE will have a hard time breaking lower from this important floor of support and the reason is that the current decline has run an overextended rally lower over the past couple of weeks and one can suggest that the momentum has been diminishing recently.

At the same time though for the 6,700 points’ support to break we would need a substantial fundamental trigger. Looking into the next days’ calendar we find that the FOMC meeting on interest rates’ policy in the US is due for later this week. There is increased speculation that the Fed will move forward to prepare investors for a rate hike in the next couple of months and that could change things a lot.

Such a move from the US central bank would mean losses for the global stock markets as money supply in the US will not be as cheap as before. So would that development, if it takes place as expected, mean that the FTSE will lose the 6,700 points and if so where next? I have explained in my previous notes that I think that the UK and US stocks markets have different outlooks and a decline in the US on the back of an expected rate hike wouldn’t necessarily translate the same for the UK.

However given how interconnected markets are these days the initial reaction would be the same hence I am worried whether the FTSE will be able to remain afloat this week should the Fed move forward and announce plans to raise rates. If the break does take place then I would be looking to short the index and focus my targets around the 6,650 and 6,625 points’ areas.

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