News & Analysis

COTD: FTSE100 – Downward Pressure as Sterling Strengthens

September 2, 2020
UK100 – Weekly

UK100  

Following the startling news today from the US, that the value of Apple’s stock ($2.2trn) has now overtaken that of the entire FTSE 100 index of UK-listed companies, we’ve decided to look at the UK index using the weekly time-frame.

Of course, the overriding theme is COVID-19, and while companies such as Apple and other tech giants in the US have enabled those markets to not only survive but thrive, the FTSE100 hasn’t fared so well.

Looking at the chart above, we can exactly how devastating news of the pandemic was to the UK Index, falling almost 36.6% to a low of 4762 in mid-march. Since this time, we’ve witnessed a recovery with the price reaching a 61.8% Fibonacci retracement level of 6565 before hitting the brakes. It appears the development of a longer-term downtrend may be here for the foreseeable.

Adding fuel to the fire, we have also seen a rise in the pound against the US Dollar, which typically spells trouble for the FTSE as it reduces the Sterling value of companies’ overseas dollar earnings.

We can see that both July and August’s price action attempted to break above this downward trendline (white line) but failed multiple times. Furthermore, a bullish engulfing candle developed on July 13th but quickly became old news as sellers convincingly drove the index further down, marking their dominance.

Should the price continue to fall, then the next longer-term downside target would be the 23.6% retracement level of 5432. Alternatively, we would monitor the activity along the downward trendline for any signs of a change in overall sentiment.

It seems much will depend on whether the second wave of COVID-19 stikes as we approach the winter months in the northern hemisphere and if the UK markets can withstand further pressure from not only those companies disrupted, but perhaps the burden of a stronger Pound too.

 

Note: Click on charts to enlarge.

 

By Adam Taylor CTEe

.@adamt_trading

Sources: Go Markets, Meta Trader 5, TradingView, Bloomberg

Disclaimer: The articles are from GO Markets analysts,  based on their independent analysis or personal experiences. Views or opinions or trading styles expressed are of their own;  should not be taken as either representative of or shared by GO Markets.  Advice (if any),  are of a ‘general’ nature and not based on your personal objectives, financial situation or needs.  You should therefore consider how appropriate the advice (if any) is to your objectives, financial situation and needs, before acting on the advice.  If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.

Next:
Previous:

Let's Get Started with GO Open a Live Account Try a Free Demo