FTSE 100 analysis and talking points

  • Awaiting FTSE 100 pullback
  • Rising downside risks in China

A few days ago, I mentioned a few technical areas to note in the S&P 500 where I would expect the index to struggle to gain more upside traction. Since then, the index has weakened to the 200DMA located at 4327. Now, while we have seen a modest 2% pullback, there is still work to be done before the bearish momentum can resume, such as a break below the peaks in late May/early June. (4180-90).

Elsewhere, I’m also watching the FTSE 100 very closely. Unlike its peers, the index essentially sits in a wide range of 6800-7600 throughout the year. However, now that we are approaching the top of this range around 7600-50, this may be a good area to look for a pullback. One reason is that downside risks from China are coming back to the fore in investors’ minds, keep in mind that the FTSE 100 has much more exposure to China than its peers given that the Index heavyweights are found in the commodities space. A measure of Chinese sentiment can be viewed through the lens of FX with the Chinese Yuan. As the chart below shows, USD/CNH is testing its 2022 peak and so a firm breakout is likely to cause another wave of risk aversion sentiment and I expect the FTSE 100 to be under pressure.

Source: Refinitiv

Now in this next chart I might be committing a chart crime here but here is an overlay of the reverse USD/CNH against the FTSE 100 showing that the USDCNH has trended lower significantly before the FTSE 100. Leading indicator or just a false correlation?

FTSE 100 to USD/CNH Inverted

FTSE 100 Analysis: Constructing a Bearish Outlook

Source: Refinitiv

For those who are patient, the timing might be to wait for a pullback from 7600-50. My view of the FTSE 100 decline would be wrong if we closed above 7710.

FTSE 100 Chart: Daily Period

FTSE 100 Analysis: Constructing a Bearish Outlook

Source: Refinitiv

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