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The UK 100 hit a nine-month high yesterday, as traders finally reacted positively to the news that the United Kingdom has agreed a Brexit deal with the European Union after years of hard-fought wrangling and negotiations between both sides.
UK stocks have been hit hard since the start of Brexit in 2016, and after taking a substantial hit in the following years had managed to post a gain of over 12 percent in 2019. Due to the COVID-19 pandemic, the FTSE 100 has significantly underperformed other major indices this year and is current laydown by around 13 percent from its yearly price open.
Sectors vital to the UK economy, such as banking, energy, travel, and retail have been hit hard during the COVID-19 pandemic, and as such, they make up a large weighing of the FTSE 100.
With a Brexit deal secured, and UK Parliament expected to vote in favour of the deal, the FTSE 100 could perform better in 2021. UBS has also recently sent a note to clients stating that UK companies could continue to build on recent gains next year.
Of course, COVID-19 and vaccinations will have a hand in the performance of UK 100 in 2021. If COIVD-19 infections subside, and lockdowns are lifted, then the UK 100 almost certainly looks set to build on the recent rally. Pharmaceutical heavyweights such as AstraZeneca and GlaxoSmithKline could also do well if the vaccine take-up rate goes as analysts are expecting, in terms of the take up rate.
Another thing to watch out for next year is the British pound. Sterling shares an inverse relationship with the UK 100. For example, sterling strength is seen as being bearish for UK companies and vice versa.
Traders looking to enter certain UK stocks or invest in the FTSE 100 should watch how sterling performs in 2021. At this present time, the British pound is expected to rise during a Biden Presidency. This could somewhat temper the upside in the UK 100 next year. Especially if the GBPUSD rate starts to trade between the 1.4000 to 1.5000 price range.
FTSE 100 Short-Term Technical Analysis
The four-hour time frame shows that a head and shoulders pattern has been invalidated this week, following Tuesday’s breakout move above the 6,640 resistance level.
This makes the 6,640 level very important from a technical perspective going forward. As it is not only a former key swing-high from earlier this month, but also the head of the mentioned head and shoulders pattern.
Source by ActivTrader.
According to the size of the invalidated head and shoulders pattern, a rally towards the 6,940 area could be about to take place. Again, upside pressure is likely to persist if bulls can sustain the price above 6,640.
The next major upside hurdle for bulls will be the current weekly and monthly high, around the 6,680 level.
To the downside, the 6,600, 6,580 and 6,490 level are the key support areas to watch if we see sustained weakness below the 6,640 level.
FTSE 100 Medium-Term Technical Analysis
Higher time frames analysis is now mimicking the lower time frames and shows that an extremely large head and shoulders pattern on the daily, weekly, and monthly time frames has been invalidated.
The overall size of the invalidated bearish price pattern suggests that the index could rally towards the 7,600 level over the medium-term horizon.
Source by ActivTrader.
Again, while the fundamental backdrop does not look good, the technicals on the daily time frame show a clear bullish case for the FTSE 100 while price trades above the 6,410 level.
Sellers would need to gain significant momentum from current levels to crack the 6,410 level, and take-out key support areas to the downside such as 6,300 and 6,170 levels.
