FTSE100 Technical Analysis – 6,585 Increasingly Important

The FTSE100 has moved back under the 6,700 level as risk-sentiment started to worsen in early-week trade across a broad spectrum of financial markets. The FTSE100 also incurred an extended price pullback last week, following a slew of bearish UK economic news development.

Fears over the United Kingdom closing its borders caused the index to quickly sell-off, with the index reaching the 6,645 level. Additionally, a much weaker-than-expected Services PMI from the UK economy caused the index to drop.

Other factors were also at work, such as weakness in European equity markets, and sterling strength last week. Sterling moved to a fresh multi-year high last week, and started to breach the 1.3700 benchmark level, although it has started to turn lower this week.

FTSE100 traders will be all too aware that sterling and the leading UK index have a strong inverse relationship. Many analysts have speculated that both the FTSE100 and sterling are undervalued at current levels.

This leaves plenty of scope for two-way trading action, as both the FTSE100 and the British pound currency are currently trading in strong uptrends and appear to be locked in an ongoing game of push-me-pull-you.

Going forward, the prospects of the UK economy are set to influence the overall direction of FTSE100. The UK economy is in the midst of its third lockdown, which means that the UK 100 has already priced-in plenty of bad news. The good news for bulls, is that the index is holding up well despite the never-ending barrage of negative headlines.

From a technical perspective, it is extremely encouraging that the UK 100 is still holding above the 6,585 level. Not only did bulls defend a key trendline last, but the overall short and medium-term bull trend remains intact.

This week FTSE100 bulls will need to clear the 6,800 level to encourage the next round of technical buying. Without a doubt, the prospects of the index hitting 7,000 and 7,100 remains alive-and-well while the 6,585-support level is defended.

FTSE100 Short-term Technical Analysis

The four-hour time frame shows that that the index is still trading within a large bullish flag pattern between the 6,585 and 6,745 levels. This remains the key battleground for short-term FTSE100 traders.

According to technical analysis, the flag pattern is a bullish reversal pattern, which has a upside projection of around 140 points. This could take the FTSE100 within touching distance of the 7,000 level.

Any technical pullbacks should be considered buying opportunities as long as the price holds inside the flag pattern. The 200-period moving average, at 6,640 should be watched closely on any pullbacks this week.