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The UK100 has once again recovered towards the 6,800-resistance level as bullish tones continue to sweep through European indices due to hopes above the global economy recovering and central banks providing ample support during this period of expected growth.
This week the UK100 has moved to levels not seen since mid-January after breaking above the February 2021 trading high, marking a 400-point recovery from the recent pullback to the 6,360 area and therefore placing the index in a more advantageous technical position.
A number of bullish price patterns are pointing to new highs in the UK100 index, and a coming rally towards the 7,200-resistance level. Technical indicators on the lower and higher time frames are not bullish and have a clear upward bias.
Yesterday’s dovish FOMC meeting helped lift the price of gold and silver and helped stocks in the so-called real economy in the United States, such as banking and retail. This could be bullish for the FTSE 100 if traders follow the Wednesday trading theme.
The FTSE100 is also packed with mining stocks, which typically receive a boost when precious metals, such as gold and silver rally. It is also worth noting that the FTSE 100 has fared well during the recent outperformance in the Dow Jones Industrial Average, and the ongoing recovery in the S&P 500.
Traders and investors also have the outcome of the Bank of England interest rate decision to digest this week, and the index faces downside risks from a sterling rally as traders are turning more negative towards the greenback.
The UK100 and sterling typically have an inverse trading relationship, so this dynamic should be watched closely. For example, during sterling recent run towards the 1.4200 level the UK100 was in steep correction mode.
According to the ActivTrader platform some 62 percent of traders are bullish towards the UK100. The overall bias is not too large, so it is not a concern at this stage. Should we see bullish sentiment reach 70 percent it may signal that a correction may be coming.
UK100 Short-Term Technical Analysis
The four-hour time frame currently shows that the UK100 is testing towards the neckline of an extremely large, inverted head and shoulder that holds a 400 points of upside potential, around the 6,800-resistance level.
According to technical analysis, the index could rally towards the 7,200-resistance zone over the short-term. Failure to overcome the 6800 level in the short-term could cause a correction back towards the 6,700-price area before the pattern eventually breaks to the upside.
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UK100 Medium-Term Technical Analysis
Looking at the daily time chart the UK100 has cleared most forms of meaningful technical resistance and looks set to move higher. Trendline analysis highlights the 7,150 and 7,400 levels as the major upside targets.
Traders should be aware that the UK100 is trading inside a large rising price channel between the 7,400 and 5,950 levels. It is possible a large reversal in the index could take place from the top of the price channel, around the 7,400 level.
In terms of technical indicators, the 50-day moving average is starting to cross over the 100-day and 200-day moving average again, which is providing a strong buy signal on the daily time frame.
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