The FTSE100 has started to move lower over the past week as traders book profits ahead of the coming Bank of England policy, where the central bank could act aggressively.
The Bank of England is expected to push interest rates higher on Thursday in what analysts believe will be one of the last in a cycle of successive hikes. However, the policy language will be key for business sentiment.
The decision will pile more pressure on already-strained borrowers, but with inflation beginning to edge back down off its highs, economists say there is a glimmer of hope in the economy’s more distant future.
Markets think the Bank’s monetary policy committee (MPC) will raise interest rates to 4% on Thursday, from the current rate of 3.5%. Such as move could hit housing and building stocks in the UK100.
Financial stocks may appear to like the fact they have higher interest to borrow money, however, many banks also rely on mortgages. If the mortgage rate is too high it can stop people borrowing for houses.
It is also noteworthy that the technical picture looks to be short-term bearish and medium-term bullish. More on this later as we now move towards current sentiment metrics.
Sentiment remains very bearish, which could be great for further price gains ahead for the UK100. With retail looking to short we could see the FTSE100 holding above the 7,500 level.
If we look at the ActivTrader Market Sentiment tool, 85 percent of traders are currently bearish. This metric has dropped 6 percent last week.
Based on the current sentiment reading I think it is highly probable that we could see the upside starting to accelerate until sentiment flips to bullish.
UK100 Short-Term Technical Analysis
According to the four-hour time frame the FTSE100 has moved under its 50-period moving average and could be awaiting a technical test of its 200-period moving average.
Also, bearish price divergence is also seen on the four-hour time frame. A move towards the 7,600 level is almost certainly possible if the divergence starts to unwind.
UK100 Medium-Term Technical Analysis
The Ichimoku indicator daily time frame shows that the UK100 is clear of resistance and a move towards the 7,600 level would now been seen as a major technical test of breakout resistance.
If we see the UK100 starting to move towards the 7,800 to 7,900 area then the all-time is within touching distance. All eyes will be on a huge break this year if the 8,000 barrier cracks.