The FTSE100 has started to slip after the recent Bank of England policy meeting, where the UK central bank laid out a dire warning about the economic prospects of the UK.
Governor Bailey raised concerns about the inflationary environment and CPI hitting 10%, as well as severe strain on UK households via rising energy bills and stagnant wages.
While it is true that the UK100 is not entirely made of UK companies, it is true that the global economy, and the US economy is closely linked to the UK and UK stocks. Thus a break down in the major US indices will not be good for the UK100.
On the positive front, sterling is falling rapidly which could be good for the UK manufacturing sector. However, many other global currencies are also taking a licking against the buck.
I think that the UK100 could need to move lower before it goes higher again, and I do think the Ukraine war and the global economic environment provides a bearish short to medium-term backdrop.
Sentiment towards the UK100 is also neutral right now. According to the ActivTrader platform over 50 percent of traders are bearish towards the UK100, and 50 percent are bullish. This normally means range trade ahead.
Typically, the retail crowd is on the wrong side of the trade more often than not, so the UK100 sentiment skew could suggest a coming range of 7,300 to 7,500 ahead.
UK100 Short-Term Technical Analysis
The four-hour time frame shows that the UK100 index has broken under its lower Bollinger Band, providing a warning sign of more short-term losses ahead.
However, more downside towards the 7,300 and 7,200 levels is possible in the aftermath of the Fed and BoE decisions. Overall, this could be a great dip buying opportunity for FTSE100 bulls.
UK100 Medium-Term Technical Analysis
The daily time frame shows that a large, inverted head and shoulders pattern has clearly formed. The pattern will be confirmed if we see the FTSE100 moving back towards the best levels of the year 2018.
I am concerned we could see another steep drop in the vicinity of the February drop this year meaning that the FTSE100 could be headed back towards the 7,200 to 7,000 zone.