- Summary:
- FTSE 100 is in a corrective Elliot wave, which means that the index cound continue to decline following the UK rate cut by Fitch on Friday.
FTSE 100 CFDs struggled for direction as the UK braced itself for more Coronavirus cases. The index rose by more than 50 basis points earlier on and then pared back those gains.
The Friday’s decline happened after Fitch downgraded the UK rating from AA to AA-. The rating firm lowered the country’s ratings, citing the current lockdown and the budgetary constraints associated with it. In making the statement, the firm said that the country’s economy will drop by 4% this year.
The UK is at crossroads. The country recently voted to exit the European Union and the negotiations between the two sides have turned out to be bitter. The chief EU negotiator and the UK prime minister have also contracted the disease. As such, there are signs that the two sides could run out of time to hammer a deal.
The current Coronavirus pandemic has made things more difficult for the UK. The country is now in lockdown and there are chances that many companies will not survive. For example, big manufacturers like Honda and Toyota had already warned about their operations in the UK.
To counter the crisis, Rishi Sunak, the country’s chancellor of the exchequer has unveiled more than 60 billion pounds in new spending. He has also vowed to pay salaries of most of the country’s employees. Still, based on the likely impact, most analysts believe that this amount will not be enough.
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FTSE 100 Technical Analysis
Looking at the hourly chart, we see that the FTSE 100 formed a double bottom at the £5,389 level and then bounced back. We can also see that the index is in the third phase of the corrective wave of the Elliot Wave. Also, the index is along the resistance level shown in black. I expect the index to continue moving lower, with the main level to watch being the resistance level of £5,383.9.