- Summary:
- It would seem that the recent uptick on FTSE 100 was nothing more than just a retracement. Risk aversion could push the index to its February lows soon.
The FTSE 100 is off to a weak start in today’s trading as risk aversion comes dominates market sentiment once again. As of this writing, the UK’s stock index is down by over 1.60% or 110 points at 6,705.4.
Concerns about the rapid spread of the coronavirus outside of China has sparked investor jitters. In the past week, the number of confirmed cases has risen more than three times from 5,300 on February 28 to 17,800 as of this writing. South Korea has the most number of cases second to China. Meanwhile, Italy comes in third at 3,858.
It also did not help that yesterday Flybe became insolvent. The UK’s largest regional airline went under as demand for air travel waned amid the coronavirus outbreak. Consequently, it has gotten investors wondering which company would follow suit.
Meanwhile, the Bank of England (BOE) is doing very little to support FTSE 100. Unlike its other counterparts like the RBA, Fed, and BOC, the BOE has expressed its reluctance to cut rates. According to incoming BOE Governor Bailey, they will wait and review more evidence before making any changes to their current monetary policy. This is despite Goldman Sachs’ warning that the UK could soon find itself in a recession.
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FTSE 100 Outlook
The 4-hour chart of FTSE 100 CFDs suggest that the recent uptick on the stock index could have been nothing more than a retracement. It rose to 6,840.0 which coincides with the 38.2% Fib level when you draw the Fibonacci retracement tool from the high of February 20 to the low of February 28. It is currently trading below its March 4 low at 6,588.0 which suggests that the next near-term support is at 6,449.2.
Conversely, if risk appetite improves or if the BOE hints that it would soon provide the markets with extra liquidity, we could see the FTSE 100 rise. It could trade to its March 4 highs at 6,840.0. If there are enough buyers in the market, it could even rally to 7,080.0 where it could test resistance on the 100 SMA.