Key Talking Points:

• Boris Johnson announces a national lockdown until February
• Georgia Senate runoff is today’s key focus for equity markets
• FTSE 100 is weak below 6,600 but positive momentum remains

The FTSE 100 is looking slightly vulnerable today as Boris Johnson announced last night that England will go back into a national lockdown until mid-February, leading to the closure of schools as all other non-essential businesses remain closed.

The British benchmark index was off to a flying start to the new year as it was up more than 2.5% during yesterday’s session, but early reports of a lockdown in Scotland brought jitters to investors that believed Boris would follow suit, causing the index to retreat 1.7% before the announcement took place at 8pm.

Overnight, gains in Asia continued to build, pushing Chinese equities to new highs, with the CSI 300 index breaking its peak reached back in 2015, backed by economic data showing that China is rebounding faster than other economies from the pandemic. The announcement that the NYSE would no longer delist 3 Chinese telecom companies also helped consolidate positive momentum in Asia.

The focus today will be on the Georgia Senate runoff, an important risk event for markets as it will determine the composition of the Senate for the next two years and will impact the ability of Biden’s policies to pass through Congress. If Democrats gain control of the Senate we could see the Dollar dipping lower as Biden will be able to fully enforce tax hikes and further stimulus.

Traders should also keep an eye out for an announcement from UK Chancellor Rishi Sunak on further support for businesses as the country enters this new lockdown.

FTSE 100 Daily Chart

Technically, the FTSE 100 entered a consolidative period back at the beginning of December, with the retracement on the 21st of December being the main outlier to the pattern. This sideways trading pattern is likely due to the UK stock index reacting to mounting gains in the Pound on the back of a positive Brexit resolution, limiting its upside (FXB).

As mentioned before Christmas, overbought conditions were showing bullish momentum was stalling, meaning the 6,600 level was a key resistance area, which seems to be holding true despite yesterday’s peak. We’ll need to see price action push above this level for bullish momentum to pick up again, with a test of how strong buyer support is in order to break the December high at 6,678, followed by 6,845 as the next resistance level before the 7,000 mark.

To the downside, the 61.8% Fibonacci level at 6.849 is still of interest as buyer support can be seen around this area, but 6,255 remains as key support as price action has failed to fall below this level since early November. A break below this level would leave the FTSE 100 exposed until the next support area between 6,160 and 6,110, before risking losing the 6,000 mark.