FTSE 100 Pushing Down On Support As GBP/USD Strength Weighs

By Nick Cawley of DailyFX

Saturday, August 1, 2020 6:07 PM EST

FTSE 100 PRICE, CHART AND ANALYSIS:

Heavyweight exporters hit by recent GBP/USD rally.
Range support remains under threat.

RECENT TRADING RANGE UNDER PRESSURE

The FTSE 100 continues to slide lower and is testing the lower end of the recent trading range. The UK big board has oscillated in a rough 350 point trading zone with the lower bound around 5,930 currently under pressure. The FTSE has underperformed other European bourses and has barely recovered 40% of the late-January to late-March sell-off which saw the index lose nearly 3,000 points. The recent strength of Sterling, especially against the US dollar, will impact some of the FTSE’s largest export-companies, including heavyweight pharmaceutical companies AstraZeneca (AZN) and GlaxoSmithKline (GSK), and oil majors Royal Dutch Shell (RDS-A) and BP (BP). When GBP/USD strengthens, export revenues when converted back to Sterling are worth less.

The technical set-up for the FTSE remains weak with support from the 20- and 50-dmas broken last week and now acting as resistance. The lower end of the trading zone is propped up by the 38.2% Fibonacci retracement level at 5,889, and if this folds a swing-low made on May 14 at 5,662 comes into play. This week’s highs and the 20- and 50-dma protect the 50% Fib retracement at 6,233 for now.

IG Client Sentiment data shows that 73.14% of traders are net-long of the FTSE, a contrarian bearish set-up. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger FTSE 100 bearish contrarian trading bias.

FTSE 100 DAILY PRICE CHART (DECEMBER 2019 – JULY 31, 2020)

FTSE 100 Pushing Down on Support as GBP/USD Strength Weighs