Week Ahead: More pain ahead for UK100?

• UK100 ↓ 8% month-to-date
• One of the worst performing index in the FXTM universe
• Stronger GBP + BoE hike bets = return of bears
• UK PMI + CPI + Retail sales = fresh volatility
• Key levels of interest – 10,500, 10,000 and 9785

Ongoing conflict in the Middle East and top economic data could present fresh trading opportunities in the week ahead:

Monday, 23rd March

• EUR: Eurozone consumer confidence
• SG20: Singapore CPI
• US400: US construction spending, Chicago Fed activity index

Tuesday, 24th March

• EUR: Eurozone/Germany S&P PMI’s
• JPY: Japan CPI, S&P Global Manufacturing PMI
• TWN: Taiwan industrial production
• UK100: UK S&P Global Manufacturing PMI
• USDInd: US S&P Global Manufacturing PMI

Wednesday, 25th March

• AUD: Australia CPI
• EUR: Germany IFO business climate
• UK100: UK CPI

Thursday, 26th March

• SG20: Singapore industrial production
• ZAR: South Africa rate decision, PPI
• SP35: Spain GDP
• TWN: Taiwan jobless rate
• USDInd: US initial jobless claims

Friday, 27th March

• CNY: China industrial profits
• MXN: Mexico trade, unemployment
• SPN35: Spain CPI
• UK100: UK retail sales, Gfk consumer confidence
• US500: US University of Michigan consumer sentiment

FXTM’s UK100 is in focus after the Bank of England’s hawkish tilt sent prices tumbling toward the psychological 10,000 level.

Note: UK100 tracks the FTSE100 index – the benchmark measuring the stock performance of the 100 largest listed companies on the London Stock Exchange.

The Bank of England stated it “was ready to act” against a surge in inflation triggered by conflict in the Middle East.

This has prompted traders to ramp up BoE hike bets, boosting Sterling as a result.

A stronger pound and expectations around higher UK interest rates could mean fresh pain for the UK100 over the next couple of weeks.

Note: Over 80% of the revenues from FTSE100 companies come from outside of the UK. When the pound depreciates, it results in higher revenues for those companies that acquire sales from overseas – pushing the UK100 higher as a result. The same is true vice versa.

With all the above said, the week ahead could be volatile for the UK100!

Here are 3 reasons why:

1) Ongoing Iran conflict

In the latest developments, Israel conducted strikes on Iran’s South Pars – part of the world’s largest natural gas field. Tehran retaliated by striking an energy complex in Qatar and other energy targets in the Gulf.

As tensions deepen in the Middle East, this could lead to more negative supply shocks – further boosting global oil prices. Should this force the BoE to double down on its hawkish stance, a stronger pound could pressure the UK100 further.

2) UK data dump

Beyond geopolitics, the incoming UK PMIs, CPI and retail sales report may provide fresh insight into the health of the economy.

Note: UK CPI is expected to rise 3.1% in February compared to 3.0% in January.

Traders are currently pricing in a 90% chance that the BoE hikes rates three times by November. If the incoming data reinforces these expectations, a stronger pound may drag the UK100 lower. The same can be said vice versa.

3) Technical forces

The UK100 is bearish on the daily charts with prices below the 50 and 100-day SMA.

However, the Relative Strength Index indicates that oversold conditions have nearly been reached.

• Should 10,000 prove reliable support, prices may rebound back toward the 50-day SMA and 10,500.

• Should prices slip below 10,000, this could trigger a decline towards 9650.