FTSE 100 – Cautious start with an abundance of central bank meetings ahead

• Final rate hikes in store for many central banks?
• UK100 breakout quickly pushed back
• Bullish signs despite initial setback

A cautious start to the week ahead of a bunch of central bank meetings that will likely set the tone for the remainder of the year.

There’s every chance that by the end of this week, the bulk of the major central banks have ended their tightening cycle and in many cases, signaled such as the ECB did last week. They’ll never say definitively that it’s over but, as the ECB did, they may indicate that it’s their current view that they’ve hiked enough.

The question now is how much that tightening will weigh on economic prospects going forward and whether further inflation surprises are lurking ahead. We’ve clearly seen a cooling in the economy, with the US showing more resilience than most but still slowing and likely to further, but it’s hard to imagine rates as high as they are for longer not packing a greater punch.

While there are some interesting economic releases over the next couple of days, for many the week really starts on Wednesday with UK inflation numbers and the Fed interest rate decision later on. After that, the central bank decisions will come thick and fast until Friday. It promises to be a fascinating week.

A bullish or false breakout?

We’ve seen some interesting trading over the last couple of sessions, with the UK100 breaking and closing above 7,700 without inspiring any confidence that it will kick on from there.

UK100 Daily

Source – OANDA on Trading View

The higher close on Friday could be viewed as a positive but it was well off its highs, resulting in a shooting star daily candle which is hardly a very bullish signal. And today the UK100 is trading lower again which on the back of that shooting star isn’t entirely surprising.

That said, there are signs that beyond the very short-term, there is more to this breakout than that. For example, that long Marubozu candle from Thursday looks quite bullish and it’s barely corrected any of that since.

Then there are the momentum indicators below. They are making higher highs alongside the price so there’s no sign of divergence at this point which could be viewed as supporting the recent trend.

If the price does continue to move higher then we’re back into territory that the index has rarely ever traded within which makes technical levels all the more interesting and challenging. Recent levels such as 7,800 and 7,850 could be interesting again.

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