Fibonacci Level Offers Support as Attention Shifts to US CPI

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Key Talking Points:

  • Inflation concerns take over the equity market, with focus on the US CPI data out this afternoon for confirmation
  • The FTSE 100 holds on to buying support as it finds support on a key Fibonacci level

The FTSE 100 felt the pressure in yesterday’s session as a broader market selloff took hold of sentiment. Tech shares and industrials were the hardest hit, but tourism and travel stocks were also weighing on the London blue-chip index as the UK Government updated its travel list over the weekend, leaving most European countries off the “green list”, giving a hard blow for airlines, an industry that was expecting to revive European holidays during this summer season.

As I mentioned in yesterday’s report, the wider selloff seems to be linked to growing inflation concerns as Friday’s disappointing jobs data plays in nicely to Powell stance about keeping monetary policy unchanged until there are a few consecutive good readings in jobs data, given that the US economy is not yet out of the woods. But investors are concerned about a persistent rise in commodity prices, which could mean inflation is here to stay, and not transitory as Powell seems to suggest. It will take a few months to find out how long the rise in prices is going to be present, but today’s US CPI figure is likely to catch many investors’ attention as they look to confirm a steady rise in prices in the month of April.

FTSE 100 Levels

After a shaky start to this week, the FTSE 100 is just below the 7,000 mark. The selloff over the last two days has erased two weeks of steady gains, playing into the notion that equity markets are overbought and highly sensitive to downside risks. So far, sellers have been unable to break below the 76.4% Fibonacci level (6,894) which is converging with the 50-day SMA, a strong indication that buyers are likely to continue defending that area in the short term.

If unable to hold, the next key area is the 6,846 line, which has been a floor since April 8th when the FTSE 100 crossed above it for the first time since January 11th. This area is also in convergence with the 200-day SMA, so I would expect it to nicely hold any further selling pressure if it may arise. For now, yesterday’s pullback seems to have offered new buyers are chance to come in at more favorable levels, meaning the index has some further upside before overbought conditions arise again.

If the FTSE 100 crosses above the 7,000 mark, increased resistance could be found at the 7,042 area, where we saw a yearly high back in April, followed by the current top since the pandemic outbreak at 7,167.

FTSE 100 Daily chart

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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