In spite of the fact that the UK’s elections did not meet expectations as the Tories are short of majority, the British FTSE100 (UK100) seems to shrug it off as a weaker pound could boost profitability of many companies listed there. That relationship is seen between the EURUSD and the German DAX, for the same reason.
However, even as the UK100 has performed well this year so far, along with other European indices, this rally could be questioned when we take a closer look at fundamental metrics. While gains in UK stocks have speeded up since the beginning of May, macro releases have worsened significantly, at least in comparison to expectations. A divergence is likely to be one the largest for recent years. Even greater one was observed in late 2012. Since then, there has been no similar discrepancy.
The UK’s FTSE100 seems to be at odds with the Citi’s surprise index. Since March two lines have decoupled substantially. Source: Bloomberg
Taking that fact into consideration one could assume bulls might struggle to break above the recent highs. However, bears could gather momentum if today’s candlestick closes beneath 7440. If it eventually happens, that would be a strong selling signal. Having assumed that scenario, bears could eye a downward limit of the channel as a potential first target. The most relevant support encompasses around 7040 though.
From a daily time frame one could expect the index to go lower if the nearest support is finally broken out. Source: xStation5
However, taking a look at a weekly chart any corrective move could be dubious if bears manage to maintain above the crucial support line. Hence, one of the scenario right now could be the waiting for a weekly closing.
A weekly chart could suggest the FTSE to eventually go lower, however it has to be confirmed by a weekly closing. Source: xStation5