FTSE Remains Range Bound, Inflation Data Lower than Expected

FTSE rebounds from yesterday’s lows and pound drops as inflation falls below the BoE 2% target after 3 ½ years.

UK stocks kicked off to a positive start today, with FTSE gaining 0.85% after YoY inflations fell to 1.7% from 2.2% last Month. The GBP/USD lost 0.57% as the pound weakened on lower UK interest rate sentiment.

Today’s data also showed a drop in MoM inflation to 0.0% from 0.3% last month. And Core Inflation YoY also printed a sharp decline to 3.2% from 3.6% previously. The weak inflation data opens the door for interest rate cuts at the next MPC meeting on November 7.

A poll from Reuters before this data was published showed that 75% of economists surveyed believed that the BoE would cut rates once before the year end. It looks like the chance of a rate cut are getting higher with this data.

The dovish sentiment on the BoE monetary policy is also boosted by the same view for policy action from the ECB. The Eurozone’s central bank is seen as very likely to cut rates at its next meeting tomorrow.

Today’s largest movers sees Whitbread (WTB) leading the FTSE higher, up 4.36% on the day. To the downside, Admiral Group (ADML) is losing 3.21% on the day.

Technical View

The day chart above for the FTSE shows a market that is still range bound. The sideways trend has been ongoing since September 20, as we can see from the blue rectangle. Most of the price action has been limited by the up resistance of 8,320 and the lower support of 8.203.

The sideways trend, or lack of clear momentum, is also indicated by the RSI, which has also fluctuated in a range between 44 and 55. The numbers for the RSI that are close to the level of 50 indicate the market is without sentiment.

Today’s support is at the top of the blue rectangle at 8,320, and the market will find support at the bottom of the rectangle at 8,203. A clear close above or below the rectangle should give rise to the next major move.

That said, the market will also find major support from the cloud if it does break below the rectangle. Another bullish factor is that the market is above the Ichimoku cloud, and technically in a bullish trend.