Trade Of The Week: UK100_m knocks on major resistance

• UK100_m trapped in wide range

• Index could be rocked by political and economic forces

• Keep eye on UK Autumn Statement

• Key levels of interest at 7605, 7500 and 7370

• Possible breakout on the horizon?

Over the past few months, it has felt like the same old story for the UK100_m as it’s traded within a wide range. Significant support can be found at 7240 and resistance at 7730.

Note: The UK100_m tracks the underlying FTSE100 

The index has been influenced by various forces ranging from the pound’s performance to Bank of England (BoE) hike expectations and quarterly earnings from UK companies.

Note: The FTSE100 has a strong international focus with 75% of revenues from FTSE100 companies coming from outside the UK.

With prices flirting around the 50 and 100-day SMA ahead of a big week for the UK economy, a potential breakout may be on the horizon.

Here are 3 things to keep an eye on:

1. UK Autumn Statement

On Wednesday, Chancellor of the Exchequer Jeremy Hunt will present the Autumn Statement to Parliament.

Although this event swings more towards politics, investors will be paying close attention to key updates on the country’s finances and the government’s plan for tax and public spending. Confidence towards the UK economy has improved over the past two weeks as the country not only avoided a contraction in Q3 but inflation fell to its lowest rate since October 2021 at 4.6%. It will be interesting to see how this development impacts the Autumn Statement and whether bold steps are taken to boost the UK economy. This political event could impact sentiment towards the UK economy and the British pound, influencing the UK100_m as a result.

Note: The UK100_m has an inverse relationship with the British pound. When the pound appreciates, it translates to lower revenues for FTSE100 companies that acquire revenues from overseas, pulling the index lower as a result. The same is true vice versa. 

• The UK100_m may trade lower if the Autumn budget boosts optimism over the UK economy and strengthens the pound as a result.
• Should the Autumn budget disappoint and weaken sterling, this could push the UK100_m higher.

2. Key UK economic data

A day after the Autumn Statement, the focus shifts back to economic data with the Gfk consumer confidence and PMIs in focus. Sentiment remains shaky despite the good news from the UK over the past two weeks. Should the Gfk consumer sentiment confidence and manufacturing along with other PMIs paint a gloomy picture, this could hit confidence and fortify expectations around the BoE being done with rate hikes with the next move a cut.

As of writing, traders are currently pricing in a 55% probability of a 25-basis-point rate cut by May 2024.

• The UK100_m could receive a boost if disappointing UK data weakens the pound and boosts bets around a BoE rate cut.
• If UK data beats forecasts and the pound strengthens as a result, the UK100_m may trade lower.

3. Technical forces

The UK100_m remains in a wide range on the daily charts with prices flirting around the key 7500 level as of writing. 

• Another daily close beyond the 7500 point could open a path toward the 200-day SMA at 7605 and major resistance at 7730.
• Should prices remain capped below 7500, this could trigger a decline towards the 7370 and major support at 7240.