UK100: Dips on sticky inflation data

• UK100 ↓ 1% post sticky CPI release

• Probability of BoE rate cut in August drops to 40%

• UK jobs data and retail sales in focus

• UK100 index coils up in a falling wedge pattern

• Key levels of interest include 8208.4, 8279.0, 8120, and 8083

FXTM’s UK100 declined on Wednesday after stickier-than-expected inflation data cooled bets around the BoE cutting rates next month.

The Consumer Prices Index (CPI) held at the BOE’s 2% target for a second month in June while services inflation was also unchanged at 5.7%. With CPI proving more stubborn than expected, Sterling jumped to a session high as bets for an August rate cut dropped to 40%.

Note: Over 80% of the revenues from FTSE100 companies come from outside of the UK. Meaning, that an appreciating pound results in lower revenues for those companies – weighing on the UK100 as a result. The same is true vice versa.

More volatility could be on the horizon for the UK100 due to the incoming jobs report on Thursday and retail sales on Friday. It is worth keeping in mind that, over the past year, the UK jobs report has triggered upside moves of as much as 0.6% or declines of 1.2% in a 6-hour window post-release.

Technically speaking, UK100, daily is seen consolidating into a falling wedge pattern, (a sideways movement in price bounded by two downward-sloping converging lines).

According to Thomas Bulkowski’s book Encyclopedia of Chart Patterns, price (in a falling wedge pattern) can break out either upward or downward but is usually upward.

The index bulls (those looking to see the index rally) may observe the following near-term resistance levels;

• 8208.4 – The 21-day simple moving average

• 8265.2 – The 50-day simple moving average

• 8279.0 – The upper bound trend line of the falling wedge pattern

• 8320 –  A significant round number level.

UK 100 bears on the other hand may have their sights on the following near-term support levels

• 8120 – An important price level

• 8083 – The lower bound trend line of the falling wedge pattern