CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Is the FTSE 100 at risk of topping out?

Outlook on FTSE 100 in view of the market’s re-assessment with regards to US unemployment data and central bank policy.

FTSE 100 picture Source: Bloomberg

Is the FTSE 100’s rise to record highs sustainable?

Last Friday the FTSE 100 made a new all-time high, marginally above the 7,900 mark and just above its May 2018 peak, benefitting from a weaker British pound, its favourable sectoral composition and on hopes that the Bank of England (BoE) might slow down its rate hike cycle now that it has reached the 4% mark.

On Monday, however, the index rapidly came off its record high as investors reassessed their outlook in view of much better-than-expected US unemployment data and due to heightened US-China tensions with the US having shot down a Chinese weather (or, according to the US, spy) balloon.

The fact that the pound slid by over 25% versus the US dollar over the past couple of years, and thus benefited many FTSE 100 companies which make the bulk of their profits in other currencies, combined with the FTSE 100’s large proportion of energy and mining stocks, led to the index’s rise by 0.9% in 2022 while other global major indices fell by around 20%.

Year-to-date only the German Dax 40 has last week also managed to be back in positive territory, having seen a stellar 7.5% rally in January.

Year-to-date performance of major European and US stock indices

Year-to-date performance of major European and US stock indices Source: Google Finance
Year-to-date performance of major European and US stock indices Source: Google Finance

Can the FTSE 100’s outperformance last?

Friday’s much stronger-than-expected US employment data, which showed that payrolls increased by 517,000 for January, almost tripling the consensus forecast, and at 3.4%, the lowest unemployment rate for 53 years, have thrown a spanner in the works of the FTSE 100’s rally to new all-time highs, as this data point to further hawkish monetary policy by the US Federal Reserve (Fed).

Added to that, rapidly falling energy prices, together with the over 20% recovery in the pound and a probable UK recession may soon negatively impact the FTSE 100’s performance.

FTSE 100 technical outlook

Friday’s FTSE 100 record high has been accompanied by negative divergence on the daily Relative Strength Index (RSI) which, by making a lower high, is pointing to weakness in the current uptrend.

A fall through Monday’s low at 7,807 would confirm a minor top at the very least and could lead to a slide back towards the late January low and the October-to-February uptrend line at 7,708 to 7,705 ensuing.

FTSE 100 Daily Chart

FTSE 100 Daily Chart Source: ProRealTime
FTSE 100 Daily Chart Source: ProRealTime

A daily, and more importantly a weekly, chart close below the 7,705 level would mean that a medium-term top, lasting several days and perhaps weeks, may be formed which may take the index all the way back down towards the December and January lows as well as the 200-day simple moving average (SMA) at 7,412 to 7,296.

Strong resistance can be found between the December and January highs at 7,876 to 7,913. While it caps, the risk of a slide being seen, remains in play.

Were a daily chart close above the FTSE 100’s all-time high to be made, though, the psychological 8,000 mark would be in the limelight.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get commission from just 0.08% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.