Two days ago, I mentioned that the FTSE 100 Index is struggling to stabilise at 7,000.
Indeed. Global equity selloff on Tuesday dragged the index below this psychological level. The index tested October’s low but, interestingly, managed to rebound above 7,000 at close (see below). This left a so-called ‘long-legged tail’ on its candlestick chart.
What now? Will the index extend its downtrend to new 52-week lows? As investor sentiment is still rocked by the rise in bond yields – 10-year US bond yield remains above 3.1% – we have not see much bargain hunting yet. Therefore, the medium-term risk remains to the downside. A sustained break of the March lows would be a defining technical breakdown.
However, the recent fall in oil prices may give central banks some breathing space to pause their hawkish monetary policies. A fall in crude prices normally leads to lower inflation outlook, albeit with a lag.