FTSE Suffers after Higher-Than-Expected Inflation Data

The FTSE got off to a volatile start today dropping 79 points, or 0.93%, from the open after data showed that inflation had slowed less than expected.

The stock market has been on a bullish run lately on hopes of a rate cut from the BoE coming sooner rather than later. The hopes were enhanced after the last MPC meeting when a second member voted for a rate cut.

Those hopes were dashed today, when inflation came in at 2.3% YoY with the market expecting a number of 2.1%. Adding to the negative sentiment was the data for core inflation which came in at 3.9% instead of the expected 3.6% YoY.

True these numbers are worse than expected, but they are also showing a downward trend in inflation as YoY inflation fell 0.9% and core inflation fell 0.3% from last month. The market suffered some volatility today, but I would say the inflation rate is still headed in the right direction.

The next inflation data will give further clues as to whether the BoE will be in a position to cut rates. For now, the direction of inflation is south, and at some point, the market will regain confidence.

Technical View

The day chart below for the FTSE shows a strong bullish trend undergoing a correction. The last rally started on April 19, and culminated in a new-all-time high of 8480 on May 15. The small upside-down hammer that printed n that day has given way to lower prices.

However, the bullish trend is still intact. The RSI should close the day below 70 from levels that touched 80 on various sessions. This break below 70 would signal the possibility of further retracement.

The next support would be the Fibonacci 0.236 level of 8309 (redline). If that breaks, the next support would be the 0.382 Fibonacci level of 8202 (yellow line).

This level of support would also offer support from the previous high achieved on April 30. For a confirmation of a continuing bullish trend, we would need a close above the ATH of 8480.