FTSE 100: Buying Opportunity, Or Lower Lows?

The FTSE 100 found support at 6195 and may still trade higher this afternoon given that U.S. NFP prints higher than 200k expected (Bloomberg News survey).

Yesterday’s sharp drop was triggered by Mario Draghi’s announcement that the ECB would not significantly increase quantitative easing. The market was expecting the ECB to deliver strong stimulus and investors betting on that got the rug being pulled out from underneath them. While the ECB did cut its deposit rate, it was not enough for traders to remain long.

With the lack of extra stimulus, economic growth would need to take over as the FTSE 100 driver. This makes today’s U.S. NFP report even more important.

Looking at correlations, we note that the Bloomberg Commodity index has stabilized slightly. If this trend continues it may lift the FTSE 100 given that roughly 30% of the index is more or less influenced by commodities. Using linear-regression and using the last 6 months of data; the Bloomberg Commodity index suggests the FTSE 100 should be trading at 6144, while using the DAX as explanatory variable suggests the FTSE 100 should be trading near 6407.

Technical Outlook

The FTSE 100 may reach 6300 and 6329 in the case yesterday’s low at 6195 holds as support and the NFP prints higher than expected. While a break to 6195 may trigger a decline to 6155 which acted as resistance for most of the November 16 trading session.