Slightly stronger than expected inflation data dragged U.K. equities south this week.
Can this mean a breakdown for the FTSE 100?
On the 4-hour chart below, you can see that the equity index formed lower highs and found support at 7,315.00, creating a descending triangle formation.
FTSE 100 Index (UK100) 4-hour Chart by TV
Price is now testing the very bottom of this chart pattern and might be in for a bounce back to the top.
At least that’s what technical indicators appear to be saying…
The 100 SMA is above the 200 SMA to hint that support is more likely to hold than to break, possibly sending UK100 back up to the triangle resistance at 7,600.
Also, Stochastic is dipping into the oversold region to indicate exhaustion among sellers. Once the oscillator pulls higher, price might follow suit and set its sights north again.
Better keep an eye out for the moving averages to hold as dynamic resistance around the 7,500 region, too!
However, the freshly-released U.K. CPI reports point to strong odds of yet another BOE interest rate hike, which seem to be keeping investors on edge about a recession.
In that case, fundamental factors might spur a break below the triangle support, followed by a selloff that’s the same height as the chart formation.
Don’t forget that the U.K. has its retail sales report lined up on Friday as well, so a downbeat consumer spending figure could bring more bearish vibes in the mix!
