FTSE 100 Index Bullish Despite Wall Street Weakness
Binary option traders looking for a bullish index are generally safe with the FTSE 100 index. The performance of the All Share UK Index has soared above the 200-day simple moving average ever since early July. This is especially important when it comes to gauging the overall strength of the index. The reason for upbeat sentiment in the FTSE 100 index is clear: a weak GBP. When the sterling is trading at 31-year lows against the USD, and similar weakness abounds against the EUR, JPY, CHF and others this index will rally. The 5-day performance of the FTSE 100 index is -0.84%. However, if we extrapolate to 1 month, it has gained 0.70%. Over the past 3 months, the index is up 3.68%, and for the year-to-date it is up 11.63%. Over the past 52-week period, the FTSE 100 index is up 8.95%. Clearly, the trend is bullish in 2016 and looks likely to continue that way.
Performance of the FTSE 100 Index versus the NASDAQ Composite Index
For the year-to-date, both the NASDAQ composite index and the FTSE 100 index are in positive territory. However, the FTSE 100 has surged approximately 2.5 times more than the NASDAQ which has gained 4.73% for the year. With the 3-month comparative static, the FTSE 100 index is up 3.35% through October 27, while the NASDAQ is up 1.97%. The 15-day simple moving average for the FTSE 100 index is at 7,014 on Thursday the 27 October 2016. The 25-day EMA is at 6,965, also below the current level. Both of these technical indicators were below the prevailing level of the FTSE 100 index between September 27 and October 15, 2016. After that point, the 15-day SMA rose above the level of the FTSE 100 index. Clearly, the short-term trend for the FTSE 100 index is bearish based on these technical indicators.
The Correlation Between the FTSE 100 Index and the GBP
On Thursday, 27 October 2016, the GBP dropped below the key 1.22 level against the greenback after Q3 GDP figures in the UK were released. The GBP/USD currency pair rallied to 1.2266, but subsequently retreated. Owing to strong pending home sales in the US, the USD gained ground and the GBP/USD pair weakened. Investors across the UK are deeply concerned about the U.K.’s growth prospects in 2017 and beyond. The greenback reached 3-month high as home sales rose. What is evident from Britain’s decision to break from the European Union is GBP weakness. However, it is near impossible to see any evidence of this in terms of GDP performance to date. The FTSE 100 index is largely unrepresentative of what takes place in the United Kingdom. A study was conducted by Barclays back in 2014 and it concludes that, ‘…The FTSE 100 is increasingly unrepresentative of what’s going on in Britain. In comparison, the Mid-Cap Market – as represented by the FTSE 250 index-is far more get to domestic demand. Its constituents make 55% of their sales at home and a mere 12% or so in emerging markets.’
How Does Currency Depreciation Benefit FTSE 100 Index Stocks?
This data is somewhat alarming to those who believe that the FTSE 100 index is a barometer of UK economic performance. Nonetheless, there are still substantial profits to be made by traders going long on this index under current conditions. Assuming that the bulk of economic activity takes place outside of the UK (with earnings in JPY, USD and EUR), these will be worth substantially more when repatriated back to the United Kingdom and listed in GBP. In other words, the share prices rise, and EPS and dividends rise accordingly. Currently, the GBP/EUR currency pair is trading at 1.1143, down 0.6388%. For the year-to-date, this pair has depreciated by 17.90%. The GBP/USD pair is down 17.30% for the year-to-date and is trading at 1.2189. In both cases, it is clear to see how currency depreciation is a positive for stocks listed on the FTSE 100 index.
Disclosure: None.