FTSE100 Analysis: UK Spending Supports Rally to Record Highs

Fundamental Analysis of FTSE100

FTSE100 Key Takeaways

Currency and Stock Movement

The British pound strengthened significantly against the US dollar, climbing to $1.353 and approaching a three-year high. This surge occurred as the dollar weakened following the release of May inflation data from the United States. Meanwhile, the FTSE 100 advanced close to record territory, approaching 8,870 points, as market participants responded favorably to the UK’s comprehensive multi-year spending review alongside encouraging developments in US-China trade relations.

UK Fiscal Policy

Chancellor Rachel Reeves announced a comprehensive multi-year spending review, committing £2 trillion to public expenditures. The plan includes annual departmental budget increases of 2.3% in real terms, demonstrating government support for essential public sectors.

Monetary Policy Expectations

The pound received additional support from market expectations that the Bank of England will maintain current interest rates at next week’s policy meeting. The anticipated interest rate stability comes despite mixed economic indicators, including decelerating wage growth and rising unemployment rates, which present competing pressures on monetary policy decisions.

Technical Analysis of FTSE100

FTSE100 Daily Chart Insights

Trend

The chart displays a bullish alignment of the moving averages. However, some caution is warranted in the immediate short term. The index has entered a consolidation phase for the past few weeks after reaching a new high in mid-May.

Momentum

The Stochastic Oscillator been hovering in the overbought region for an extended period, which is common in a strong uptrend but can also signal exhaustion.

Support & Resistance

The significant resistance is near 8800, corresponding to the recent high and the upper Bollinger Band. A bearish breakout is likely if the index falls below 8000, which could lead to a decline toward 7800 or lower. Monitor for confirmation with candlestick patterns and volume spikes.

FTSE100 2-hour Chart Analysis

The chart shows a recent sharp decline from a peak near 8850, breaking below the key moving averages, indicating short-term bearish momentum. However, the longer-term uptrend remains intact, suggesting a potential rebound if support levels hold.

Possible Breakthroughs

A bullish breakout could occur if the index closes above 8850 with increased volume, potentially targeting 8950 or higher. A bearish breakout is likely if the index drops below 8650, which could lead to a decline toward 8600 or lower. Watch for confirmation with candlestick patterns and volume.

FTSE100 Pivot Indicator

The Stochastic Oscillator is in oversold territory, but no bullish crossover yet – bearish momentum persists. The longer-term uptrend remains supportive, hinting at a potential bounce if support levels hold.

Possible Breakthroughs

A rebound from the 8830 support level, combined with the Stochastic indicator’s bullish crossover, suggests potential for a short-covering rally. Should the index breach the 8855–8860 resistance zone, the next target would be 8875.

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