Market Analysis: UK Stock Market Rises amid Inflation News


According to data published this morning for August from the UK Office for National Statistics, the CPI index amounted to 6.7% in annual terms (expected 7.0%, value a month ago = 6.8%).

That is, the data shows that although inflation remains high (above other G7 countries), the trend points to a slowdown. This is the 6th CPI value in a row that has either decreased or remained the same.

However, there is still a long way to go before reaching the target values (a value of about 2% is considered normal).

Here’s how markets reacted to inflation news:
→ depreciation of the GBP/USD exchange rate to another September low. The rate approached an important low at the end of May;
→ growth of the UK FTSE stock index (the 4-hour chart of which is presented for analysis).

Bullish arguments:
→ news about declining inflation will help the bulls gain a foothold above the psychological level of 7,700
→ the price is within the ascending channel (shown in blue). A confident return of the price to its upper half will indicate the strength of demand.

Bearish arguments:
→ Level 7,700 still offers resistance. At the end of July, the bears won a landslide victory here.
→ Exceeding the July high may be just a false breakout. It is possible that after the initial positive reaction to lower inflation, market consensus will indicate that the fair price for the FTSE (UK100) index is still below 7,700. This will be similar to how the stock index of 50 European shares reacted to the ECB decision last week (quick exhaustion of bullish momentum followed by bearish momentum).

Be prepared for a surge in volatility today at 21:00 GMT+3 amid the publication of news from the Federal Reserve.

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