FTSE 100: How Much Higher Can It Trade?

The FTSE 100 (FXCM: UK100) is up by 5.8% since Thursday of last week on a classic ‘risk-on’ rally as traders booked gains on short positions and on the U.S. Retail Sales Control Group rising by 0.6% in January from negative 0.3% in December. The latter suggests that the U.S. economy is holding up better than expected.

Something which may also be inferred from the current reading of the Atlanta Fed GDPNow model, which predicts a 2.7 percent real GDP growth (SAAR) for the first quarter of 2016. This stands in stark contrast to financial markets appearing to project a far gloomier economy given their strong decline over the last few months.

FTSE100: How Much Higher In the Short-Term?

The FTSE 100 has already risen strongly, but may still gain over the next few days as its correlation to commodity markets (Bloomberg Commodity Index) suggests that it should be trading at 5996. In relation to the DAX 30, the FTSE 100 is fairly valued.

From a trading perspective, a good risk/reward ratio is important as outlined in the Traits of Successful Traders Guide, and it suggests that traders not long on last week’s break of the February 10 high of 5717, will wait for a pullback to the same level.

Traders are expected to remain bullish as long as the FTSE 100 trades above the 5604 level. On a break to 5604, the FTSE may reach the yearly low of 5498. Please see the chart below.

There are no key reports on tap this afternoon and it’s a public holiday in the U.S. (Presidents’ Day). 

FTSE 100 | FXCM: UK100