FTSE extends gains on oil, central bank support

European stocks are trading a touch higher on Friday, with some indices looking to extend their advance for the sixth straight week. The on-going recovery in oil and metal prices continues to provide support for commodity stocks with miners once again dominating the top half of the FTSE 100. Investors have also shown greater enthusiasm for equities and other riskier assets in recent days due, in part, to central bank easing. The Fed has turned less hawkish, too and now only envisages two rate rises in 2016 as opposed to four back in December. The prospects of lower rates for longer and continued recovery in the oil price, means stocks could climb further higher in the short-term.

However, the rising EUR/USD exchange rate is clearly not a favourable outcome for some European exporters, which may help explain why the German DAX index has underperformed its US counterparts over the past few days. But the UK’s FTSE 100 seems less deterred by the rising GBP/USD exchange rate, in part because of its larger commodity-linked constituents. Looking ahead, next week’s economic calendar is going to be fairly light as far as central bank meetings and US data are concerned. But there will still be some important numbers from Europe. Among others things, traders should pay closer attention to Tuesday’s data which will include the latest services and manufacturing PMIs from the Eurozone, the German ZEW Economic Sentiment and the UK’s Consumer Price Index (CPI). The US weekly crude oil inventories data, released on Wednesday, will be important for oil prices and therefore energy companies. Other important data to watch ahead of the long bank holiday weekend will include Thursday’s publication of UK retail sales and US durable goods orders, followed by the final US GDP estimate on Friday (when most European markets will be closed for Good Friday).

Technical outlook: FTSE

The technical outlook on the FTSE continues to improve. The recovery processes start back in early February when the sellers failed to hold their ground beneath the prior low at 5600. This false breakout pattern signalled a clear turning point which led to a sharp rally. The FTSE quickly climbed back to 6000 as the sellers abandoned their positions and the buyers stepped in. Since then, the FTSE has made a couple of higher highs and higher lows, further violating the bearish trend. Recently, it took out a bearish trend line, too. But then the bulls showed little desire to further bid the market higher.

The FTSE thus went into a period of consolidation, which was always going to be a healthy sign as the short-term momentum indicators worked off "overbought" conditions. But on the daily time frame, the RSI has not even reached this threshold at 70, which suggests that there may be some further momentum left in the rally. Indeed, the FTSE was trying to break outside of its recent consolidation range at the time of this writing, though painstakingly slow due to a quiet day and ahead of the weekend.

As things stand, the FTSE looks like it wants to extend its rally towards the 200-day average at 6265. Above the moving average, the next bullish target is around 6450-6505, an area which corresponds with previous support and resistance, and the 61.8% Fibonacci retracement. Meanwhile a closing break below 6125 would end the short-term bullish bias and may lead to a drop towards the next support zone in the 6000-6030 region.

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