How could the FTSE open after the Brexit deal?

A Brexit deal has been reached. Covid gloom could muscle in on Brexit optimism. The FTSE futures are pointing to a buy the rumour sell the fact response.

Brexit 2

The deal
After 4.5 years of wrangling a Brexit trade deal has finally been reached. The agreement is not yet sealed, and it still needs to be formally ratified by both sides. However, a swift and efficient ratification is expected. So far there have been no major signs of discontent from the UK backbenchers.

The deal provides for zero tariffs and zero quotas and is expected to give a boost to the UK economy at a time when it is facing a double dip recession. However, this doesn’t include financial services and the service sector limiting its benefits.

GBP/USD tepid reaction
The market reaction has been tepid. GBP/USD rallied just shy of 1% in the previous session and is holding earlier gains of 0.3%. However, its reaction post deal announcement has been a whimper at best as the agreement was priced in. Let’s not forget that GBP/USD rallied over 3% in November & 1.7% in December in part thanks to Brexit deal optimism.

FTSE rises pre-announcement
The FTSE 250, which is more domestically focused rallied 1.2% hitting a 10 month high. The international FTSE 100  closed prior to the announcement but extended yesterday’s gains in early trade closing up 0.1%. Stocks linked to the economic health of the economy benefitted the most with banks and house builders dominating once again the FTSE leader board.

The FTSE cash market is now closed until Tuesday morning. Trading could well be choppy on the open, particularly given the illiquid conditions and that covid’s grim outlook could muscle in on Brexit optimism over the extended break.

Where next for the FTSE?
The cleaning up of the Brexit saga will bring some relief to investors. However, the immediate reaction in FTSE futures has been one of buy the rumour sell the fact. 

FTSE futures are -0.4%, although continue to trade within an ascending channel dating back to early November. The index is testing its 20 sma but trades above its 50 and 100 sma suggesting a medium term bullish bias. 

A break below the 20 sma at 6490 could see the FTSE decline towards the lower band of the ascending channel at 6435. A break down of this level could open the door to 6300 horizontal support which has offered support since early November and then 6245 December low and 50 sma.

Immediate resistance can be seen at 6536 today's high, prior to 6600 (high 18th Dec) before 6645 (December high) prior to 6850 (March high).

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