Oil, FTSE 100: Two trades to watch

Oil eases but remains headline-driven

Oil prices are easing slightly after last week's elevated volatility and a three-day rally.

After rising to a high of $120 a barrel and falling to $77 last week, prices are currently trading around $97 as supply risks in the Middle East remain elevated following a second attack in just three days on a key UAE port near the Strait of Hormuz.

The Strait of Hormuz remains effectively closed, and Donald Trump said the U.S. is demanding that other countries help defend the waterway, where traffic has almost ground to a halt since the conflict began.

While some vessels have attempted to make the passage, it remains extremely dangerous and insurance coverage is uncertain. Meanwhile, global authorities have moved to stabilise supply, with the IEA coordinating a record 400-million-barrel release from strategic reserves, while sanctions on Russian oil have been waived for 30 days to help stabilise markets.

However, oil prices remain highly headline-driven, making them difficult to trade. Any escalation in Middle East tensions could push prices higher, particularly as global storage levels begin nearing critical levels.

Meanwhile, any sign of the Strait reopening or a de-escalation in tensions between the U.S. and Iran could allow oil prices to ease further.

Oil forecast – technical analysis

Oil prices rallied to a high of 120.00 last week and fell back to a low of 77.00, just above the 200 SMA on the weekly chart. While the price is easing back towards 97.00, last week’s close, the chart is still decisively bullish. Still, this could all change with headlines.

Support is seen at 87.65, the April high and 80.00, the round number below here.

On the upside, 100 is a clear line in the sand and above here, a rise above 120 creates a higher high.

FTSE rises as oil slips & ahead of the BoE on Thursday

The FTSE 100 is edging higher after opening on the front foot on Monday, led by gains in the energy and mining sectors. However, the overall mood remains cautious as investors assess the potential impact of the Iranian conflict and look ahead to the Bank of England policy announcement on Thursday.

Energy stocks remain supported as Brent crude hovers around $100 a barrel. Meanwhile, miners are finding support after data showed that Chinese industrial output rose 6.3% year-on-year in the combined January–February period, up from 5.2% growth in December and above expectations of 5.1%.

Chinese retail sales also rose 2.8% year-on-year, ahead of the 2.5% expected and up from 0.9% previously.

The upbeat data points to a solid start to the year for the world’s second-largest economy, helping to lift mining stocks on the index.

Attention is also turning to the Bank of England interest rate decision on Thursday, where the central bank is widely expected to leave rates unchanged. Prior to the start of the Iran conflict, markets had expected a 25-basis-point rate cut, but those expectations have now been largely priced out amid rising inflation concerns stemming from higher oil and energy prices. The market will be looking for signs the BoE could hike rates this year, which could hurt equities.

FTSE forecast - technical analysis

After running into resistance at a record high of 10,938, the FTSE rebounded lower, breaking below the rising trendline dating back to April and the 50 SMA. The price found support at 10,075 and recovered higher. However, the recovery has struggled to move above the 50 SMA, which, together with the RSI below 50, keeps sellers hopeful of further losses.

Sellers will look to break below the 10,000 support zone to create a lower low and 9900, the November high. Below here, 98..00 comes into play.

Buyers will need to rise above the 50 SMA at 10,365 to be on a firmer footing and head towards 10,500 and 10,938.