Two trades to watch: FTSE, Oil

Energy
Fiona Cincotta
By :  ,  Market Analyst

FTSE falls after IMF criticises the Treasury & BoE

 

The FTSE is set to open lower after losses on Wall Street overnight and amid the continued fallout from the Chancellor’s mini-budget.

The IMF criticised the UK’s new economic strategy following another selloff in the bond market. Pressure continues to pile on Chancellor Kwasi Kwarteng to reassess his policy which sent financial markets tanking lower.

Confidence in the UK economic outlook is at rock bottom and needs and is likely only to recover if the measures are scrapped.

The BoE is expected to have to raise rates aggressively to stabilise the economy and put a floor under the pound. As a result, lenders are pulling mortgage deals amid uncertainty over the outlook for interest rates, fuelling fears of a housing market collapse.

Housebuilders have been hammered lower in recent sessions, with the likes of Barratt Developments falling 15% in less than a week.

Housebuilders and banks are likely to remain under pressure.

Oil majors are also expected to fall, tracking oil prices lower.

Where next for the FTSE?

 

The FTSE has broken below key support at 7140 zone and the psychological level 7000.  The price trades below the 20 & 50 sma

The RSI has dropped into oversold territory, so sellers should be cautious. Sellers will now look towards6845, the March 8 low as the next level of support ahead of 6762, the March 2020 low.

On the flip side, buyers will look to rise above 7000 to mount a recovery back towards 7140.

 

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Oil falls as recession fears rise & USD hits fresh 20 year high

 

Oil is falling around 2% lower on Wednesday, pressurised by a stronger USD, rising recession fears, and high stockpiles, which are overshadowing the supply concerns as Hurricane Ian hits the Gulf of Mexico.

The US dollar rallied to a new 20-year high in early trade amid expectations that the Federal Reserve will adopt a more aggressive stance to monetary policy. A strong dollar makes oil more expensive for buyers of other currencies.

A more hawkish stance from the Federal Reserve increases the likelihood of a recession, which is hurting the demand outlook. The market is much more focused on the demand side of the equation right now, which is a negative for oil prices.

Goldman Sachs cut its 2023 oil price forecast owing to weaker demand and a stronger USD.

API data showed that crude oil stockpiles rise by a much larger than expected 4.2 million barrels.

The data comes ahead of the EIA stockpile report due later today.

Where next for oil prices?

 

Oil has been trending lower since mid-June, trading below its 20 & 50 sma, and is testing support on its falling trendline support.

The price is testing the 9-month low at around 76.00. A fall below here opens the door to 74.14, 2022 low, ahead of 70.00, the psychological level.

On the flip side, buyers will look for a rise over 81.30, the September 8 low ahead of 83.80 the 20 sma. A rise over 85.20, the August low could negate the near-term downtrend.

 

 

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Related tags: Trade Ideas Oil FTSE

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