Piece Written By Nkosilathi Dube, Trive Financial Market Analyst 

Last week, the FTSE100 (LSE: UKX) ended its three-week winning streak with a sharp 1.69% decline brought on by the Bank of England’s (BOE) 25 basis point interest rate hike on the 3rd of August. The BOE hiked interest rates in response to sticky inflation, which remains the highest among G7 countries by over 100 basis points.   

The U.K. equities, which tend to struggle in high-interest rate environments due to higher borrowing costs and discount rates, took a knock as the BOE hiked. However, the sharp selloff has now stalled at a key level as traders await U.S. inflation data this week, which will likely influence risk sentiment in the short to medium term.  

Technical 

The FTSE100 has faced severe swings, with the latest forming a swing high as the price plummeted from the 7722.92 level, establishing resistance. Support was established at the swing low of 7398.53. Following the sharp selloff from the resistance level, the index found intermediate support at the 61.80% Fibonacci Retracement Golden Ratio or the 7522.45 level. Price action has stalled and is consolidating sideways in a rectangle pattern.  

A high volume breakout in either direction of the consolidation pattern could prompt an extended move in the direction of the breakout as the tug-of-war between bulls and bears ends with one clear winner. The 7722.92 level will likely serve as a level of significance to the upside if upside momentum builds up and leads to a breakout above the rectangle pattern. In contrast, the 7398.53 level could come into play if the index breaks through the lower end of the rectangle pattern. 

Summary 

The key driver for risk sentiment this week will likely be the outcome of the U.S. inflation data. If inflation surprises to the upside, it could open the door to further rate hikes by the Federal Reserve, boosting the Greenback at the expense of the FTSE100. In this case, the 7398.53 level could be probable.  

Sources: Bank of England, Reuters, TradingView 

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