Inflation in the U.K. is finally out of the double-digit territory, to the delight of the Bank of England (BOE). However, it still came in above consensus, while the Core Inflation Rate year-on-year has ticked up to 6.8% from 6.2%, raising worries that the U.K. is not yet entirely in the clear.

The U.K. economy is showing signs of moderation, with the latest evidence pointing to weaker activity in the services and manufacturing sectors. Given that inflation remains far off the BOE’s 2% target, further rate hikes will likely take shape, compounding on headwinds the FTSE100 (LSE: UKX) could face in 2023.

Technical

The FTSE100 dragged lower on sticky core inflation data and is down 1.78% in the first half of today’s trading session. Support and resistance were established at the 7406.48 and 7947.00 levels, respectively.

If bearish traders maintain their firm footing on the index, a high volume breakout below the 61.80% Fibonacci Retracement golden Ratio could lower the index, with bears likely in contention for the 7406.48 level. In contrast, the Golden Ratio could act as support if bearish momentum fades into the level. The 7974.00 level will likely entice bulls to participate in a move higher.

Summary

The FOMC Minutes due today and the Labour Market report and Core PCE Index ahead will likely define risk sentiment. If risk sentiment is shifted into a risk-off state, the FTSE100 could struggle to gain any traction to the upside, making the 7406.48 level probable.

Sources: Markit Economics, Reuters, TradingView