Last week the FTSE 100 index declined to a level where the lower line of a potential rising wedge is parallel to the upper line. In a rising wedge the lines should be converging. Therefore the index is in a rising trend channel, the trend is still up.
Today the index is strong given the strength in GBP/USD. For weeks the index has been negatively correlated with GBP/USD, but not today. Something is changing.
One scenario is shown on the chart below. Perhaps Friday’s rally was the second wave inside wave c (circle). In this case the rally will end near 7394.6. As you can see, the pattern is not clear. Indeed, there are other ways to interpret the rally.
This week attention will be on the pound as article 50 could be triggered. No date has been announced but it could be this week or next. In theory the triggering of article 50 could be a significant market moving event, however, I think this will have a modest impact on the pound because people expect this event to happen and they have already priced in the consequences of leaving the EU.
Markets are higher this morning after strong US jobs data on Friday, the strong labour market will give the green light to Fed officials to raise interest rates on Wednesday. The Fed has hinted for a while they could raise rates as early as this week. We also have an election in the Netherlands on Wednesday, worries about the future of the EU could hit the markets if the far-right and populist candidate Geert Wilders gains more ground than expected.
Another piece of news this week is President Trump's budget proposal on Thursday. Will this move the market or is it already priced in? What is clear is that traders will need to be cautious this week, the potential for a sharp move up or down is real.