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The £ extends – watch out for the FTSE

The UK £ has been a bit weak against the € and the Swiss franc lately. This has now resulted in daily-scale extensions in both pairs although here we show only the £/€. There has been a good history of extension signals over the last six months or so and this means that the £ can now be bought against the € again.

Euro-£ exts

This has implications for the London Stock market. Next we show the same £-€ chart with the FTSE continuous contract futures chart underneath it:

£-€ vs FTSE

A cursory glance shows that there is quite good correlation between the two, so the likelihood is that the FTSE and the £ will both pause or dip hereabouts. We have reported daily-scale top extensions in some other equity markets recently, so now it looks as though the FTSE can be added to the list of short-sale candidates.

Markets are still in the grip of weekly-scale US equity index compressions (see May 22nd edition), so we are nervous of any longer-term view here, but this currency signal gives us some confidence that the FTSE at least will have difficulty going higher from here.

All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com