FTSE 100 forms an inverted cup and handle pattern ahead of BOE

The FTSE 100 index has plummeted as investors wait for the upcoming interest rate decision by the Bank of England. It has crashed by more than 2% while other popular European indices like CAC 40, DAX 40, and FTSE MIB have crashed by over 2.5%. In the United States, futures tied to the Dow Jones and Nasdaq 100 have also plummeted.

Bank of England decision ahead

The FTSE 100 index crashed hard as investors reacted to the changing monetary policy environment. On Wednesday, the Federal Reserve delivered a 0.75% rate hike. This was the biggest rate increase since 1994. And in a statement, Jerome Powell warned that the bank could deliver another 75 basis point hike in July.

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And in a surprise move, the Swiss National Bank (SNB) delivered a 0.50% rate hike. Analysts were expecting that the central bank will leave rates as they are and then hint that it will hike in its next meeting. In a statement, the bank noted that the hike was necessary in a bid to fight inflation.

The Bank of England will deliver its fifth straight rate hike in the afternoon session. Expectation is that the hike will be 0.25%, which explains why the FTSE 100 index is retreating. Historically, stocks tend to underperform in a period of excessive tightening.

The FTSE 100 index is falling because analysts believe that a recession is now in play. Besides, the economy contracted in March and May and there are expectations that the trend is continuing this month. More hikes will make the situation worse.

According to Hargreaves Lansdown, only five FTSE 100 constituents are in the blue today. They include Informa, Harbour Energy, Endeavor Mining, Meggitt, and London Stock Exchange. On the other hand, the worst performers are firms like Persimmon, JD Sports, Intermediate Capital Group, RS Group, Whitbread, and Scottish Mortgage Investment.

FTSE 100 forecast

The four-hour chart shows that the FTSE 100 index has been in a strong bearish trend. On Thursday, the stock managed to move below the important support levels at 7,225 and 7,144, which were the lowest levels on May 19th and May 12th. 

The index has also crashed below the 25-day and 50-day moving averages while the MACD and the Relative Strength Index (RSI) have all pointed lower. Therefore, the outlook for the index is bearish since it has formed an inverted cup and handle pattern.

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