The rally extended once again, this time the FTSE 100 was boosted by rising oil prices and a declining pound. With regards to the most probable scenario nothing has changed, the wave count together with the indicators point to a short term decline.
I mentioned that the FTSE was strong despite the declining oil price, this occurred because the GBP/USD was declining. When the pound goes down it boosts the profits of FTSE 100 companies. If earnings improve due to the exchange rate, valuations will go up and the FTSE 100 will go up. So when oil rallies as well you get a double boost. Oil is not the issue because it won’t jump to 60 or 70 in a matter of days or weeks and to a certain extent it’s the same thing with the pound, it won’t collapse once again. We had the bulk of the decline after the referendum and now I expect some smaller fluctuations so I think when people use the price of oil and GBP/USD as an excuse to buy FTSE stocks I think it’s for the wrong reason and the rally in the FTSE is now overdone.
They forget that China is slowing, for example today’s Chinese industrial production was lower than expected. What’s going on in China is more important than the pound because if a UK exporter earn more selling to China because the pound is lower, this UK exporter could earn a lot less if China goes into a recession.
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