FTSE 100 Oil Forecast Two trades to watch 2025 01 13

FTSE 100 falls as GBP hits a 13-month low

• Strong NFP report sees Fed rate cut expectations fade
• UK Gilt yield rise further & GBP falls to its lowest level since 2023
• FTES rebounds lower from 8325

FTSE, along with its European peers, headed lower in early trade on Monday as investors weigh up the Fed’s outlook for interest rates.

Following Friday's stronger-than-expected US nonfarm payroll report, the markets are no longer fully anticipating a Federal Reserve interest rate cut this year. According to the CME Fed watch tool, a rate cut this year is no longer being fully priced in. Figures on Friday showed the US economy added 256k jobs in December, well ahead of the 164k forecast.

Meanwhile, borrowing costs in the UK continued to climb at the start of the new week. Yields on the 10-year UK gilt climbed by a further six points to 4.89%. Concerns surrounding slowing growth and sticky inflation resulted from the Labour government’s Budget in October. While the tax increases in the budget were well intended, business confidence has tumbled, and markets are showing capital flight from UK assets.

GBP/USD has fallen to a fresh 14-month low. Not even a weak pound is sufficient to support the FTSE 100 index, which often rises when the pound falls, thanks to the multinationals on the index.

Meanwhile, high oil prices are helping oil majors such as BP and Shell tick higher; however, the surge in oil prices is pressurizing airlines. British Airways, owner of International Consolidated Airline Group, is leading the decliners, dropping 3.5%, while EasyJet was also a noticeable faller.

 On a more positive note, Entain is trading over 7% higher after saying that it expects quote profits for attention to be at the top end of its forecast range.

Looking ahead this week will be a busy week for the UK with the release of inflation data GDP and retail sales this week.

FTSE 100 forecast – technical analysis

The FTSE 100 continues to trade within a familiar range. The price once again failed at 8325 and has rebounded lower and is testing the 200 SMA.

Sellers will look to extend losses towards 8150 support. Below here 8000 comes into play again.

Should the price find support around the 200 SMA at 8220, buyers could look to retest 8325. A rise above here creates a higher high towards 8400.

Oil jumps on supply worries

• Russian sanctions hurt supply
• Chinese trade data improves
• WTI trades at a 4-month high

Oil prices rose for the third straight session on Monday, reaching their highest level since August. This was boosted by wider U.S. sanctions on Russian oil, which are expected to impact top buyers India and China. Stronger-than-expected Chinese trade data is also supporting oil prices.

Oil benchmarks Brent and WTI have climbed almost 7% since January 8, searching on Friday after the US treasury imposed wider sanctions on Russian oil. As a result of these new sanctions, Russian oil exports have been hurt, forcing China and India to source more crude from the Middle East, Africa, and America, boosting prices and shipping costs.

According to Goldman Sachs, vessels targeted by the new sanctions moved 1.7 million barrels per day of oil in 2024, equivalent to around 25% of Russian exports.

Expectations of tighter supply have boosted Brent and WTI spreads to their widest backwardation since Q3 of last year. Backwardation is a market structure in which the current price is higher than the prices of the futures market. In general, backwardation is considered a bullish signal for the market because it indicates strong demand for the underlying asset.

Chinese trade data showed that exports gained momentum in December with imports also showed signs of recovery. However, strength at the year-end may have been partly fuelled by factories rushing inventories overseas ahead of heightened trade risks under the trump presidency.

Looking ahead, OPEC’s monthly report will be released this week, which will provide an updated picture of the supply and demand outlook.

Oil forecast - technical analysis

Oil is extending its rise above the 200 SMA and testing resistance at the 78.00 zone. This is a confluence of the multi-month falling trendline and an area that has limited gains and losses on several occasions across the past six months. Although the RSI is deeply overbought so some consolidation could be on the cards.

Buyers will look to extend gains to 80.00 on the psychological level and to 85.00 at the Jul high.

Meanwhile support can be seen at 75.00 the 200 SMA at the round number. A break below here opens the door to the 72.50 support zone.