'Flash crash' is great for FTSE 100

A weak pound has saved the UK economy post-referendum, and it's put a rocket up those companies making a slug of money overseas, too. There's plenty to worry about, of course, but for now the FTSE 100 is a clear play on a further, widely-anticipated fall in sterling.

If there were any doubts, sterling's "flash crash" overnight is great evidence. At one point, charts at TradingView showed the currency plummeting as low as €1.0803 from €1.1317 minutes earlier. Remember, pre-referendum it had hit €1.3019.

Against the dollar, the pound plunged from $1.2621 to $1.1841, its lowest level since May 1985, and currently trades at around $1.23. In June it was $1.48.

In response, the FTSE 100 surged by over 1%, or 79 points to an intraday high of 7,079 - miners are especially strong - and the negative correlation between the pound and the FTSE 100 is near an all-time high.

It might have risen more but for understandable caution ahead of US non-farm payrolls data at 1.30pm UK time. Consensus estimates are for around 170,000 jobs added in September.

These crazy foreign exchange moves have been blamed on "fat fingers", which triggered stop-loss orders placed to be executed if the pound fell below a certain level. Panic ensued. But there's a growing consensus that a rogue trading algorithm was the real problem. Incredibly, some algos scan the mainstream media headlines and decide which way sentiment's going.

It seems one of them didn't like reports of French President Francois Hollande's warning that the EU would "have to be firm" with Britain over Brexit.

Only on Wednesday I suggested sterling could fall much further. OK, no prizes there, but it is hats off once again to technical analyst and Interactive Investor contributor Alistair Strang.

On Monday night, and with the GBP/EUR at €1.1461, Alistair wrote:

In fact, to be honest, at time of writing it's at €1.1461 and we feel it intends €1.136 anyway. And 'stop' can still be €1.151 or above.

And of course, below €1.135 still suggests €1.117, then parity! (We're all doomed)

Top marks!

And a weak pound could continue to underpin gains in the local stockmarket. Like Alistair, currency analysts at UBS warn that sterling could indeed hit parity with the euro.

It'll likely be before the end of 2017, too, as the probability of a "hard exit" and subsequent deterioration in economic fundamentals increases.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.