FTSE 100: Rips on BoE Easing Package, Range Remains Until It Doesn’t
- The FTSE 100 rallies on rate cut + expansion of QE program
- Boost higher still provides no clear direction as market remains range-bound
- Important support and resistance levels noted
The FTSE 100 is catching a wave of strong bids following the Bank of England's decision to cut rates and expand its asset purchase program. The rate cut to 0.25% from 0.5% was expected, it was the latter (upping its QE program to £435b from £375b, up to £10b of corporate bonds) along with indication of additional easing if needed which is fueling risk appetite in the UK and elsewhere, while sinking the pound by about 200 pips at this time.
BoE Governor, Carney, said in caution, though, that monetary policy can’t entirely offset the impact on the economy from ‘Brexit’.
For more details, check out, "GBP/USD Plunges on BoE Rate Cut and More QE, Growth Outlook Slashed".
After a multi-day slide in the FTSE to support around 6610 (today’s low was 6611), the lift on the back of the BoE is taking it back near recent levels the market struggled to overcome.
Technically speaking, the past month of trading has been a bit of a mess after the strong rise following ‘Brexit’.
Today’s rip is not yet viewed as the kick-off to a new leg higher, although it could. Reason being – There is much resistance from last year to overcome. And as always, resistance, until broken, remains just that. But as we have seen over the past month, just because the FTSE is having difficulties clearing resistance doesn’t mean it must go down.
Range-bound conditions in a low volume trading month (August often is sans a major, major catalyst) could persist. This type of environment is favorable for those who like to fade levels, or ‘range trade’.
On a break above the range and July high at 6779 the UK index will quickly find resistance at last July’s peak of 6813, then the June ’15 peak at 6874. On the down-side, 6610ish is support. A breach below this threshold opens up a path for a 100+ point drop to under 6500 into a long-term support zone.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX.