The UK Financial Stability Report shows that the banks are expected to use all buffers possible to support the UK economy and households. The FTSE 100 index remains well bid while above 7,100 points.
The FTSE 100 index did not react to yesterday’s Financial Stability Report released by the Bank of England. It also ignored the Bank of England’s Governor speech that followed shortly after. Released one day ahead of the monthly CPI data, the report showed that the UK’s banking system remains resilient to a wide range of risks that still persist.
Instead, the market remains tightly correlated with the US equity markets. Inflation, as it turned out, continued to rise in June, triggering an initial drop in the equity markets indices. The dollar also gained on the news.
However, both the US equity market decline and the dollar’s strength were quickly reversed. The EUR/USD pair found support at 1.18 once again and the GBP/USD pair at 1.38.
The bounce in the US indices supported the FTSE 100 index and the other European indices into their close yesterday. Investors now turn their attention to the Fed Chair’s semiannual testimony scheduled to start today.
The jump in inflation supported the price of gold above $1,800 while silver diverged, declining by 0.3%. Platinum lost 1% as well, while the WTI crude oil price was unmoved according to US data.
Today is another busy day for financial market participants. It starts with the UK inflation expected at 2.2% YoY, continues with the Bank of Canada’s interest rate decision, and ends with the Fed Chair Powell’s testimony, only to name a few of the potentially market-moving events.
Markets to Watch
FTSE100, EUR/GBP, GBP/USD– markets in focus today.
FTSE 100 Outlook
FTSE 100 is in a tight range that started in May. It found stiff resistance at the 7,150 level, and it was rejected ever since. However, the series of higher lows held on every attempt to the downside, suggesting a possible ascending triangle. Bullish traders may want to wait for the index to close above 7,200 while for bearish ones, a close below 7,000 would invalidate the pattern.
Last December, the Brexit negotiations ended. So did a triangular pattern seen on the daily chart. After the market broke lower, the EUR/GBP pair lost over five big figures. It now threatens to break below the 2020 lows in the 0.8300 area.
A potential double top is seen on the GBP/USD pair at the 1.4200 area. Currently, the market struggles to break below the neckline, seen at 1.38. A close below puts more pressure on the British pound, as the double top’s measured move suggests 1.32 as the next target.
Winners and Losers
The US dollar is the clear winner after yesterday’s inflation data, while the euro is weak, especially against the British pound.