BoE's monetary policy committee vote 7-2 to keep rates unchanged

Market Review

Yesterday’s session saw extended low volumes across multiple markets, most notably in the equity space which seemed content to hold within their ranges. A few notable tier 1 data releases, namely UK CPI and Housing starts. Housing Starts beat expectations coming in at 1093k vs the expected 965k, with higher revisions on previous numbers. As the housing market is one of the Fed’s leading indicators regarding the timing of the rate hike, such positive data brought forward analysts’ expectations of a US rate hike, causing dollar strength across the board. The greenback pushed into positive territory against many of its counterparts, forcing the EURUSD down towards the 1.3300 handle and GBPUSD onto 4 month lows around the 1.6600 handle. UK inflation numbers came in at 1.6% vs the expected 1.8% which led to a large scale weakening of the currency, aiding the push towards 1.6600 into the early morning session today.

Today's Fundamental View

Today we expect a continuation of subdued market activity given the minutes from the last Fed meeting are due this evening. We also have a busy data calendar tomorrow and the Jackson Hole “Symposium” on Friday weighing on potential market activity now. So once again our advice to trades is to trade accordingly with narrowed profit expectations. Of interesting note is the lack of market moving news on the Geo-Political front from Russia/Ukraine, although very sadly reports overnight of the US journalist beheading only points to irrevocable peace potential in the middle east. Not withstanding breaking geo-political news we feel most comfortable with our crude oil entry at the pivot level given the relatively tight stop to potential profit ratio. We are less confident on our long equity entries although whilst the markets are in this positive mood (again) we would not feel comfortable trying to short the top either. The clearest trend has been in the EURUSD and although our entry short should be prudent in going with this trend (we have been bearish this currency pair for weeks) we would also not be surprised to see a re-test of the pivot level without any significant driving news.

Alternative View

A new negative geo-political development will of course render the majority of our strategies invalid and trader should still stay alert to this fact.